By the numbers, a new federal program designed to give low-income communities access to renewable energy looks like a smashing success. According to data provided exclusively to Heatmap, in its first year, the Low-Income Communities Bonus Credit Program steered nearly 50,000 solar projects to low-income communities and tribal lands, which are together expected to produce more than $270 million in annual energy savings.
But those topline numbers don’t say anything about who will actually see the savings, or how much the projects will benefit households that have historically been left behind. In reality, the majority of the projects — about 98% — were allocated funding simply for being located in low-income communities, with no hard requirement to deliver energy or financial savings to low-income residents.
A closer look at the data reveals a more complicated success story. While the program did make some clear strides in bridging the solar inequality gap, other factors — including the language in the law that created it — are also holding it back.
The Low-Income Communities Bonus Credit Program came out of the Inflation Reduction Act in August 2022. Though the goal is to increase solar access for low-income households, it’s not actually a tax credit for low income households. It’s for small wind and solar developers — and beginning in 2025, developers of other types of clean energy — whose projects meet certain criteria.
The law caps the total amount of energy the program can support at 1.8 gigawatts per year, and developers have to apply and get their project approved in order to claim funds. To be eligible, a project must produce less than 5 megawatts of power and fall under one of four categories: It must be located in a low-income community, be built on Indian land, be part of an affordable housing development, or distribute at least half its power (and guaranteed bill savings) to low-income households. The first two categories qualify for a 10% credit; the second two, which stipulate that at least some financial benefits go to low-income residents, qualify for 20%. In both cases, the credit can be stacked on top of the baseline 30% tax credit for clean energy projects that meet labor standards, meaning it could slash the cost of building a small solar or wind farm in half.
Each of these provisions has the potential to address at least some of the barriers disadvantaged communities face in accessing clean energy. Low-income homeowners may not have the money for a down payment for rooftop solar or the credit to find financing, for instance. But by giving developers a tax credit for projects located in low-income communities, solar leasing programs, in which homeowners lease panels from a third party in exchange for energy bill savings, now have an incentive to expand into these neighborhoods, and potentially offer lower lease rates. The program helped fund nearly 48,000 residential solar projects in the first year.
Tribal lands, meanwhile, account for more than 5% of solar generation potential in the U.S., but are still a largely untapped resource, for reasons including lack of representation in utility regulatory processes, complex land ownership structures, and limited tribal staff capacity. The program gives outside developers additional incentive to work through the challenges, and it also earmarks funds for tribe-owned development. Crucially, the IRA also opened the door for tribes, as well as other tax-exempt entities, to utilize clean energy incentives and receive a direct payment equal to the tax credits. The program supported 96 solar projects on tribal lands in the first year.
The third category attempts to overcome the famous “split incentive” problem for low-income renters whose landlords have little reason to spend money on a solar project that primarily benefits tenants. The program helped finance 805 solar projects on low-income residential buildings, where the developers are required to distribute at least 50% of the energy savings equitably among tenants.
Lastly, while renters in some states can subscribe to community solar projects, which offer utility bill credits in exchange for a small subscription fee, the subscriptions can be scooped up by wealthier customers if there’s no low-income requirement. The program sponsored 319 community solar projects where at least half the capacity had to go to low-income residents and offer at least 20% off their bills.
U.S. Deputy Secretary of the Treasury Wally Adeyemo declared the program a success. “These investments are already lowering costs, protecting families from energy price spikes, and creating new opportunities in our clean energy future,” he said.
Despite overwhelming demand during the four-month application period, however, the program ended up with capacity to spare. Although applications totaled more than 7 gigawatts, ultimately, the Department approved just over 49,000 projects equal to about 1.4 gigawatts, or roughly enough to power 200,000 average households. All of it was solar.
The gap between applications and awarded projects has to do with the program’s design. The Treasury divided the 1.8 gigawatt cap between the four categories, setting maximum amounts that could be awarded for each one. Within the four categories, the awards were further divided, with half set aside for applicants that met additional ownership or geographic criteria, such as tribal-owned companies, tax-exempt entities, or projects sited in areas with especially high energy costs relative to incomes.
For example, 200 megawatts were earmarked for Indian lands, with half reserved for applicants meeting those additional criteria, but only 40 megawatts were awarded. The fourth category, meanwhile, which was designed to encourage community solar development, was oversubscribed.
Since tax data is confidential, the Treasury Department could not share much detail about these projects, including where, exactly, they were, who developed them, or who will benefit from them. A map overview shows a concentration of awards across the sunbelt, with Illinois, New York, Maine, Massachusetts, and Puerto Rico also seeing a lot of uptake.
IRS, RAAS, Statistics of Income, August 2024
I reached out to more than a dozen nonprofits, tribal organizations, and other groups who advocate for or develop clean energy projects benefiting low-income communities to find examples of what the program was actually funding. The first person I was connected with was Richard Best, the director of capital projects and planning for Seattle Public Schools, who got a 10% tax credit for solar arrays on two new schools under construction in low-income neighborhoods. While the school system already planned to put solar on these schools, Best said the tax credits helped offset increased construction costs due to supply chain interruptions, preventing them from having to make compromises on design elements like classroom size.
