Many Tools in Toolbox for Meeting Your Organization’s Sustainable Energy GoalsMay 31, 2022
Many organizations have developed ESG and other sustainable energy goals, including increasing their energy efficiency, increasing their use of renewable or other carbon free or carbon neutral energy, reducing their carbon footprint and increasing their use of electric or other alternative fuel vehicles. Fortunately, there are many financial and other tools that can be used to cost-effectively work to meet your goals and, in many cases, to obtain cost savings while pursuing your goals.
Solar and small wind Investment Tax Credit (“ITC”). The federal government provides up to a 26 percent tax credit for among other things the installation of solar photovoltaic, solar heating, solar plus storage, small wind generation and small wind plus storage, provided construction “begins” this year. If it begins next year, the credit is reduced to 22 percent and if it begins after that, it is reduced to 10 percent, and ultimately to zero. So, if your organization is considering incorporating renewable energy that qualifies for the investment tax credit, it is important to have a plan to meet the begin construction requirements, which allow alternative methods of compliance through on-site actual physical construction, off-site actual physical construction or meeting a 5 percent spend “safe harbor.” However, each of these methods have specific requirements that are important to make sure you meet. For example, the off-site actual physical construction requirement does not allow for the purchase of inventory-type equipment, and all methods have requirements for continuation of construction.
Significant tax depreciation benefits. In addition to investment tax credits on certain clean energy systems, substantial depreciation benefits are available on most energy equipment, including solar, battery storage, charging equipment and energy-efficient equipment. For some entities, because of the 2017 Tax Reform Act, immediate expensing may be available, and others likely may be able to take advantage of an accelerated MACRS depreciation schedule. For organizations receiving the investment tax credit on solar or other projects, the depreciable basis of the energy equipment is reduced by one-half of the tax credit received, but depending on your organization’s tax situation, the combination of the tax credit and depreciation benefits may reduce the effective cost of ITC-eligible clean energy improvements by up to 50 percent or more.
Potentially taking advantage of benefits of tax credit and depreciation even if your organization does not pay taxes. If your organization is tax exempt, non-taxable, has a special tax status (e.g., a real estate investment trust or cooperative), or does not have sufficient tax liability to take advantage of the ITC and depreciation, it still may be able to share in the value of these significant tax benefits through solar service agreements or power purchase agreements to the extent allowed by local utilities and state law. In some cases, equipment leasing may be used instead. Also, some utilities have beneficial tariff programs that efficiently share available tax benefits with utility customers. For example, Madison Gas & Electric’s Renewable Energy Rider Program has become a popular opportunity for our clients and others to receive the value of solar tax benefits by receiving clean energy and capacity credits from dedicated utility-owned systems at a reduced price that reflects the tax benefits.
Grants and other incentives. Whenever pursuing any clean energy project, it is important to check out available grants and other incentives. For example, Wisconsin’s Focus on Energy program includes incentives for numerous energy efficiency measures as well as renewable energy systems, and most other states have similar programs. Especially if your organization is pursuing significant energy improvements or plans to build new energy efficient facilities, it can be valuable to connect with a Focus on Energy representative to make sure you are taking maximum advantage of Focus incentives. Also, Wisconsin provides competitive an Energy Innovation Grant Program (EIGP) that can pay for up to half of the cost of energy improvements, and energy efficiency and renewable energy improvements in rural areas can potentially receive 25 percent Rural Energy for America Program competitive grants from USDA.
Low-cost financing options. In addition to tax benefits and grants, your organization may be able to take advantage of low-cost financing opportunities for its sustainable energy projects. For example, most Wisconsin counties allow for property accessed clean energy (PACE) financing, which allows for energy efficiency and renewable energy projects to be financed through a special assessment on the property instead of a traditional loan. This can allow for a reduced effective interest rate and can potentially free up capital for other needs.
Rental of land for solar or solar plus storage projects. If your organization has excess land that is presently unused, farmed, or that otherwise receives low or no rent, you may want to consider whether it would be valuable to rent for it for solar or solar plus energy storage as a part of your organization’s sustainability initiatives and to receive substantial rental income. Several of our clients with farmland have entered option and lease agreements to rent their farmland for several times the income they would receive under a crop lease.
EV charging. Significant additional electric vehicle charging is needed as more and more EVs hit the road. Adding charging capacity will be critical to your organization’s operations if you plan to go electric. Also, it can a valuable opportunity to bring customers to your retail and other operations, since they can shop, eat, be entertained, or otherwise visit your facilities while they charge. If your organization is interested in increasing your charging capacity, especially if you have facilities along facilities along designated alternative fueling corridors, it is important to follow Wisconsin and other states’ plans to receive and distribute their share of the $5 billion in EV charging funding for facilities. Also, if your organization is a state, metropolitan planning organization, local government, political subdivision, or tribal government, it is important to track the $2.5 billion total available under the discretionary grant program for charging and fueling infrastructure under the Infrastructure Act directly available to those organizations on a competitive basis. In addition, it is important to consider partnership opportunities to finance the cost of charging at your facility. For example, Tesla’s destination charging program could be valuable to your organization.
If you would like further information regarding the above or other tools and strategies to cost-effectively implement your organization’s sustainable energy goals, please contact John Clancy.