The Inflation Reduction Act extended and strengthened tax credits for investment in and production of a range of clean energy technologies. The law included a “direct pay” option for which the Internal Revenue Service (IRS) today released new guidance. The guidance will help public and tax-exempt entities—public schools, nonprofit hospitals, and tribal, local, and state governments—to recoup a significant portion of a clean energy project’s cost as a cash payment from the IRS.

Direct pay has the potential to dramatically increase access to clean energy for public and nonprofit entities through production tax credits (PTC) and investment tax credits (ITC). The PTC provides a per kilo-watt hour credit for the production of a range of clean energy technologies. The ITC provides a percentage credit of the cost of clean energy projects. The structure of the tax credits establishes a base and a significant “bonus” rate for utilizing high-road labor standards.

Following the release of the guidance, the BlueGreen Alliance released a statement from Executive Director Jason Walsh:

“Direct pay is a vital tool that opens the door for public and nonprofit entities—like public schools and nonprofit hospitals—to affordably build and produce clean energy, often out of reach for them previously, to the benefit of their communities. Direct pay makes financing a project much more feasible by increasing access to much-needed capital. This new guidance is a huge help for tax-exempt entities to access the tax credits in the Inflation Reduction Act designed to grow clean energy, create good local jobs, and reduce the pollution driving climate change.

“We commend President Biden and his administration for their commitment to building a clean, prosperous, and equitable future for all with the Inflation Reduction Act.”