ICAST Experts Weigh In: The Inflation Reduction Act: Potential for Scaling Solar in Underserved Communities

ICAST Experts Weigh In: The Inflation Reduction Act: Potential for Scaling Solar in Underserved Communities

By Sam Lipman | ICAST Director of Solar Programs

Mr. Lipman is responsible for the development of shared solar projects, thus furthering ICAST’s work to help underserved communities benefit from clean energy solutions.  

While solar PV generation in the U.S. has grown dramatically, this growth has not translated into significant access for low- and moderate-income (LMI) communities. Compared to the broader population, solar adopters tend to identify as non-Hispanic white, be primarily English-speaking, have higher education levels, work in business and finance-related occupations, and live in higher-value homes. Median solar adopter annual income in 2021 was approx. $110,000—almost double the median annual income for all households nationwide.

ICAST’s focus is serving LMI households living in multifamily affordable housing (MFAH) and disadvantaged communities (DACs). We are continually finding new ways for our customers to benefit from energy efficiency and renewable energy. As we have previously reported, the Inflation Reduction Act (IRA) includes billions of dollars in grants and loans to spur financing and deployment of clean energy projects that cut greenhouse gas emissions and other pollutants. A large portion is reserved for/designed to benefit DACs, energy communities, and other communities in need.

As with many of these large federal programs, the IRA processes and procedures can be quite onerous to understand, let alone execute on. The major driver for PV Solar is an increase of the Investment Tax Credit (ITC) to 30%. This will encourage new solar projects across the residential, commercial and industrial, and utility-scale sectors. However, the key to solar-for-LMI is the IRA’s Tax Credit Bonus provision of the Act. Developers can receive additional credits depending on siting and population served. For example, a solar project on Indian Lands will result in an ITC of 40% (30% + 10%). If that project also serves a low-income (LI) community, the ITC receives an additional 10% for a total of 50%.

Table 1. IRA Bonus Tax Credits

A substantial portion of the LI Tax Credit Bonus will be allocated to Community Solar (CS) projects, i.e., solar projects or purchasing programs that benefit multiple customers, such as individuals, nonprofits, and others. With CS, customers are typically benefiting from the energy that is generated off-site. Projects are often owned by a third-party investor, and they do not require expensive capital outlays for equipment. These features are relevant to LMI populations because the CS model removes several barriers that can prevent LMI households from accessing the benefits of solar. For example:

• LMI renters can have difficulty benefiting financially from solar since they do not control their roofs.
• LMI homeowners with below-average credit scores often cannot qualify for PV system financing.
• Most LMI households do not have sufficient tax liability to take advantage of the federal residential solar tax credit.
• Federal housing assistance programs are structured in a way that can limit LMI households’ ability to save money with solar.

Per recent projections (released shortly before the IRA’s signing), 7-8.2 Gigawatts_DC of CS is expected to come online by 2027, so the potential for benefitting LMI communities is significant. Unfortunately, IRA’s ability to enhance this growth and the Act’s overall success hinge on several factors:

• Execution: A law this size requires thousands of personnel and agency staff to work through its details and release critical guidance timely and accurately.
• Infrastructure: We will need to double, if not triple, America’s transmission capacity by 2035. This will require thousands of miles of new high-capacity lines being built per year, with a total projected increase of 91,000 miles of new transmission lines in the U.S. within the next 13 years. It is important to note that the Bipartisan Infrastructure Law contained billions of dollars for upgrading existing power infrastructure and building new transmission lines.
• Scope: There are questions as to whether the Act goes far enough. For example, it provides $75M to help guarantee up to $20B in loans to support Tribal investment in energy-related projects, yet the annual Tax Credit Bonus allocation for Tribes is only 200 MW/yr., or about $400M based on $2 per watt. All allocations may run the risk of leaving projects out that would otherwise contribute to the LMI community.
• Politics: The IRA was passed without one Republican vote in the House of Representatives, and the Republicans now control the House. Political battles may not kill the Act but could certainly affect its overall impact.

Since the IRA was signed in 2022, ICAST has been working to understand how it may impact our customers and build our staff capacity to take advantage of the new funds. However, it’s early days, and it remains to be seen how the factors above will affect the IRA’s implementation and overall impact.

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Learn about ICAST’s solar work here.