The benefits of going green can have a direct positive impact on the bottom line at nonprofits now that guidance for the Inflation Reduction Act, signed into law one year ago, has been finalized.
The linchpin is a $300 billion provision known as “direct pay.” The federal government will make direct payments to nonprofits of between 30% and 60% of the cost to upgrade to solar and other forms of renewable power. The exact percentage varies depending on the specific incentives for which a project qualifies.
“Direct pay” marks a change from the previous policy of offering only tax credits, which guided most federal clean energy policy for the past two decades. They were of value only to for-profit companies seeking to reduce the tax burdens. Nonprofits had to partner with a for-profit company willing to bear the upfront project cost and then pass along some of the energy savings via a power purchase agreement. Doing so meant a middleman would take a cut of the savings, which reduced the benefit to the partner nonprofit.
The new policy not only increases the potential electricity savings available to nonprofits but also offers a path to energy independence for organizations that, for the first time, have an opportunity to build and run their own clean power projects without a middleman. “It’s really a game changer and means charities and community-based organizations can now own their own power,” said Michelle Moore, CEO of Groundswell, a nonprofit in Washington, D.C. that helps 501(c)(3) groups across multiple states access clean energy. “This was not possible before unless they were willing to pay the full cost to purchase and install the solar panels, inverters and all the rest of it. So, it’s really extraordinary. As a result, we’re now seeing much greater interest from organizations that want to own their own power generation and storage facilities.”
Proponents see an opportunity to advance equity to inner-city charities, affordable housing groups, Tribal communities, and other underserved populations. Moore told The NonProfit Times she’s already seeing signs of its impact in the form of projects that Groundswell has begun developing for inner-city church groups including City of Refuge, a faith-based nonprofit in Baltimore. “There are intangible benefits associated with owning your own assets and power, particularly in communities that have been marginalized, disenfranchised, or disinvested in over time,” she said.
“Virtual power plants” expand the concept of energy independence further by applying it to nonprofits with multiple locations across multiple states. “They’re called ‘virtual power plants’ because they’re spread out across many locations,” Moore explained. “It’s cool if you own a solar project on one roof or one facility. But if you own lots and lots of smaller installations, they can all add up to the capacity of an entire power plant.”
Those seeking to take advantage of the “direct pay” feature should first review Internal Revenue Service (IRS) guidelines to make sure a project qualifies and must then complete it, place it into service, and pre-register with the IRS prior to the due date for that year’s Form 990. Instructions on completing the other required documentation are still being worked on and will be released by the IRS later this year. Direct payment will be provided after the documentation is received.
Nonprofits might be eligible for additional assistance with the upfront project costs by way of the Greenhouse Gas Reduction Fund, which sets aside $27 billion for lenders and so-called “green banks” to distribute financing to those who qualify.
The fund includes $14 billion for a National Clean Investment Fund, which will provide grants to nonprofit lenders to finance tens of thousands of clean energy projects across the country. A $6 billion Clean Communities Investment Accelerator will provide grants to between two and seven hub nonprofits to deliver technical assistance for clean energy projects in low-income and disadvantaged communities. A $7 billion Solar for All program will award additional grants to states, Tribal governments, and eligible nonprofits to expand existing low-income solar programs.
