Biden ‘direct pay’ rules may change the future of renewables

By: Brian Dabbs

The Biden administration finalized tax rules Tuesday to give nonprofits such as schools and local governments federal cash to build and operate low-carbon energy projects.

The administration has called the tax plan one of the most significant from the Inflation Reduction Act to drive clean energy, particularly in historically disadvantaged areas. But tax experts say the Treasury Department kept restrictions for the credit that some nonprofits fear will limit their eligibility for incentives, potentially hindering some renewable and electric vehicle projects.

Nonprofits, which do not pay taxes, had been unable to take advantage of many provisions in the tax code that have driven decarbonization of the U.S. economy. The 2022 Inflation Reduction Act aimed to change that, enacting a provision called “direct pay.”

Now, nonprofits that build low-carbon projects like solar and wind farms can get paid up to 30 percent of the value of the project, according to the final rules. The Biden administration says the program could send billions of dollars in rebates to tax-exempt organizations, including tribes, the Tennessee Valley Authority and power cooperatives.

“President [Joe] Biden’s Investing in America agenda has created game changing opportunities to ensure the health and savings benefits of clean energy solutions transform all aspects of American life,” Energy Secretary Jennifer Granholm said in a statement Tuesday. “For the first-time ever nonprofits, from hospitals to food banks, can amplify their impacts thanks to direct payments for installing clean energy technologies using every dollar saved to reinvest in crucial community services.”