Using Direct Pay to benefit communities

Praxia Partners recently participated in a webinar for community organizations to discuss the historic Direct Pay funding through the Inflation Reduction Act. Hosted by Community Change, the discussion featured an overview of the program by the Progressive Caucus Center, and then our CEO Joe Recchie detailed how we are using the tax credit as part of the Impact Solar Model to make solar energy affordable and available to homeowners.

We were delighted to be a part of this program and to be a part of the conversation educating organizers on how federal funds can be made available to them and other mission-based organizations.

Direct pay is a federal tax credit that allows tax-exempt entities to receive tax-free cash for renewable energy projects, allowing communities to expand publicly owned energy, create high-quality jobs, and increase public power. The Department of Energy oversees the community energy bonus, which requires applicants to file separately with the IRS and the Department of Energy. The challenge community organizations face is to spread the word to eligible entities, such as towns, places of worship, senior centers, or nonprofit daycare centers.

Direct pay could benefit communities, for example, by installing solar panels on senior centers, eliminating the electricity bill within a few years, and using the extra revenue to help seniors with other outreach programming. Community-owned wind power can also be used to electrify locations without electricity, such as rural tribal reservation communities. Additionally, installing EV charging stations in places of worship can generate revenue for the organization to increase its outreach elsewhere.

We have a moral obligation to ensure that these credits do not benefit the wealthy and well-connected due to institutional racism and other systematic forces. By focusing on BIPOC communities, energy communities, and deindustrialized communities, tax-free federal funds can be transferred directly into communities, reducing fossil fuel pollution and improving the current energy economy.

The direct pay tax credits require that installers meet prevailing wage and apprenticeship requirements, which many contractors are familiar with. Partnering directly with unions can increase the economic benefit of these programs, as they have been working with those requirements for decades. By choosing to work in communities that have been forgotten and systemically oppressed, we improve our current energy economy and improve the lives of the institutionally disadvantaged.

The Impact Solar operating system, which includes direct pay, is designed to advance solar for low- to moderate-income families in single-family homes. The model can deliver solar for 20,000 low-moderate income homeowners in Ohio, with a minimum participation of 40%.

Community organizing groups should focus on reaching out to low-moderate neighborhoods and advocating for environmental justice. Nonprofit stewards play a crucial role in the direct pay model, as they can obtain portfolio financing to cover the direct pay before it’s paid and build in the debt required to deliver the system. Nonprofits can also sponsor these projects, but the challenge lies in finding a bridge to cover the 60% reimbursement after the project is commissioned. This can be a significant disadvantage for nonprofits, as they are usually capital-constrained and have other claims on their projects. To address this, the concept of having an overlay where nonprofits receive the benefits without taking on long-term financial obligations can help them. Overall, the concept of providing nonprofits with the benefits of these projects can help them overcome challenges and achieve their goals.

About Emily Schnipke

Emily is program manager for Community Building Partners, working on community redevelopment and many other projects. She is two-time graduate of University of Toledo and loves living in the Glass City.