Recently the Treasury Department released a highly-anticipated first round of guidance on the Inflation Reduction Act’s new tax incentives for solar projects serving low-income communities. Our team, dedicated to delivering the benefits of clean energy to LMI communities and ensuring our development partners realize revenue, dug into the document and broke down our findings below.
The consensus – from those of us eager to see development of eligible projects move along — is that the guidance keeps us waiting; it’s sparse on eligibility details and suggests that community solar projects energizing in 2023 will face a tight timeline to qualify for the economic benefit project category, which developers have been modeling for since the Inflation Reduction Act (IRA) passed in August.
Nevertheless, this is a step in the right direction – and as we get closer to bringing eligible farms online, Solstice is as well-positioned as ever to partner with developers and manage projects that are committed to bonus credit eligibility.
Solstice is already managing roughly half of the approved capacity in Illinois Solar for All, one of the country’s leading low-income community solar programs. We’ve also managed low-income projects in Massachusetts, New Jersey, and New York, with more on the horizon. Years of experience in these programs and our mission founded in grassroots organizing means our teams at Solstice are particularly familiar with the low-income program requirements and qualifications informing Treasury’s program design. Solstice currently enrolls customers based on any of the potential LMI qualification methodologies that Treasury may require and has a streamlined, customer-focused experience that enables all users, in multiple languages, to easily enroll in projects that they qualify for. Our bilingual Outreach and Customer Success team ensures a smooth customer experience from start to finish. If you’re interested in learning more about our subscriber acquisition and management experience and offerings, schedule a call with our team.
Now, onto what we do and don’t know about these tax incentives.
WHAT’S NEW ON LOW-INCOME TAX CREDITS IN THE GUIDANCE
- Allocation: Breakdown (below) of the first 1.8 GW across four low-income bonus credit categories
- Application: Applications across categories will open in phases, offering 60-day windows
- Timeline: The order of categories: 3 and 4 in Q3 2023; then 1 and 2 to follow
- Admin: DOE will review applications and lead allocation processes
- Eligibility: Projects that energize before being awarded an allocation will not receive the credit
NEXT ROUND OF GUIDANCE: WHAT TO LOOK FOR
The first round of guidance mentions forthcoming guidance and additional criteria 10 times throughout the 10-page document. What exactly does a project need to have/commit to for qualification in each category? How and what should be prepared ahead of the application windows? For now, we’re still waiting for the answers that developers and asset owners need to update project plans and models.
All Categories
- How applications will be scored and awarded
- What will be required for eligible applications
Categories 1 & 2
- Site control
- Interconnection agreements
- Completed utilities studies
- State and local permits
- Letters of support (category 2)
Categories 3 & 4
- How to define and assess the financial benefits that must be provided
- Acceptable income verification methods
- Potentially ranging from self-attestation and geo-eligibility to proof of income or participation in income-based assistance programs
- Required plans to distribute benefits equitably
- Required list of eligible beneficiaries and capacity allocation
- Reporting requirements
- Required building verification (category 3)
- Required statements from residents agreeing to distribution of benefits (category 3)
The only new information relevant to improving your application is that the following items may boost your chances of being awarded capacity:
- Ownership or development by community-based organizations and mission-driven entities
- Intent to include new market participants
- Above-and-beyond bill savings for low-income communities and marginalized individuals
- High degree of commercial readiness
The timeline for forthcoming guidance is up in the air but leading trade groups and industry stakeholders have already requested meetings with Treasury and are pushing for more guidance ASAP. Solstice will continue to stay engaged on advocacy to the White House, Treasury Department, IRS, and DOE.
INDUSTRY REACTION
Beyond the overall feeling that this round of guidance largely kicks the can down the road and was only issued this early in order to comply with the IRA’s legislative requirements, there are a couple other pieces of commentary worth mentioning.
