Bloomberg Tax
Free Newsletter Sign Up
Login
BROWSE
Bloomberg Tax
Welcome
Login
Advanced Search Go
Free Newsletter Sign Up

Community Solar Developers See Sunny Opportunity in Tax Credits

Sept. 8, 2022, 9:30 AM

Low-income areas and communities of color have felt left on the sidelines as homeowners reaped the benefits of rooftop solar panels and electric vehicles helped along by federal and state tax credits.

But community solar project developers say more generous tax credits under the new climate law will help them make a big push into those communities, using tax credits that can run as high as 50% for renewable energy installations.

The increased credit means developers can expand outreach and education efforts, increase hiring, and leverage other Biden administration actions—including changes to federal energy assistance known as LIHEAP—to drive down energy costs for underserved communities, including those in subsidized housing.

“It’s super encouraging,” said Shaun Keegan, co-founder and CEO of Solar Landscape, New Jersey’s largest community solar operator, employing roughly 120 workers. “It allows us to give larger discounts to folks who are consuming the energy which we’re producing, we’re able to raise more capital, and we’re able to monetize a larger tax credit” to push even cheaper power to disadvantaged communities.

The Inflation Reduction Act (Public Law 117-169) extended wind and solar tax credits for a decade and provided add-on credits for solar installations that are part of a low-income residential building project or other projects benefiting those communities.

Those policies can raise the bill’s 30% solar credit, for projects meeting prevailing wage and apprenticeship requirements, to as much as 50%. Communities adjacent to closed coal mines and coal-fired power plants or brownfield sites are eligible for their own 10% bonus credit on top of the 30% base level.

Community-based solar projects typically build solar panels outside the community—on a farm or commercial property, for example—but need the communities to sign on. Those who do typically see smaller utility bills, a way for low-income neighborhoods, renters in apartment buildings, and others who may not own the roof over their home to get benefits that today predominantly go to single family homeowners.

“We put the solar [installation] in one centralized location, and then basically divvy up shares to people who live nearby,” said Keegan, whose company owns and operates more than half of New Jersey’s 14 operating community solar projects.

Cutting energy costs can make a big difference for low-income households, which spend a disproportionate amount of their earnings on energy costs, according to the Energy Department. The average low-income household spends almost 9% of income on energy—even higher in several southern states—which means tens of millions of Americans must often choose between keeping lights on and cooling their homes or other essentials such as groceries and prescription drugs.

Targeting Energy ‘Deserts’

The tax credits, along with other benefits for home energy appliances including replacing gas stoves with electric ranges, will help tackle what Mustafa Santiago Ali, a former Environmental Protection Agency environmental justice adviser for more than two decades, calls energy “deserts,” where low-income communities pay relatively high energy bills and have few options when it comes to renewable energy.

Urban and rural low-income households spend about three times as much of their income on energy compared to higher-income households.

“This gives us an opportunity to begin to very rapidly address some of the wealth disparities that exist,” said Ali, who now leads the National Wildlife Federation’s environmental equity issues.

“If you’re able to take advantage of these renewable energy opportunities, it raises the value of your property,” he said. “And if you’re not a property owner, it can be an opportunity to improve health” for those and other disadvantaged communities by reducing reliance on fossil fuel-generated power.

National and state organizations will have to work together to spread the word of such benefits to low-income areas and communities of color, Ali said, perhaps “through the National Black Caucus of State Legislators, black mayors, and other groups in Latinx and indigenous communities.”

“There’s still more work to be done, both on the federal and the state level,” Ali said. “But now we are beginning to have an honest shot at fighting the climate crisis, and addressing some of the disinvestment that has happened in black and brown and indigenous communities.”

Denver-based Pivot Energy sees the new incentives for community solar projects in disadvantaged communities as transformative, and expects to add roughly 20 positions to its workforce of 135 by year’s end, said its CEO, Tom Hunt. Community-based systems are already 80% to 90% of the company’s projects spanning Colorado, New Mexico, Illinois, Minnesota, and New York and the Mid-Atlantic region following its acquisition of Maryland-based SGC Power in August.

The added incentives for projects paying prevailing wages will likely help solar projects compete with other high-wage projects, he said, and attract an even higher quality workforce over time. For electricians, pipe-fitters, and other skilled positions, “it’s going to look really compelling compared to other jobs,” Hunt said. “I think we’ll get really good crews working on solar projects.”

President Joe Biden has taken several actions in recent months to focus resources on low-income housing, including new guidance from the Department of Housing and Urban Development that for the first time will allow families in HUD-assisted rental properties to sign on to community solar projects, action that’s projected to save such families 10% per year on electricity.

But savings can be even higher in some regions. Families signing on to Washington D.C.'s Solar for All program—which has a goal of bringing solar energy benefits to 100,000 of the city’s low- to moderate-income households—in some cases have seen annual savings closer to 50%, according to HUD figures.

The HUD announcement expands on guidance already provided to Washington D.C., Illinois, and New York that determined community net metering credits awarded for participating in solar projects wouldn’t be deemed household income and would be excluded from household income and utility allowance calculations. That means the credits wouldn’t inadvertently increase housing costs for those participating in various HUD voucher programs.

Solar Option for LIHEAP Aid

Another pilot program launched by the Energy Department and the Department of Health and Human Services will connect Colorado, Illinois, New Jersey, New Mexico, New York, and Washington D.C., to a Community Solar Subscription Platform to allow households receiving benefits under the Low-Income Home Energy Assistance Program (LIHEAP) to reap benefits of reduced utility bills through community solar projects.

“The idea is that LIHEAP funding currently going to utilities should be able to go to solar providers,” said Keegan, the Solar Landscape developer.

Beyond such policy changes, there is significant additional federal funding on its way: The climate package Congress passed includes $60 billion to address environmental equity concerns, including the first-of-its kind $27 billion federal green bank known as the Greenhouse Gas Reduction Fund. It’s to leverage renewable energy and other climate-friendly projects, with $15 billion of that specifically set aside as financial and technical assistance to benefit low-income and disadvantaged communities.

With all of those efforts now in play, there’s little doubt that low-income communities will be eager to participate, said Mike Showalter, a partner in ArentFox Schiff LLP’s environmental group.

“Do I think people are going to do it? Yeah,” Showalter said. “And I think developers are going to be relatively shrewd about presenting opportunities to people.”

To contact the reporter on this story: Dean Scott in Washington at dscott@bloombergindustry.com

To contact the editors responsible for this story: Zachary Sherwood at zsherwood@bloombergindustry.com; Renee Schoof at rschoof@bloombergindustry.com