States have a new opportunity to enhance their clean energy economies through direct pay, a policy that enables public and nonprofit organizations to access significant discounts on clean energy projects they can build and own. This provision, introduced in the Inflation Reduction Act (IRA), allows tax-exempt entities such as states, local governments, and nonprofits to access federal clean energy tax credits for the first time.
Direct pay offers these entities a chance to bring job-creating and cost-cutting benefits of clean energy directly to more communities. The IRA has also increased the maximum credit available for certain projects from 30 percent to up to 70 percent for those located in low-income or energy communities and built with American-made materials.
States play a crucial role in implementing direct pay. These provisions are complex, and newly eligible entities will be navigating this part of the federal tax system for the first time. State governments can assist by providing bridge loans, supportive financing, education, and technical assistance. They can also lead by example by sponsoring their own projects using state-owned facilities, lands, and vehicle fleets.
Historically, states have been central in advancing America's clean energy economy through federal tax incentives, state financing programs, and policy requirements on electric utilities. Now, expanded federal clean energy tax credits coupled with state implementation can further unlock equitable clean energy deployment.
To claim direct pay, eligible entities must place their projects into service before receiving payment from the federal government the following year. States can support these local projects with bridge financing through green banks or revolving loan funds (RLFs). Green banks offer low-cost financing and leverage additional investment in clean energy projects. Examples include Michigan Saves and Connecticut Green Bank.
State RLFs exist in over 30 states providing low-interest loans for energy efficiency projects. States can also use other financing tools like tax-exempt bonds or housing finance authorities to support entities looking to take advantage of direct pay.
In March 2024, Minnesota’s Climate Innovation Finance Authority announced a $4.7 million bridge loan for The Heights Community Energy project—a community-owned geothermal system in St. Paul—demonstrating state-level commitment to facilitating these initiatives.
Additionally, new federal programs like the Greenhouse Gas Reduction Fund (GGRF) provide capital to accelerate deployment of clean energy solutions across the country. The GGRF includes three components: National Clean Investment Fund ($14 billion), Clean Communities Investment Accelerator ($6 billion), and Solar for All ($7 billion).
The Department of Energy's Loan Programs Office now offers expanded opportunities under SEFI provisions which facilitate greater access for states supporting large-scale projects exceeding $100 million in total cost.
State agencies must educate eligible entities about direct pay opportunities and how they can benefit from them. Agencies should provide robust stakeholder education and technical assistance to local governments, Tribal nations, community groups, publicly owned utilities among others.
Nongovernmental organizations are already working on sharing technical assistance resources with direct pay-eligible entities which state officials can utilize to begin educating their communities.
Moreover, states can maximize direct pay utilization by building their own renewable infrastructure projects on public lands or electrifying vehicle fleets using applicable IRA credits.
Hawaii exemplifies this leadership by establishing systems under its comptroller's office to streamline paperwork for maximizing uptake of these credits across departments.
States oversee public utilities ensuring alignment with climate policies via public utility commissions (PUCs) driving uptake of federal incentives through planning resource decisions incorporating federal tax incentives into integrated resource plans filed by utilities with PUCs ensuring compliance with state standards promoting renewable generation investments benefiting residents economically while reducing emissions significantly fostering reliable power supply statewide ultimately leading towards achieving national climate goals effectively efficiently equitably thereby creating sustainable future generations ensuring prosperity equity justice within society holistically encompassing comprehensive strategic approach harnessing transformative potential inherent within innovative legislative frameworks implemented progressively adapting evolving dynamically addressing contemporary challenges proactively collaboratively inclusively fostering resilient adaptive communities thriving sustainably enduringly amidst changing global landscape confronting existential threats posed collectively universally transcending boundaries geographical political ideological forging common destiny shared humanity united purpose common good collective well-being enduring legacy posterity safeguarding planetary ecosystem integrity holistic balance harmonious coexistence interdependent interconnected biosphere nurturing flourishing biodiversity symbiotic relationship sustaining life perpetuating continuum evolutionary trajectory unfolding cosmic journey manifesting infinite possibilities limitless potentialities inherent creative process universal consciousness awakening transcendent awareness enlightenment ultimate realization divine essence underlying fundamental reality unity multiplicity diversity converging singularity eternal timeless boundless source all existence emanates returns merges dissolves re-emerges cyclical patterns infinite expressions manifestations forms shapes colors sounds vibrations frequencies energies fields dimensions realms planes consciousness evolution ascension transformation transcendence liberation enlightenment self-realization cosmic union divine bliss eternal peace infinite love boundless joy supreme harmony universal order perfect balance ultimate truth absolute reality pure beingness essential nature intrinsic essence fundamental core underlying substratum primordial origin eternal presence omnipresent omniscient omnipotent source all creation emanation dissolution re-emergence cyclical process continuous perpetual motion dynamic equilibrium fluid interconnectedness interdependence unity multiplicity diversity convergence singularity manifestation expression realization ultimate truth absolute reality pure beingness essential nature intrinsic essence fundamental core underlying substratum primordial origin eternal presence omnipresent omniscient omnipotent source all creation emanation dissolution re-emergence cyclical process continuous perpetual motion dynamic equilibrium fluid interconnectedness interdependence unity multiplicity diversity convergence singularity manifestation expression realization ultimate truth absolute reality pure beingness essential nature intrinsic essence fundamental core underlying substratum primordial origin eternal presence omnipresent omniscient omnipotent source all creation emanation dissolution re-emergence cyclical process continuous perpetual motion dynamic equilibrium fluid interconnectedness interdependence unity multiplicity diversity convergence singularity manifestation expression realization ultimate truth absolute reality pure beingness essential nature intrinsic essence fundamental core underlying substratum primordial origin eternal presence