As explained above, the four categories of capacity are broken down by bonus credit type, instead of project sector (e.g. community solar / residential projects / multi-family residential / etc.), which would likely make application reviews more efficient and consistent. The proposed breakdown will pit projects with significantly different structures — both in development cycles and delivery of benefits — against each other for capacity. As of now, community solar projects could fit into any of these categories, but we’ll be on the lookout for upcoming eligibility criteria that could change that.
The guidance suggests that a lottery may be used when there’s an excess of eligible applicants by category, but it leaves room for DOE to decide on other processes instead.
Interested in working with Solstice? Schedule a call to meet with our business development team at bd@solstice.us.
WHAT WE ALREADY KNEW
As we wait for additional details, let’s recap what we already know about how the IRA is affecting the landscape for community solar development.
INVESTMENT TAX CREDIT BASICS
- Interconnection costs now included for projects up to 5 MW (ac)
- 30% base ITC requires pending prevailing wage and apprenticeship requirements be met for projects ≥ 1 MW
- Without meeting prevailing wage and apprenticeship requirements, which apply during construction and 5 years after (for alteration and repair), base ITC drops to 6%
- There are two other 10% bonus credits, which can both stack together on top of one of the four low-income bonus categories
- Domestic content: 100% of steel and iron or a required percentage of total manufactured components sourced from the U.S.
- Energy community: brownfield site, former fossil fuel extraction site, or retired coal mine site
- Project owners can apply for and receive one of the four low-income bonus credits in addition to the 30% base, the 10% domestic content, and the 10% energy community
- Applicants have four years from the date of low-income bonus credit award to place the project in service
- Eligible projects for bonus credits must have a net output of less than 5 MW (ac)
LOW-INCOME BONUS CREDIT BASICS
- The low-income bonus credits include four separate project categories, which share 1.8 GW (dc) of annual capacity for each of the 2023 and 2024 rounds
- Eligible projects can each only be considered for one category
- Project size cap is 5 MW (ac)
- (1) Located in a Low-Income Community
- As defined here in section e: 45d(e) Low-Income Community
- (1) Located in a Low-Income Community
- (2) Located on Indigenous Land
- As defined here: 25 USC 3501(2) Indian Land
- (2) Located on Indigenous Land
- (3) Qualified Low-Income Residential Building Project
- Installed on a residential rental building which participates in a covered housing program: (1) under the Violence Against Women Act; (2) administered by the Department of Agriculture; (3) administered by a tribally designated housing entity; (4) other affordable housing programs determined during the rulemaking
- (3) Qualified Low-Income Residential Building Project
- The financial benefits of the electricity produced by such facility must be allocated equitably among the occupants
- (4) Qualified Low-Income Economic Benefit Project
- At least 50% of the financial benefits of the electricity produced must be provided to households with an income of less than 200% of the federal poverty line or less than 80% of the area median income, where financial benefits is thus far defined to include — at a minimum — “electricity acquired at a below-market rate”
- (4) Qualified Low-Income Economic Benefit Project
BEYOND THE INVESTMENT TAX CREDIT: $7B FOR STATE DG PROGRAMS
IN THE GHG EMISSIONS REDUCTION FUND
The IRA earmarked $27 billion for technology-neutral funding from the EPA. Within that pie, there’s a $7 billion slice available to states — on a competitive basis — for distributed generation programs. EPA issued the initial program details along with Treasury’s ITC guidance last week. Below are highlights from what we know thus far:
- Funds are available to states on a competitive basis
- Awards will be for both expanding existing DG programs and creating new ones
- Only about 60 awards are expected, for at least $100 million each
- States with robust existing DG programs are best positioned to win awards
- Solicitation for bids will begin early this summer, with all $7B to be dispersed in 2024
The implication for community solar is that some of these awards could be used to expand existing programs and fund the creation of programs already under development. Much like on the ITC bonus credits, Solstice plans to remain engaged as industry stakeholders meet with EPA to inform the upcoming detailed program design.
NEXT STEPS
Solstice will publish a follow-up piece when there’s more to share on the ITC guidance. Until then, please feel free to schedule a call with our business development team to learn more about Solstice’s services and discuss how we can work together to best prepare for any and all of the above.
