The Federal Solar Investment Tax Credit

Thanks to the government’s recent passage of the Inflation Reduction Act (IRA), billions of dollars are being invested in the American solar and clean energy industry. A key way that this money will be used is via the extension of the federal solar investment tax credit (ITC). The ITC has historically been one of the most important federal policy mechanisms to support the growth of solar in the US. Since the ITC’s enactment in 2006, the U.S. solar industry has grown by more than 10,000% – creating hundreds of thousands of jobs and investing billions of dollars in the U.S. economy in the process.

The ITC has helped the solar industry grow by an average of 52% annually since its inception thanks to funding mechanisms that incentivize clean energy in the United States. Solar deployment, at both the distributed and utility-scale levels, has grown rapidly across the country. The long-term stability of this federal policy has allowed businesses to continue driving down costs.

The IRA’s New ITC Extension & Increase
Now that the IRA has extended the ITC for another decade and increased the tax return percentage from 26% back to 30%, homeowners and businesses can receive a tax refund equal to 30% of the cost of their installed solar system.

The 30% credit will be retroactively applied to anyone who installed their system in 2022. The credit will remain at 30% until 2033, when it will drop to 26%, and then decrease further to 22% in 2034. The 30% credit also applies to energy storage (whether it is co-located or installed as standalone energy storage). This enables the retrofit of a battery to a solar array while continuing to take advantage of the tax credit. Increasing clean energy storage capabilities is essential to ensuring that sustainable energy is resilient, distributed, and reliable.

A More Equitable Approach
The IRA is unique in that it also stipulates new measures to ensure a more equitable distribution of the government’s investment in clean energy. The credit now includes a “direct pay” provision that allows developers with little or no tax liability to treat the amount of credit as an overpayment of tax. This results in a cash payment refund of the same amount being made to the developer. The IRA extends this direct pay provision to nonprofit organizations, community organizations, rural electric cooperatives, Native American tribes, school systems, units of state and local government, as well as to other entities.

The Direct Pay Provision for Nonprofits
Prior to the direct pay provision, nonprofits frequently had to partner with tax equity entities in order to afford a solar installation. The tax equity partners would then own the systems and receive the tax benefits primarily through Power Purchase Agreements. In that arrangement, the direct beneficiary of the system misses out on benefits they would otherwise receive if they were the owners of the solar system. Because of this arrangement, many equitable projects were deprioritized as equity partners were not able to achieve target returns on their investments. The IRA’s new direct pay provision will bring solar power and its many benefits to far more organizations that hold tax exempt status.

Benefits of Going Solar
The ability for schools, churches, and other community non-profit organizations to access solar and storage for themselves is important because they are then able to cultivate resilience hubs for their communities. Resilience hubs are safe havens for community members to gather and access important resources in the event of power grid quality loss (traditionally during times of national emergencies, blackouts, or natural disaster relief) or simply when homeowners have lost power at home. Resilience hubs decentralize, aggregate and distribute renewable energy and storage capacity in order to mitigate node strain (within a distribution grid circuit or “microgrid”), send power to support the grid load, and even predict catastrophic blackouts with active and reactive real-time power quality monitors and controls.

Tesla’s VPP demonstrated the role of Virtual Power Plants when it rescued an Australian power system when a coal power plant failed. Powerwalls charged by aggregated solar PV generated and stored at homes across the state of Queensland restored system frequency. Australian Energy Market Operator executive general manager of emerging markets and services, Violette Mouchaileh, encourage[s] more VPPS to register to accelerate the shared learning on how to safely and efficiently integrate, operate and regulate these emerging technologies into the NEM (National Electricity Market).

NATiVE’s Work Bringing Solar to the Community
NATiVE strives to make solar more accessible to historically overlooked and economically challenged communities. Along with Solar Austin, industry advocacy members, and students from the Del Valle Opportunity Center, NATiVE was able to aid in installing an East Austin resilience hub at The Children’s Haven which will offer direct benefits to local community members.

NATiVE remains at the forefront of encouraging solar adoption in schools as well as clean energy apprenticeship programs that offer training for tomorrow’s leaders in the alternative energy and critical infrastructure workforce. With the added benefits of the new direct pay provision in the Inflation Reduction Act, NATiVE looks forward to helping even more nonprofits, schools, and places of worship to make the transition to solar energy.