���How to Cut Energy Costs Using Direct Pay �for Public Buildings and �How Local Unions Can Benefit

��May 21, 2024��

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Outline

1. Direct Pay Overview – Rachel McCleery, Treasury
2. Public Buildings & Direct Pay – Harley Stokes, BGA
3. Building Trades & Direct Pay – John Doherty, IUPAT
4. Wisconsin & Direct Pay  – Carly Eaton, BGA
5. Menasha Direct Pay Project – Brian Adesso, Menasha JSD
6. Menasha Direct Pay Project – Matthew Vanderpuy, SMART Local 18

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Recording and slides will be shared!

Use the Q&A function  to submit questions

Direct Pay and IRS Energy Credits Online 

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Ground Rules: Disclaimer

• This deck provides an overview of certain Inflation Reduction Act tax provisions for general informational purposes only and is not itself tax guidance. 
• The content in this presentation is based on regulations and other tax guidance on IRS.gov. 
• This deck relies on simplifications and generalizations to convey high-level points about Inflation Reduction Act tax provisions. Please refer to guidance issued by the IRS for detailed information on the rules associated with Inflation Reduction Act tax provisions. 

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What is Direct Pay?

• Under the direct pay provisions of the IRA, tax-exempt and governmental entities that do not owe federal income taxes will, for the first time, be able to receive a payment equal to the full value of tax credits for building qualifying clean energy projects or making qualifying investments.
• Unlike competitive grant and loan programs, in which applicants may not receive an award, direct pay allows entities to get their payment if they meet the requirements for both direct pay and the underlying tax credit.
• The entities eligible for direct pay (applicable entities) would not normally owe federal income tax. However, by filing a return and using direct pay, these entities can receive tax-free cash payments from the IRS for clean energy tax credits earned, so long as all requirements are met, including a pre-filing registration requirement.

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What is Direct Pay? 

• Direct pay is a force multiplier when it comes to investments in the clean energy transition.
• The direct pay amount varies based on the tax credit being claimed and the specific features of the project, but it can be significant.
• Grants and loans can be used in conjunction with direct pay on specific projects.
• Direct pay does require clear project planning and compliance, but it does not require applicable entities to compete for a limited pool of competitive grant dollars.

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How does Direct Pay work?

Applicable entities eligible for direct pay include:

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• Tax-exempt organizations under § 501(a), including § 501(c) and § 501(d) organizations,
• States and political subdivisions such as local governments,
• Indian tribal governments,
• U.S. territory governments and political subdivisions,
• Agencies and instrumentalities of state, local, tribal, and territorial governments – including public utilities, school districts, public hospitals and public higher education
• Alaska Native Corporations, 
• The Tennessee Valley Authority, and
• Rural electric co-operatives.

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In general, only these applicable entities can use direct pay.  However, other taxpayers that are not "applicable entities" may elect to be treated as applicable entities with respect to three credits (for carbon oxide sequestration, production of clean hydrogen, advanced manufacturing production).  

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How does Direct Pay work?

• Direct pay is applicable to 12 different tax credits related to energy generation and carbon capture, manufacturing, vehicles and fuels.  
• The value of the credit depends on (a) statutory provisions related to the credit itself and (b) the applicability of various bonus provisions (for certain credits).  
• By and large, the bonus provisions are designed to incentivize the creation of good paying jobs, domestic sourcing of materials, and location of investments in low income and energy communities.
• In thinking about how to structure and finance specific projects, it is very important to fully understand the requirements of the bonus provisions.

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Applicable Tax Credits for Direct Pay

* For footnotes, see irs.gov/pub/irs-pdf/p5817g.pdf. You can also learn more at IRS.gov/CleanEnergy and IRS.gov/ElectivePay.

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Applicable Tax Credits for Direct Pay

* For footnotes, see irs.gov/pub/irs-pdf/p5817g.pdf. You can also learn more at IRS.gov/CleanEnergy and IRS.gov/ElectivePay.

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Certain requirements and bonuses that may affect the amount of Direct Pay applicable tax credits

The program provides an increased credit of 10 percentage points or 20 percentage points to certain applicable credits that are part of the investment tax credit for certain facilities located in low-income communities, Indian lands, or federal housing projects, or serving low-income households. 

You must apply and receive a capacity allocation, and then place your facility in service to claim this bonus. 

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Prevailing Wage and Apprenticeship Requirements

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Low Income Communities Bonus Credit Program

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Domestic Content

Bonus

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Energy Communities Bonus

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For a number of the tax credits created or modified by IRA, the credit amount is increased by five times for projects that meet requirements for paying prevailing wages and using registered apprentices.

