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Now May be the Time to go Solar: New Solar Tax Credits Released

By Phillip Oprie, PE

September 8, 2022
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Design Collaborative serves several markets, and one of the markets that has been quick to adopt on-site photovoltaic installations (solar technology) is the financial market. There are several reasons for the adoption: a relatively small-scaled system with a noticeable impact on the electric bill, future strategies of leadership in the realm of sustainability, and so on. Past clients have not been motivated to go solar due to high install costs with few motives. Today, clients are seeing the opposite: a quick return on investment and low install costs.

It is no surprise to anyone who has done a quick internet search on solar pay back that the systems are not cheap and the return on investment has not been on a timetable that a current board of directors like to see. This is particularly true for our federal credit union clients. Under the previous Renewable Energy Investment Tax Credit, any not-for-profit organization could not take advantage of the tax credit offered to install systems. In some ways, this does make sense – it is hard to take a tax credit when you are tax-exempt. For this reason, we have focused on our clients having other goals for their desire to install solar.

Image: Fort Financial Credit Union Headquarters Solar Panels

In the past few weeks (end of August 2022) both chambers of congress passed, and the president signed into law, the Inflation Reduction Act.

One of the sections of the act revamped the current solar tax credit. Previously, the credit was already on the phase out track at 26% in 2022, 22% in 2023, and 10% there after for commercial projects. Now the tax credit has been brought back to the full 30% until 2032. An additional 10% can be added for panels manufactured in the United States and another 10% for areas with an average household income below the poverty line (as described in the last census). Suddenly, half the cost of the project could be covered. Additional percentages can be applied in the IRA for specific installation cases and rural businesses are eligible for additional funding through the USDA. These percentages are for the total cost of the project, materials, labor, permitting, designing, and any additional work required at the site directly related to the installation of solar panels, this can include roof replacements in the areas effected by solar panels.
Solar Power Tax Reduction
Solar Power Tax Reduction
ORNL Federal Credit Union Rutgers Branch

Now for the most exciting part for Design Collaborative’s not-for-profit clients. The language of the act says that “Tax-exempt organizations will be permitted to elect a “direct pay” option in lieu of a tax credit.”1 Instead of trying to find workarounds with third-party financing or simply accepting the costs, tax-exempt organizations can now take advantage of the additional money savings and a reduced ROI.

Image: ORNL Federal Credit Union Oak Ridge Branch
ORNL Federal Credit Union Rutgers Branch

As an example of the reduced ROI a project could enjoy, let’s look at a credit union branch with a solar installation of 22.63 kW. For context, the system on a sunny day in July creates enough energy to power a standard refrigerator for 1 month. This system, fully installed without the tax credit, costs approximately $55,000 and has a 12.6-year return on investment. With the 30% direct payback of $16,500, the approximate cost is $38,500 with an ROI of 9.2 years.

As a note, the above calculation assumes a fully net-metered utility service or 100% onsite usage of the energy. In Indiana, systems were required to be installed and commissioned by July 2022 to be guaranteed a $1 for $1 credit to the customer’s utility bill. After July, installations will only receive credit of the “wholesale value” of the electricity produced, ~25 cents on the dollar. As a result, we recommend designing the system to produce only enough power that will be consumed on site or provide on site storage, such as batteries.

Image: Fort Financial Credit Union Headquarters Solar Panels
Fort Financial Credit Union Solar Panels
Fort Financial Credit Union Solar Panels

While in this article we focused on tax-exempt financial institutions, these are not the only groups that are eligible for the tax-exempt direct payback. The list named in the act includes “affordable housing developers, community-based organizations, and state, local and tribal governments”.2 With these changes, many groups that have wanted to transition to solar energy for their building and sites have a much clearer and direct path to financing these projects.

1The National Law Review, Relief Arrives for Renewable Energy Industry – Inflation Reduction Act of 2022. August 16, 2022.

2 Renewable Energy World, *-The Inflation Reduction Act Is A Game Changer For Nonprofits Seeking Solar and Storage. August 19, 2022.

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