Funding Opportunities for Colleges and Universities
Since its passage last year, the Inflation Reduction Act has generated a steady buzz across the clean energy sector. The new law, which boosts one of the largest climate investments in history, includes $369 billion for investments in climate resilience, energy security programs and efficiency improvements. While the bulk of the funding will flow through tax credits and incentives, billions of dollars are (or soon will be) available via grants, rebates, and direct-payments for tax-exempt entities, including colleges, universities, and other institutions of higher education.
Programs funded by the IRA have the potential to reduce the nation’s greenhouse gas emissions 40% by 2030, providing a jumpstart for meeting ambitious federal climate goals. Colleges and universities play a critical role in reaching these goals, offering diverse opportunities for hundreds of communities across the nation to support an array of programs and projects needed to revitalize the clean energy economy, from workforce development and training, to research, development, and innovation, to the addition of energy improvements and renewable energy sources to reduce carbon emissions.
The IRA includes several provisions and incentives that will allow colleges and universities to deploy changes that help their campuses and communities adapt to climate change and provide for a more sustainable future. To help follow the money and understand what opportunities exist for your organization, the PowerOptions team has compiled the following list, outlining major provisions in the new law with benefits to institutions of higher education.
NOTE: The following list provides potential opportunities based on current information available from the Federal Government. Further guidance may be necessary. The PowerOptions team keeps Members updated as information becomes available. PowerOptions also partners with Members on projects, planning, and applications for applicable grant programs. Sign up here to receive updates and alerts.
Funding for Clean Energy
One of the most considerable provisions in the IRA is the extension and expansion of the Renewable Energy Investment Tax Credit (ITC). The ITC is a dollar-for-dollar reduction of tax liability meant to offset the cost of renewable energy, like solar panels, geothermal heat pumps, and energy storage systems. As most colleges and universities are nonprofit and cannot monetize tax credits, they can instead receive a direct payment between 6% to 70% of the cost, depending on project type, size, location, and community demographics.
Similarly, the Clean Energy Production Tax Credit (PTC) was also extended and expanded with the adoption of the IRA. This credit will allow schools to receive funding for the energy that they produce, and for the first time since 2006, solar arrays are eligible to take part in the savings. Unlike the ITC, which is a dollar-for-dollar reduction of tax liability, the PTC generates credit for each kilowatt-hour produced for the first ten years of a project’s lifetime, providing anywhere from $0.003 to $0.026 per kWh.
The passage of the IRA extended both the ITC and PTC to December 31, 2024, which were both set to expire this past year. For both credits, projects must have begun construction after December 31, 2021, but before December 31, 2024. Starting in 2025, the ITC and PTC will be replaced by new “tech-neutral” credits (section 48E and 45Y of the Internal Revenue Code, respectively). These credits will be available through 2032 and similar in structure to what is currently in place. It’s important to note that the ITC and PTC cannot both be claimed – institutions must choose whichever is more lucrative for their project. Typically, the PTC is more advantageous for larger systems. Depending on system size, ITC may be more beneficial more your organization.
Funding for Clean Transportation
The IRA provides significant incentives for institutions of higher education to purchase electric vehicles. Under the Commercial Electric Vehicle Tax Credit, tax-exempt entities can purchase a qualified commercial clean vehicle and receive a tax credit of up to 30% of the cost of an eligible electric vehicle or the incremental cost between the electric vehicle and a comparable internal combustion vehicle (whichever is less). Hybrid vehicles that have an internal combustion engine and at least a 15-kWh battery qualify for a 15% credit. The maximum credit amounts are based on vehicle weight, with heavy-weight vehicles (over 14,000lbs) capped at $40,000, and light-weight vehicles (less than 14,000lbs) capped at $7,500.
In addition to rebates, the IRA extended and expanded the Refueling Infrastructure Tax Credit through 2032, and retroactively to the beginning of 2022, for electric vehicle chargers. Previously, the credit amount was capped at $30,000 per location. Under the IRA, the credit now maxes out at $100,000 or 30% of the cost per charger. While this includes installation costs, it does not apply to expenses such as permitting, inspection fees, or networking costs. Also of note, in efforts to build community resilience, batteries that allow for bidirectional charging are now eligible for the credit (i.e. batteries from electric vehicles that could be used to supply power to the institution in the event of a power outage).
Funding for Energy Efficiency
Energy efficiency was another focal point of the IRA, with the new law allocating billions of dollars in tax-credits for the construction of energy efficient buildings, including the expansion of the Commercial Buildings Energy-Efficiency Tax Deduction Credit. This credit enables building owners to claim a tax deduction for qualifying energy improvements, including interior lighting, heating, cooling, ventilation, and hot water, and building a building envelope. The IRA increases the deduction for qualifying efficiency improvements to a maximum of $5.00 per sq. ft. for new and existing buildings, up from $1.88 per sq. ft. The exact amount you receive is dependent on the percentage of energy savings the project provides. Unlike other credits mentioned, tax exempt entities will not be able to claim this credit through a direct payment. Instead, the IRA allows tax-exempt entities, such as previously ineligible universities and colleges, to allocate their deduction to the designer or architect of the building, effectively selling the deduction for a negotiated amount.
The Internal Revenue Service is currently developing guidance to implement the IRA, including specifics on how tax-exempt entities can claim the direct-payment. While clarity is still needed, colleges and universities can begin project planning and modeling climate and emission impacts, to be in position for when programs’ applications open.
Do you need help evaluating your energy management options or reducing your carbon footprint? Contact our Energy Sustainability and Analytics Program Manager, Erin Camp, PhD, to start moving your organization forward.
Decarbonizing Communities and Campuses
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