In coming years, trillions of dollars will be invested in renewable energy. The transition from fossil fuels is already well underway and will give the American public expanded opportunities to become the owners of the energy they use. 

The Inflation Reduction Act (IRA), signed into law by President Joe Biden in 2022, includes a new mechanism for tax-exempt municipalities to take advantage of the law’s clean energy tax incentives. Historically, only taxpaying entities, such as corporations, were able to tap renewable-energy tax incentives. But the IRA has changed the game by authorizing direct-pay tax credits to local governments to fund energy-related assets. 

This means that counties, townships, municipalities and school districts can now tap into federal support in order to build solar fields, install geothermal heating, or even invest in clean fuel school buses. Under the IRA, the upfront cost of an energy asset can be partially offset with a cash payment from the federal government equal to 30% or more of the cost of the asset. 

How can a municipality or other public entity begin to take advantage of these significant federal incentives? 

Almost certainly, solar developers will be looking for opportunities to team up with public entities to make such projects a reality. The developer will need an agreement with the municipality to gain advantageous financing from interested banks, credit unions, or community development financial institutions. The municipality has the opportunity to structure the agreement so that the municipality ultimately has the right to buy a full or partial interest in the solar system, including any associated energy storage component.

These are complicated transactions, and this very brief description of the IRA is not intended as professional tax or financial advice. But the IRA has opened up new possibilities for how we think about energy. And it can move our country closer to a long-sought goal of the Clamshell Alliance: to end American reliance on large, centralized, polluting energy facilities controlled by large corporations, and begin creating safer, renewable energy technologies owned by the people who use them.