What nonprofits need to know about the Investment Tax Credit

Photo courtesy: Nuno Marques/Unsplash

By Anna Adamsson, Clean Energy Group

The Inflation Reduction Act of 2022 (IRA) updated and expanded the Investment Tax Credit (ITC) for solar and battery storage resilient power projects. The ITC, which was previously set at a 26% credit for 2023 and a 10% credit for every year after that, was updated and raised to cover 30% of the project installation costs through 2032. This change significantly increases the anticipated savings for solar projects and will help create stability in the market over the next decade.

Congress also expanded the ITC in three crucial ways: 1) Nonprofits with no tax liability can now apply for direct pay reimbursement equal to the value of the tax credit 2) Storage-only projects are now eligible for the ITC. 3) The ITC now includes several ‘bonus credits’, which can significantly increase savings for projects serving low-income and underserved communities. These important changes are outlined in further detail below.

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What kind of clean energy technology is eligible?

The ITC formerly could only be applied to energy storage if it was installed with solar or wind power. Now standalone storage projects, in addition to solar only and solar combined with storage projects, are eligible for the ITC. The change to include storage only projects will increase access to storage, including for organizations who have already installed solar and may now want to explore adding resilient battery storage to their facility.

Can nonprofits benefit from the Investment Tax Credit?

Importantly, the ITC can now benefit everyone, not only those that have tax liability. Nonprofits and other tax-exempt entities – like municipalities and Tribal governments – are eligible to receive the ITC in the form of a direct pay reimbursement.

The Treasury Department and Internal Revenue Service (IRS) will release guidance this year about how tax-exempt organizations can apply for reimbursement and when they can expect repayment. At this time, organizations should expect they will need to pay for the cost of the system upfront (optionally with assistance from a low or no interest loan) and receive the direct payment within one to two years.

How much is the ITC worth?

The ITC was also increased to 30% baseline credit for projects installed before 2033. This applies to projects under 5 megawatts capacity or for larger projects that meet manufacturing and workforce requirements. Projects may be eligible for up to six bonus credits that could raise the value of the ITC up to 70% of the cost of the project’s installation.

Bonus Credits

The ITC includes six different bonus credits that projects may apply for. Four of those credits are housed within the Low-Income Communities Bonus Credit Program, which the IRS released preliminary guidance for on February 13, 2023 (available to view here). The IRS is expected to release additional guidance on that program later this year. Currently, projects can only apply for one of the four bonus credits within the Low-Income Communities Bonus Credit Program. This m

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