Direct Pay Outcomes Highlight Clean Energy Benefits, But Threatened Cuts Pose Risks

Earlier this month, Treasury announced final rules for the Clean Electricity Investment and Production Tax Credits, along with the expansion of the Clean Electricity Low-Income Communities Bonus Credit Amount Program. Clean electricity tax credits have mobilized nearly $30 billion in clean energy investments in the two years since the Inflation Reduction Act (IRA) was passed, bringing cleaner air and lower energy bills to millions of people.

Now schools, places of worship, states, and other non-taxpaying entities are benefiting from these tax credits too, thanks to direct pay — an innovative system that makes 12 clean energy tax credits available to them. Eligible entities across the country have already started reaping these benefits. In December, for example, schools throughout the country began receiving millions of dollars in reimbursements from the federal government through direct pay.

Direct pay has helped ensure that the benefits of clean energy — including economic growth, decreased energy costs, and a healthier environment — reach communities that private investors and the federal government have historically passed over. Regardless of the IRA’s future under a second Trump Administration, these initial investments in clean energy will benefit communities for years.

Many of these new projects spurred by the IRA are in disadvantaged communities (census tracts that face higher climate risks and have low median incomes or high poverty rates, and certain tribal areas) in part due to incentives like the low-income bonus credit, which provides an additional credit for certain small-scale clean energy projects in low-income areas, on tribal lands, or in federally subsidized housing. An estimated $3.5 billion in private and public investments has leveraged the low-income bonus credit in 48 states, the District of Columbia, and four U.S. territories.

Example projects include:

• In Chambersburg, a rural community in Pennsylvania, Solomon’s United Church of Christ recently completed a solar installation project that will save the church tens of thousands of dollars. The project was financed by RE-volv, an organization that provides loans to nonprofits for clean energy projects. Forty percent of the cost of that loan will be reimbursed via direct pay.
• California’s Santa Maria-Bonita School District — which serves communities at heightened risk of wildfires — added solar panels to power cooling systems in all its schools last year. The project is expected to receive a $10 million federal reimbursement and will save the district an estimated $80 million in energy costs while improving students’ health and safety.
• The Boston Medical Center Health System (BMCHS), a nonprofit academic medical center and hospital, recently started providing monthly utility bill credits to patients through their Clean Power Prescription program. This program is funded by energy savings from BMCHS’s recently installed rooftop solar panels; 60 percent of the funding for the $1.6 million solar installation project came from monetization of the IRA tax credits and the low-income bonus credit.
• The City of San Antonio, Texas used direct pay to install solar panels at 42 sites across the city, financed through a mix of bonds, loans, and an expected $10 million in tax credits. San Antonio expects these solar installations to save up to $11 million in energy costs over the next 25 years, as well as create full-time jobs and expand shade coverage in the city.

Through direct pay, schools, nonprofits, and cities across the country are able to claim the tax credits themselves and maintain ownership of projects, rather than signing a power purchase agreement or leasing to a third party, enabling them to channel clean energy savings and benefits directly to their communities. Tax credits are the vast majority of the IRA’s climate investments; the rest available to states, tribes, and communities flows through grants and loans. These investments benefit rural and urban communities across the country, with the majority of funds flowing to congressional districts held by Republicans. Still, several key IRA programs and the clean energy tax credits are being considered for cuts by President Trump and Republicans in Congress. Certain remaining federal climate investments are also currently being paused by executive order.

Even if no cuts are enacted, even just the threat of changes creates market uncertainty — which could limit private lenders’ willingness to provide the necessary upfront capital, such as loans and grants, for clean energy projects. This makes implementation of the $27 billion dollar Greenhouse Gas Reduction Fund (GGRF), which expands the lending capacity of nonprofit and public finance institutions, critically important.

To support continued investment in clean energy in low-income and disadvantaged communities, policymakers, advocates, and technical assistance providers should:

• Reject proposals to cut climate funding. Policymakers and advocates must work together to promote the benefits of direct pay and the dozens of additional IRA programs that bring clean energy development and other climate action to low-income and disadvantaged communities.
• Encourage continued uptake of direct pay. Technical assistance providers and other trusted community partners should educate eligible entities about the availability of direct pay through at least tax year 2025, and they should support entities in the financial planning and filing processes.
• Support GGRF implementation. State and local governments should support entities that will be using GGRF funds by ensuring state and local regulations allow smooth uptake of new finance products, improving permitting processes for development, and supporting investments in low-income and disadvantaged communities.