Solar for nonprofits

The primary solar incentive is the federal tax credit. It gives solar owners a 30% tax credit. Nonprofit organizations and government entities do not pay taxes. This meant that these groups could not benefit from this credit. Now, thanks to the Inflation Reduction Act (IRA) of 2022, eligible nonprofit organizations and other tax-exempt entities can benefit.

The law makes them eligible for Elective (or “Direct”) Pay. Direct pay allows your nonprofit organization to be paid for the value of the tax credit by the IRS. Your organization will need to file required tax forms after the project is complete to receive this payment.

The tax credit is 30% of the installed system cost through 2032. It steps down to 26% in 2033 and 22% in 2034. Organizations do not need to be approved to receive this benefit. You just need to qualify based on the specific rules of the tax credit for which you are applying. Some projects may be eligible for an increased credit if they meet certain requirements. These increases are called special adders.

States, local jurisdictions, and some utilities may also offer incentives for nonprofit organizations going solar. These may come in the form of:

• Grants,
• Special financing, or
• technical assistance

Check with your local installer and your state’s energy office for more information.

With direct ownership, your organization will buy the system for your building or property. You will own all system components and all of its electrical output. Direct ownership of a system makes sense for your organization if you can:

• offer cash up front,
• raise funds to cover the cost of the project,
• arrange for loan financing, or
• get access to specific state incentives and grants.

Elective (“Direct”) Pay is available for directly owned projects. This allows your nonprofit to claim the federal tax credit.

Nonprofit organizations are uniquely positioned to go solar through direct ownership. This is because they often have dedicated members eager to help fundraise and donate. Crowdfunding campaigns can be a successful approach to raise money and rally your members around a solar project.

Solar financing options:

• Community Development Financing Institutions (CDFIs): See if there’s one in your area that offers loan products for nonprofits.
• Green Banks: Is there a Green Bank operating in your area? See if they have nonprofit loan products
• CollectiveSun: provides multiple financing options for nonprofit solar projects.
• Everybody Solar: helping nonprofits go solar through a combination of grant writing, sponsorships, crowd-sourcing and fundraising events
• RE-volv: a platform for crowdfunding for nonprofit solar projects.

Is there a financing option missing above? Let us know!

Under third-party ownership, a separate entity owns and operates the system on your behalf. Examples of entities that do this include a solar developer or a group of community investors.

There are two ways to go solar through third party ownership:

Power purchase agreement
Under a power purchase agreement you pay the third party for the monthly electricity produced by the system.

Third-party ownership is only available in certain states. Find out where.

Lease
With a lease, you pay a third party for the use of the system. You get the electricity savings the system generates.

The third-party directly claims all of the associated incentives for the system if you go solar via a Power Purchase Agreement, or via a lease. This includes any tax credits. The third party then passes some of the value of those incentives to you in the form of lower monthly payments. Many nonprofits prefer third-party ownership. Third-party ownership makes sense for nonprofits that lack the upfront cash and/or the financing abilities to purchase their system outright.