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Unlocking Clean Energy Incentives for Underserved Communities

Solar array, Washington D.C. (Photo Courtesy of Niki Molina at Urban Ingenuity)

If policy sends market signals, then the Inflation Reduction Act (IRA) is crystal clear: we have an unprecedented opportunity to foster more equitable participation in clean energy development and channel resources into historically marginalized communities.

But we must seize the opportunity.

Because of the IRA’s Direct Pay provision, nonprofits, and state, local, and Tribal governments can now access tax credits over 10 years for clean energy projects in underserved communities.

This democratizes energy, unlocking the potential for diverse entities across the U.S. to own clean energy assets as a wealth-building opportunity. It simultaneously brings other community benefits, like new high-road jobs, lower energy costs, and climate resiliency.

While the private sector has accessed these incentives for decades, this is new territory for public entities and requires intentionality for project development and financing across levels of government, philanthropy, CDFIs, and capital investors.

What is required?

  • Organizing around outreach and education;
  • Supporting predevelopment and building scaled pipelines of well-underwritten and well-structured projects;
  • Improving the efficiency of financing and speeding access to capital; and
  • Helping non-tax-paying entities navigate tax credit filing processes.

Several organizations are exploring innovative projects and methods to increase uptake of these tax credits. The Rockefeller Foundation is proud of the support it has provided to important projects like these — below are three examples.

Leveraging Community Land Trusts

30 Million Solar Homes Coalition partners, including Solar United Neighbors (SUN) have advocated for years for nonprofit and government participation in the clean energy tax credit market to target solar projects in underserved communities. With the passage of Direct Pay, SUN is translating this policy into action and developing replicable models for financing solar projects at lower costs.

One example is a pilot program with a community land trust in Duluth, Minnesota, to test models for nonprofit lenders and builders to capture the tax credit and pass along the savings to low-income families.

Alyxis and Elijah Feltus of Duluth, Minnesota. (Photo Courtesy of Solar United Neighbors)

The land trust, which has a long-term commitment to affordable and fair housing, will receive the 30 percent Direct Pay credit for the system costs, and then lease the solar panels to low-income homeowners for five years before they own the solar array themselves.

A portion of The Rockefeller Foundation’s funding to the 30 Million Solar Homes Coalition partially subsidized the system cost, demonstrating that a relatively small allocation of philanthropic funds can unlock a much larger market for serving low-income communities with solar and preserve savings for the households directly.

“The sun shines everywhere and everyone should be able to benefit from solar energy. That’s why we’ve advocated for Direct Pay for a long time and have shifted gears to test new models and support communities eager to use it. We’re ready to expand this work and play our part.” – Corey Ramsden, Solar United Neighbors

  • Customers of Solar United Neighbors of Duluth, Minnesota. (Photo Courtesy of Solar United Neighbors)

Catalyzing Local Climate Action

Climate Mayors, in partnership with C40 and the Urban Sustainability Directors Network, have developed a program that positions mayors as convenors of the many private, business, and community partners driving IRA implementation.

This program provides a crucial bridge from the Direct Pay opportunity to the ground. It will work with mayors in key cities to collaboratively create and deliver workshops to identify and advance shared priority projects in partnership with business and community leaders. Participants could include leaders from businesses, community-based organizations, labor and workforce training providers, clean energy developers, and state and local agencies.

This convening program also provides pathways for mayors from across the country to share implementation challenges and uplift solutions together. The partners are developing national and regional workshops to encourage peer learning and accelerate the uptake of Direct Pay in underserved communities. The learnings will be captured and shared publicly through the partners’ networks.

“Thanks to the Direct Pay incentive, mayors are empowered to meet this historic moment, leverage tax benefits to support community needs, and bolster cleaner, greener, and more resilient communities for generations to come.” – Kate Wright, Climate Mayors

Increasing Community Asset Ownership

A significant risk in this IRA moment is that – without access to upfront capital to fund projects or technical assistance to design, build, and manage clean energy projects – many organizations will miss it.

To ensure federal funding flows to under-resourced communities without sacrificing good jobs and economic justice, we need trusted intermediaries to provide guidance and technical assistance with a community-benefits lens. Working Power is purpose-built to develop and finance clean energy projects with frontline communities at the scale, scope, and speed of the challenge.

Working Power speeds execution through technical assistance and a creative financing model that combines debt, equity, philanthropic grants, and incentives to fully fund projects while preserving direct local ownership of projects. Their approach leverages Direct Pay and additional IRA funding, such as from the Greenhouse Gas Reduction Fund, to scale community-owned clean energy.

From left to right: U.S. Department of Energy Secretary, Jennifer Granholm; and Working Power Co-Founder, Bracken Hendricks at the Brentwood Reservoir Community Solar project in Washington, D.C. (Photo Courtesy of Niki Molina at Urban Ingenuity)

The Direct Pay refund will pay down project costs faster, generating community dividends sooner. Once projects are operational, they generate revenue for organizations, enabling them to scale their core mission and support operational sustainability. In this way, Working Power connects impact investors with financeable pools of justice-centered projects to rapidly achieve scale in a just transition.

“The U.S. is poised for a generation-defining wave of public investment in clean energy infrastructure that can build wealth for working families. But, realizing this opportunity for economic justice is not inevitable. It demands effective deployment of capital through local ownership to build wealth, power, and voice as part of transformative climate solutions.” – Bracken Hendricks, Working Power

  • Ribbon cutting ceremony at Sargent Memorial Presbyterian Church in Washington, D.C. (Photo Courtesy of Niki Molina at Urban Ingenuity)