Direct pay, a provision introduced by the Inflation Reduction Act, benefits a wide range of clean energy projects by allowing tax-exempt and governmental entities to receive a payment equal to the full value of tax credits. This provision is particularly advantageous for the following types of projects:
Benefited Clean Energy Projects
- Solar Energy Projects: Direct pay supports both utility-scale and community solar projects, enabling entities like municipalities, nonprofits, and tribal nations to invest in solar infrastructure. For instance, the City of Denver has used direct pay to build multiple solar gardens, benefiting both the environment and local residents.
- Wind Energy Projects: Similar to solar projects, wind energy installations also qualify for direct pay, helping entities develop local wind farms that provide clean energy and economic benefits.
- Battery Storage Projects: Essential for stabilizing the grid and ensuring reliable clean energy supply, battery storage projects are also eligible for direct pay. This support helps integrate renewable energy more effectively.
- Electric Vehicle (EV) Charging Infrastructure: Direct pay incentives encourage the development of EV charging stations, especially in low-income neighborhoods, promoting the transition to cleaner transportation options.
- Clean Vehicles for Public Fleets: Governments can use direct pay to purchase clean vehicles, reducing emissions from public transportation and supporting climate action.
- Carbon Capture and Sequestration (CCS) and Clean Hydrogen Projects: These technologies are also eligible for direct pay, supporting industries that reduce emissions from industrial processes.
Benefits for Specific Entities
- Nonprofits: Direct pay allows nonprofits to own and benefit fully from clean energy projects, unlike previous models that required partnerships with for-profit entities to access tax credits.
- Tribal and Native Entities: Tribes can benefit from direct pay by developing solar or wind projects that provide energy independence and economic opportunities.
- State and Local Governments: These entities can use direct pay to fund larger projects more quickly, advancing environmental justice and reducing pollution.
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