Leveraging Clean Energy Tax Credits: A Strategic Opportunity for Nonprofits

Created By: CJ Orr
May 9, 2024

The global push for environmental sustainability has gained significant momentum in recent years, prompting governments to introduce various initiatives to incentivize clean energy adoption. One such initiative is the Inflation Reduction Act (IRA), which offers tax credits to qualifying entities investing in renewable energy projects.

Embedded within this landmark legislation are significant clean energy tax credits that can be a game-changer for nonprofits. By leveraging these credits, tax-exempt organizations can fund clean energy initiatives, reduce their environmental footprint, maximize their impact, and further their missions. Understanding how nonprofits can access these incentives and utilize them effectively is crucial for maximizing their benefits and driving positive change.

Understanding Clean Energy Tax Credits

Tax credits are essentially tax reductions the government offers to incentivize specific behaviors. Clean energy tax credits reward organizations that invest in renewable energy technologies and implement energy-saving measures such as solar, wind, and geothermal energy. These credits can significantly offset the upfront costs of clean energy projects for nonprofits looking to embark on sustainability initiatives or expand their environmental efforts, tapping into these tax credits can prove to be a game-changer.

Nonprofits, despite being tax-exempt, can still benefit in several ways:

• Transferability: In jurisdictions that allow it, nonprofits can sell tax credits to taxable entities, converting them into financial support for their mission or projects.
• Partnership Models: Nonprofits can collaborate with taxable entities to undertake clean energy projects, with the partner claiming the tax credit and passing on financial benefits to the nonprofit.
• Subsidized Services: Some government programs, utility companies, or private organizations offer subsidized energy assessments or installations, working alongside tax credits to reduce project costs.
• Funding Synergy: Grants and other forms of assistance can be combined with tax credits, stretching resources to implement more impactful projects.
• Rebates: State or local programs may offer rebates for energy-efficient upgrades or renewable installations, directly reimbursing or supplementing tax credits.

By exploring these avenues, nonprofits can navigate clean energy tax credits and initiatives despite not having direct tax liabilities, supporting sustainable projects and furthering their missions.

Leveraging Clean Energy Tax Credits for Greater Impact

To achieve broader goals and maximize their impact, nonprofits can utilize tax credits and incentives in several ways:

• Greater Cost Savings: By offsetting some of the expenses associated with clean energy projects, nonprofits can redirect funds toward other critical areas of their operations, such as program expansion, staff development, or community outreach initiatives. This financial relief can enable organizations to achieve their goals more efficiently and sustainably in the long run.
• Responsible Stewardship: Investing in clean energy allows nonprofits to make a tangible environmental impact. By reducing reliance on fossil fuels and transitioning to renewable energy sources, organizations can lower their carbon footprint and contribute to mitigating climate change. For nonprofits with a focus on environmental conservation or sustainability, embracing clean energy not only aligns with their mission but also demonstrates responsible stewardship.
• Enhanced Reputation and Donor Engagement: Participating in clean energy initiatives can enhance a nonprofit’s reputation and strengthen donor engagement. In an environmentally conscious society, supporters are drawn to organizations prioritizing sustainability. By incorporating clean energy into their operations, nonprofits can attract like-minded donors, foster deeper connections with existing supporters, and differentiate themselves in a competitive landscape.

Examples: Putting Clean Energy Tax Credits into Action

Here are a few scenarios showcasing how different types of nonprofits can leverage clean energy tax credits:

• Healthcare Organization: A nonprofit research institute dedicated to advancing medical knowledge can invest in a solar panel installation to power its research facilities. The ITC from the IRA can significantly reduce the upfront cost, allowing the institute to save on electricity and dedicate more resources to funding research projects, purchasing equipment, and supporting scientific studies.
• Educational Institution: A private school can invest in geothermal heating and cooling systems. The Section 179 deduction can help offset the cost of this energy-efficient technology, leading to long-term savings on utility bills. These savings can then be directed toward enhancing educational programs or providing scholarships.
• Community Center: A community center serving a low-income neighborhood can undertake an energy-efficient lighting upgrade, replacing outdated fixtures with LED lights. This upgrade qualifies for rebates and credits that reduce the project’s costs, allowing the center to save on energy bills. The savings can be reinvested into programs and services that benefit the community.

While these are just a few examples, clean energy tax credits can unlock significant financial, environmental, and operational benefits for nonprofits across diverse sectors, helping them achieve both their immediate goals and broader missions.

How to get started:

• Assess Eligibility: Before embarking on any clean energy projects, nonprofits should assess their eligibility. While the specifics may vary depending on the project’s nature and local regulations, most renewable energy initiatives, such as commercial clean vehicles and installations such as solar panel systems or wind turbines, are likely to qualify for federal tax incentives.

• Look for Expert Guidance: Navigating the intricacies of tax credits and clean energy incentives can be complex, especially for organizations unfamiliar with the process. As such, it is highly recommended that organizations seek expert guidance from professionals with experience in renewable energy financing and tax law. This will help organizations understand their options, maximize available incentives, and ensure compliance with relevant regulations.

• Explore Financing Options: While the upfront costs of clean energy projects can be substantial, nonprofits can access various financing options to facilitate implementation. In addition to tax credits, organizations may explore grants, loans, or power purchase agreements (PPAs) to fund their initiatives.

In an era of environmental challenges and a growing imperative for sustainability, nonprofits have an opportunity to lead by example and drive positive change through clean energy initiatives. By leveraging tax credits from clean energy incentives, nonprofits can achieve cost savings, reduce their environmental footprint, enhance their reputation, and engage donors. As they adapt and innovate to pursue their missions, embracing clean energy offers a strategic and impactful path toward a brighter, greener future.

Orr Group offers creative, sustainable, and data-backed solutions to help nonprofits grow their impact. Get in touch with us today to discover how we can partner with you to achieve your mission.

CJ Orr is President and Partner of Orr Group. As an expert project and relationship manager with 10+ years of experience in the sector, CJ utilizes data, technology, and financially-backed trends to execute on the development of strategies and tactics to drive effective fundraising plans that meet or exceed targets.