How Businesses Can Maximize Clean Energy Incentives

This article originally was published in the Houston Business Journal and is shared here with permission.

In a recent discussion hosted by the Houston Business Journal, Traci Pelter, president and publisher, spoke with Devin Hall, managing partner for energy at Crowe LLP, to delve into the transformative impact of federal clean energy tax credits on businesses and not-for-profits.

Key takeaways:

1. Expanding access to clean energy incentives

The Inflation Reduction Act of 2022 has broadened the scope of clean energy tax credits, making them accessible to a wider range of entities, including not-for-profit organizations. These incentives come in two primary forms:

• Investment tax credits (ITCs): Based on the amount invested in qualified clean energy properties
• Production tax credits (PTCs): Tied to the volume of energy produced by eligible systems

Notably, not-for-profits now can benefit through a “direct pay” option, allowing them to receive cash payments equivalent to the credit value, thereby monetizing their investments in clean energy projects.

2. Navigating complex compliance requirements

While these credits offer substantial benefits, they come with intricate compliance obligations. Organizations must adhere to specific criteria, such as prevailing wage standards and apprenticeship requirements, to qualify. Hall emphasized the importance of engaging knowledgeable advisers to navigate these complexities and verify proper documentation, especially in anticipation of potential IRS audits.

3. Emerging market for transferable credits

A significant development is the emergence of a market for transferable tax credits. Entities with substantial tax liabilities can purchase these credits at a discount, providing liquidity to developers and flexibility to buyers. Hall said this market has expanded rapidly, with estimates suggesting that $25 billion in tax credits were transferred in 2024 alone.

4. Stimulating domestic manufacturing

The incentives also are driving a resurgence in U.S.-based manufacturing. Companies are relocating production facilities to the United States to capitalize on these credits, leading to increased investments in solar panel manufacturing, battery storage, and related components. Texas, in particular, is witnessing a surge in such activities, bolstering local economies and job creation.

Strategic implications for stakeholders

Businesses and not-for-profits aiming to use these tax credits should:

• Engage expert advisers: To navigate the complex eligibility and compliance landscape
• Maintain thorough documentation: To substantiate claims and prepare for potential audits
• Explore credit transfer opportunities: To optimize financial strategies and liquidity
• Monitor policy developments: To stay informed about evolving regulations and opportunities

As the clean energy sector continues to evolve, these tax credits represent a pivotal tool for fostering innovation, sustainability, and economic growth across various industries.