Projects or facilities that meet domestic content requirements are eligible for a 10 percent increase to the Production Tax Credit (sections 45, 45Y) or up to a 10 percentage point increase to the Investment Tax Credit (48, 48E).

For projects or facilities beginning construction starting in 2024, for taxpayers using direct pay, the domestic content requirement can also result in a reduction of the Production Tax Credit or Investment Tax Credit if it is not met.

Projects located in historical energy communities, including areas with closed coal mines or coal-fired power plants, are eligible for a 10 percent increase in the PTC and an up to 10 percentage point increase in the ITC.

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The bonus is also available to brownfield sites and to areas that have significant employment or local tax revenues from fossil fuels and higher than average unemployment.

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Closing

• More Information on Direct Pay
• IRS.gov/ElectivePay
• Pre-filing Registration User Guide; How-to-Video
• Permission Management User Guide
• FAQs
• CleanEnergy.gov/DirectPay
• Subscribe to IRS e-News Subscriptions by visiting IRS.gov/newsroom/e-news-subscriptions 🡪 Tax exempt & government entities
• More information on the IRA
• Treasury.gov/IRA
• IRS.gov/CleanEnergy
• www.whitehouse.gov/cleanenergy/inflation-reduction-act-guidebook/ 

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�Direct Pay & �Public Buildings���Harley Stokes�Senior Policy Advisor, BGA�

www.bluegreenalliance.org

www.bluegreenalliance.org

BIG PICTURE!

Clean energy tax credits

Private, taxable entities

Pre-IRA

Post-Inflation Reduction Act

Clean energy tax credits

Private, taxable entities

Public, tax-exempt entities

DIRECT PAY!

Applicable Tax Credits for Direct Pay

Investment Tax Credit (ITC) – most relevant for public buildings!

ITC & Direct Pay

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What: Payment from IRS for clean energy projects (not energy efficiency)

Who: Tax-exempt entities like public schools & universities, non-profit hospitals, municipal governments, union halls, etc. 

Why: Improve access to clean energy such as solar for public/non-profit entities. 

Where: Your city/town/school!

When: The reimbursement comes after (45 days) a project is put into service. 

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Public Buildings 

Clean Energy        vs.        Energy Efficiency

Clean energy technologies: geothermal heat pump, energy storage, solar panels, microgrid

Energy efficient technologies: updated windows & doors, LED lighting, HVAC

Direct Pay Eligible

(Direct Pay Eligible)

(NOT eligible for Direct Pay)

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Public Buildings 

With direct pay, public and non-profit entities can get reimbursed up to 50-60% of the total cost of a clean energy project for a public building:

• Solar
• Geothermal Heat Pumps
• Microgrid Control
• Energy Storage Technology

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Base Credits Eligibility

Labor Standards

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Projects that are 1 MW or less do not require labor standards; automatically qualify for 30% base credit

+30%

+30% WITH labor standards

                  or

+6% w/o labor standards

Projects that are over 1 MW  DO require labor standards for the 30% base

Labor Standards 

• Registered apprentices
• Prevailing wage

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Bonus Credits Eligibility Maps

Energy Communities Mapping Tool

Low-Income Communities Mapping Tool

+10%

+10%

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Public Buildings 

• With direct pay, public buildings, such as schools, can get reimbursed  50-60% of total clean energy project cost

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Public Buildings 

Upfront Financing Options

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Benefits of Clean Energy Projects

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•  Significant energy savings + cash reimbursement

  > Go towards increasing staff salaries

  > Additional energy efficiency upgrades

  > Fund additional clean energy projects

•  Reduce carbon emissions 
•  Make learning & working environments healthier
•  Improve staff retention 
•  Create good, local jobs 

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BGA Direct Pay 

User Guide

• How Direct Pay Works
• Example Timeline
• Eligible Entities
• Bonus credits
• Labor Standards
• Domestic Content
• Low-income Communities
• Energy Communities
• Next steps: pre-filing
• Bonus credit stacking examples

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Schools & 

Direct Pay

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Hospitals & 

Direct Pay

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BGA Public Buildings

Roadmap

• Why Public Buildings Matter
• BGA Better Buildings Approach
• Federal $$$ Opportunities for Public Buildings
• Treasury (Clean energy tax credits)
• Dept of Energy (Energy Efficiency)
• EPA (EJ & Emissions reductions)
• FEMA (Climate resilience)
• School grants
• J40 & EJ Tools

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Direct Pay & the Building Trades

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John Doherty, Senior Advisor

International Union of Painters & Allied Trades

SETTING THE TABLE FOR COLLABORATION

In this historic moment, Labor leaders in partnership with building owners, are well-positioned to act as convenors, advocates, and innovators catalyzing stronger collaboration amongst local governments, businesses, education and training providers, local Workforce Development Boards (WDBs), labor unions, labor-management partnerships, faith-based organizations, philanthropy, and other community-based organizations.

