Initial IRA low-income bonus credit plans may sideline small solar projects

of Inflation Restrictions Act (IRA) It included some substantial tax credit add-ons for solar projects installed in low-income communities, but the industry did not receive details on those credits until mid-February.

Solar and environmental justice advocates said they appreciate the government encouraging solar projects to underserved people, but the Treasury Department’s Initial guidance It confused and worried many about the structure of the program.

Andie Wyatt, policy and regulatory manager at GRID Alternatives, a non-profit solar training and installation organization, said: “Like other environmental justice advocates, we want community-driven projects that benefit communities to be at the forefront of this capacity from the start.”

Wyatt said the current set-up for 2023 falls short of those goals for several reasons.

Commission requirements

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The biggest problem GRID sees is with guidelines in action. Projects in production prior to being given a quota of capacity are not eligible for credit.

“Commencement of Service” in this context means the date on which depreciation of the asset begins or the date on which the project is placed in “Ready State” and “Availability of Specially Assigned Capabilities”, whichever is earlier. I mean

On larger projects where the project has a longer time frame from planning to operation, a working structure may not be as much of an issue, but for smaller residential and commercial projects the timeline is shorter and the owner secures credit. cannot be paused while

“This is at odds with the days, weeks, or months of timelines for most residential clean energy projects,” said Wyatt. “By inserting this sentence into the guidance and structuring it this way, we are actually limiting its value as a tax credit for shifting solar at any scale to the communities that the bonus credit is supposed to cover. increase.”

The current application process will only help the residential and small commercial markets fight for these incentives. Priority will be given to low-income residential buildings and economic benefit projects first, followed by other projects. Only the facility owner can apply for a quota, and that applicant can only apply for one category in a calendar year. If not assigned, you are eligible to apply again the following year.

“The Treasury guidance basically ensures that credits can actually be used in 2023 mainly by large developers and large 5MW projects already in the pipeline.” said Wyatt.

But even solar developers in the larger community are concerned about this in-service limit and the third quarter application process.

“Now everyone is saying, ‘Can we just delay all projects?’” said Georgina Arreola, vice president of policy at community solar subscription company Perch Energy. “We’re like, ‘Okay, we’re going to have something at the beginning of the year, and we’re going to move forward and get as many projects out there as possible.'” [as possible]”to ”May not do anything this year.”

To move forward from this tough midterm, GRID and other advocates are pushing to switch to a rolling application process, letting small, high-value, low-income projects try their credit.

“You need to be clear in your contract up front about the benefits you can offer your rooftop customers,” Wyatt said. “We can’t let them make that kind of bet and carry that kind of weight. It’s fundamentally incompatible with our business model and timeline.”

credit allocation problem

The IRA Act limited the low-income incentive program to 1.8 GW but did not outline how these credits should be distributed. Under the Treasury Department’s initial guidance, the allocation is based on four different credit categories.

• • • 700 MW for facilities in low-income communities
    • 200 MW for facilities on tribal land
    • 200 MW for facilities serving affordable residential facilities
    • 700 MW for installations where at least 50% of the economic benefit of the electricity produced is provided to households with incomes below 200% of the poverty line or 80% of the regional average gross income.

Solar industry officials who participated in talks with the Treasury said this differed from best practices expressed at those meetings. so we made sure everyone got a fair share.

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“SEIA, Vote Solar and many others came together to talk about what is fair so that no industry cannibalizes other industries,” said Perch Energy’s Arreola. “[They] We have made a number of recommendations for allocating a certain percentage to community solar, a certain percentage to rooftop solar, and commercial use. [Treasury] Unfortunately, I didn’t follow that guidance. ”

Other areas of uncertainty in the guidance are the issue of oversubscribed categories, waiting lists, and annual rollovers. Treasury and IRS now have discretion to reassign excess capacity to oversubscribed categories, with unallocated 2023 capacity carried over to the next calendar year. The method of redistribution has not yet been described and the guidance does not set a waiting list.

The need for greater clarity on many aspects of this program also has implications for state-level low-income solar policies. The agency waited for federal guidance before setting up its own complementary program.

“Many states, like New York, have said, ‘As soon as we have guidance, we will clarify all these adders that we have been refraining from releasing.’ It’s been kind of resetting, with no firm date as to when it will come.

looking ahead

2023 is a work in progress, but there is good hope that by 2024 many of these issues will be mitigated. The Department of Energy has been appointed administrator of the Low Income Communities Bonus Credit Program.

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“The Department of Energy has been very good at all the work they do with the NCSP (National Community Solar Partnership) and really open to learning and understanding what works and what doesn’t,” she said. Told. “So it’s good that the DOE is leading the government effort because I think there’s a lot of good knowledge transfer going on at the DOE.”

The Treasury has also clarified that this is just the beginning of guidance for this credit subset. Future communications will outline specific application procedures, additional criteria, definitions, and other useful information. The guidance also says the Treasury Department and the IRS will monitor the program’s rollout and assess whether any amendments are needed in 2024.

Solar industry representatives from groups such as the Coalition for Community Solar Access (CCSA) and Vote Solar will continue to meet with government leaders to share best practices on low-income solar growth at all levels. We are promoting further cooperation.

“There is still work to be done to ensure the program deploys solar projects that meaningfully benefit low- and middle-income communities, but there is still work to be done to ensure that the government has the industry and other major stakeholders to create the program. CCSA vice president of policy, Mike Judge, said in an email: “Developers and other contractors are encouraged to It is important to note that the guidance for 2023 is not yet final and may differ from how the program operates after 2024. We are working with the Treasury Department to get help now. We are making it possible to provide bill savings to low-income families in need.”