“It's not insignificant,” he told me. “The solar array at Rainier Beach High School is in excess of a million dollars — just the rooftop solar array. That's $400,000 [in tax credits]. So these are significant dollars that we're receiving, and we're very appreciative.”
Jody Lincoln, an affordable housing development officer for the nonprofit ACTION-Housing in Pittsburgh, Pennsylvania, got a 10% tax credit to add solar to a former YMCA that the group recently converted to a 74-unit apartment building. The single room occupancy rental units serve men who are coming out of homelessness or incarceration. Lincoln told me the building operates “in the gray,” and that any cost saving measures they can make, including the energy savings from the solar array, enable it to continue to operate as affordable housing. When I asked if they could have built the solar project without access to the IRA’s tax credits, she didn’t hesitate: “No.”
These two examples show the program has potential to deliver benefits to low-income communities, even in cases where the energy savings aren’t going directly to low-income residents.
I also spoke with Alexandra Wyatt, the managing policy director and counsel at the nonprofit solar company Grid Alternatives. She told me Grid partnered with for-profit solar developers, such as the national solar company SunRun, who were approved for the tax credit bonus for rooftop solar lease projects on low-income single-family homes. In these cases, Grid helped pull together other sources of funding like state incentives for projects in disadvantaged communities to pre-pay the leases so that the homeowners could more fully benefit from the energy bill savings.
It’s unlikely that all of the nearly 48,000 residential rooftop solar projects in low-income communities that were approved for the credit in the first year had such virtuous outcomes. It’s also possible that projects installed on wealthier homeowners’ roofs in gentrifying neighborhoods were subsidized. In an email to me, a Treasury spokesperson said the Department recognizes that “simply being in a low-income community does not mean low-income households are being served,” and that it was required by statute to include this category. It was still the agency’s decision, however, to allocate such a large portion of the awards, 700 megawatts, to this category — a decision that some public comments on the program disagreed with.
Wyatt applauded the Treasury and the Department of Energy, which oversees the application process, for doing “an admirable job on a tight timeframe with a challenging program design handed to them by Congress.” She’s especially frustrated by the 1.8 gigawatt cap, which none of the other renewable energy tax credits have, and which changes it into a competitive grant that’s more burdensome both for developers and for the agencies. It adds an element of uncertainty to project finance, she said, since developers have to wait to see if their application for the credit was approved.
Wendolyn Holland, the senior advisor for policy, tax and government relations at the Alliance for Tribal Clean Energy told me there was tons of interest among indigenous communities and tribal clean energy developers in taking advantage of the IRA programs, but it wasn’t really happening. Holland cited challenges for tribes reaching the stage of “commercial readiness” required to apply for federal funding. Tribal developers have also said they are limited by the lack of transmission on tribal lands. When I asked the Treasury about the paltry number of projects on Indian Lands, a spokesperson said it was not for lack of trying. The Department and other federal agencies have conducted webinars and other forms of outreach, they said, through which they’ve heard that many tribes are struggling to access capital for energy projects, and that development on Indian lands has “unique challenges due to the history of allotment of Indian lands and status of some land as federal trust land.”
Holland is optimistic that things will change — in December, Biden issued an executive order committing to making it easier for tribes to access federal funding. The Alliance also recently petitioned the Federal Energy Regulatory Commission to address barriers for tribal energy development in its new rules that are supposed to get more transmission built.
The unallocated capacity from 2023 was carried over to the next year’s round of funding, so it wasn’t lost. But a dashboard tracking the second year of the program looks like it's following a similar pattern. While the community solar-oriented category, which was increased to allow for 900 megawatts, is nearly filled up, the tribal Lands category, which kept its 200 megawatt cap, has received applications to develop less than a sixth of that.
Wyatt said that so far, she does think the bonus credit has been successful in spurring good projects that might not otherwise have happened. Still, it will probably take a few years before it will be possible to assess how well it’s working. The good news is, as long as it doesn’t get repealed, the program could run for up to eight more years, leaving plenty of time to improve things. It’s already set to change in one key way. Beginning in 2025, it becomes tech-neutral, meaning that developers of small hydroelectric, geothermal heating or power, or nuclear projects, will be able to apply. (When asked why no wind projects were approved to date, a spokesperson for the Treasury said taxpayer privacy rules meant it couldn’t comment on applications, but they added that wind projects tend to be larger than 5 megawatts and take longer to develop.)
One thing is for sure, despite the heavy administrative burden of screening tens of thousands of applications, the agencies involved are clearly committed to implementing the program.
“I’m definitely pleased that they managed to get the program up and running as quickly as they did,” Wyatt told me. “I mean, it's kind of lightning speed for the IRS.”
IRS, RAAS, Statistics of Income, August 2024
Double trouble. GEM