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•  Governors, Mayors, Local Elected Officials
•  School Districts, CTE Progams & Workforce Development Boards
•  Community and Faith-based Organizations & Allied Stakeholders
•  Associations and Individual Developers, Owners & Contractors

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LEARNING SCHOOLS & �WORKFORCE ENGAGEMENT

Building Trade Unions set the bar in training, certification and health & safety standards in the construction industry, the full articulation of in-school CTE programming to registered apprenticeship and can ensure students and teachers capitalize on career opportunities while meeting the apprenticeship utilization criteria to maximize IRA tax credits 

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ACCESS TO APPRENTICESHIP PATHWAYS

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The key to building a successful, collaborative pathway is a layered approach

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• DOL High Road Training Partnerships

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• Apprenticeship Readiness Programs

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• Fully Articulated K12 CTE Program

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SO WHERE DO I BEGIN?

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SETTING THE TABLE FOR OPPORTUNITY

• Community Outreach Stakeholder Engagement
• Local Coalition Building

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PROGRAMS AND SERVICES

• Identify Local Programs
• Commit to Pilot
• Address Community Needs

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INCLUSIVE PROCUREMENT & EQUITABLE CONTRACTS

• XBE Contracts
• Community Benefit Agreements
• Project Labor Agreements

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Public Buildings 

Wisconsin & Direct Pay Opportunities

Carly Eaton

Wisconsin Policy Organizer, BGA

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Maplewood Direct Pay Project

Brian Adesso, Director of Business Services

Net Zero New School Construction

• $99.7M Project
• 223,000 SQFT building
• Grades 5-8 
• Housing 1,000 students

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150 workers onsite at the height of the project

Almost all trades utilized are union members

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Clean Energy Technologies that qualify for Direct Pay

• Solar panels
• Battery Energy storage
• Microgrid
• Geothermal heat pumps

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• Project size: 1.15 MW
• Projected Energy Generation from Solar
• 1,433,000 kWh 
• ≈ equivalent of powering 119 homes annually

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• Microgrid to control everything

Financing, Costs and Tax Credit Savings

 Solar Panels + Energy Storage

• Cost Estimate: $4.4M+
• Tax Credit Savings: 
• Base Credit: 30% for meeting labor standards (prevailing wage & apprenticeship hours)
• Reimbursement Calculation: 30% - 15% (tax-exempt bond) = 25.5%
• Expected Direct Pay Reimbursement: $1.1M+

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 Geothermal System

• Cost Estimate: $13.4M+
• Tax Credit Savings:
• Base Credit: 30% for meeting labor standards (prevailing wage & apprenticeship hours)
• Bonus Credit: 10% if domestic content is met (All steel sourced from Michigan)
• Expected Savings: Additional $1M
• Tax-Exempt Municipal Bonds: 15% reduction
• Expected Direct Pay Reimbursement: $2.7M+

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Total Expected Savings

Direct Pay Reimbursement:

$3.8M+

Energy Savings:

$135,000 / year

Future Plans with the Direct Pay Funds:  Replace roof and Solar on additional buildings

How to Qualify for Base & Bonus Credits

Labor Standards 30% credit (for projects over 1 MW)

• Hired accounting firm to track everything
• Apprenticeship Hours worked should be certified and tracked
• Prior to 2024 12.5% after 2024 15% total hours for apprentices needs to be tracked
• Ratio of journeymen to apprentices need to be verified

Domestic Content +10% bonus credit

• Track material origin to see if you meet Domestic Content

Target Community +10% bonus credit

• Check to see if you are located in any special census tracts
• Energy community or Low-income community

• Shovels in the ground November 2023
• Energy projects will be put into service by June 30^th, 2025
• Submit return shortly after June 30^th, 2025
• Receive expected Direct Payment 45 days after return is submitted

Menasha School District�+ Geothermal

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Matthew Vanderpuy

SMART Local 18 

Geothermal: Menasha School District

What can Locals do to find this work?

• First assign someone or a group of people from your organization to start digging into all of the grants, rebates and tax credits that are out there for work that you craft performs. 
• Start reaching out to state entities , non-profits, municipalities, school boards, etc. that may be doing or looking to have this work performed. 
• Build working relationships with these entities so that they see you as a partner and resource. 
• Stay on top of it! This can be very daunting once you jump into it you will become the expert. 

Thank you!

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