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Earlier this month, the Inflation Reduction Act of 2022 was passed and signed into law. The Act covers many things – one of the most significant is the changes to the Investment Tax Credits (ITC) for solar energy. These changes were made to Section 48 of the federal tax code and include the addition of Section 48E, the Clean Electricity Investment Credit.

The ITC has been around more many years and provides a tax credit based on a percentage of the installed cost for a qualifying solar installation. This tax credit percentage has stepped down in recent years and was scheduled to go to 22% in 2023.

ITC Going Back to 30% for 10 Years

The Inflation Reduction Act raises the tax credit back to 30% and extends the credit at this rate for 10 years. This new 30% tax credit rate will also apply for any qualifying project that is put into service in 2022. For projects that are less than 1 Megawatt, the 30% tax credit it is straightforward.

Where it gets more complicated is for large solar projects (>1 MWac). Sixty days after the IRS provides guidelines (likely sometime in the first Quarter of 2023), there will be additional requirements to receive the full 30% tax credit. To receive the full tax credit, the installing contractor will have to pay prevailing wages and have an apprentice program in place.

Bonus Tax Credit Potential

Something new to the ITC is the potential to increase the tax credit above 30%. These bonus credits apply to any commercial project, whether smaller or larger than 1 MWac placed in service after December 31, 2022.

1. 10% credit increase if certain domestic product content requirements are met (i.e., a minimum % of the components must be mined, produced, or manufactured in the U.S.). IRS guidelines for this will take months to come out. Expect something around Q1 of 2023.
2. 10% credit increase for projects located in an “Energy Community”. These are projects located in areas that:
   • Are a brownfield site.
   • Have a significant dependence on the extraction, processing, or storage of fossil fuels.
   • Adjoin to communities with recently closed coal mines (after 1999) or recently closed coal-fired power plants (after 2009).
3. 10% credit increase for projects in a “Low Income Community” (as defined for new market tax credit purposes).

New Ways to Monetize the Tax Credits

The Act also provides additional options for project owners to monetize the tax credits for projects placed into service after December 31, 2022. These changes are especially significant for tax exempt entities like school districts, local government, higher education, and non-profits. Prior to the Act, tax exempt entities often needed a 3rd party PPA or lease to capture some of the value of the tax credit.

1. Direct Pay – this option allows entities, including those that are tax-exempt, to take direct payment equal to the amount of the tax credit. The bonus tax credit addons discussed above also apply.
2. Credit Transfer – this option allows taxpayers to transfer all or a portion of the tax credit to another taxpayer. There are additional requirements and timing around this.

Energy Storage Included

The Act also provides the 30% tax credit to stand-alone energy storage on its own. Prior to this act, energy storage had to be installed as part of a solar project. This would allow an existing solar project to be retrofitted with battery storage.

How Can This Help You?

This overview is intended to highlight the significant changes to the tax code that can have a substantial impact on solar projects. Navitas is happy to help you better understand the costs and benefits of solar. As always, consult your tax professional to understand your specific tax implications.

If you would like more detailed information on the changes, click here.

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About the author – Nick Rosenberry is a business development manager with Navitas. His background as a professional engineer and 18 years of experience in the energy industry help him bring a practical approach to developing strategies for public and private sector clients who want guidance in how to initiate an energy conservation program in their facilities. He can be reached at nroseberry@navitas.us.com.

Before retiring and joining the Navitas team, I spent 28 years in some form of education. I taught and coached in college before moving into public education.

I spent seven years as a teacher before moving into administration. I then spent 13 years as a building level administrator before taking on the role of superintendent at Orrick School District for four years.

As I look back, I often wished that someone had told me more about what to expect once I became a school superintendent. Many new superintendents have reached out to me asking for advice, so I thought I would share some insights.

Here are 11 things that I wish I would have known (or knew more about) before taking on the role of superintendent.

1. Always expect the unexpected. Understand that you can never fully prepare for the position, because something new will always come up.
2. Known more about construction, facility maintenance, and the financing that goes along with an improvement project. Ask lot of questions of your partner firms. They are more than happy to educate you about these topics.
3. Known more about school finance, especially federal funding like Special Education, Title and REAP. These are complicated funding mechanisms, but you’ve got to know them.
4. Make sure to understand what the goals of the board and community are for the district and understand that some people will have hidden agendas! Also know what the sacred cows are!
5. Unless you grew up in that district, you are NOT from that district. No matter how long you live and work in the community, you will never be one of their own!
6. Know who the main stakeholders are and befriend them quickly! Learn who the power players are in the school and in the community!
7. Understand the political climate of the district. It is unfortunate, but nowadays school curriculum has become a hot political topic, especially since the start of the pandemic.
8. Make sure to take care of yourself and your family! Remember that you are only human. Make sure to leave the work at work and do not bring it home! I know this is easier said than done but make you and your family a priority!
9. Give yourself time to make the right decisions. Unlike in building administration, you have a month or two (sometimes even a little longer) to make the right decision. Give yourself time to think things over.
10. Talk to other superintendents and ask questions. They were once in your shoes and will know a lot more than you and can give great advice!
11. Don’t be afraid to make the right decision! No matter what you do, you will make people mad. So always try to do what is best for students and staff of the district. You will sleep better at night!

Being a school superintendent in today’s environment is challenging, so remember to build a good support system and don’t be afraid to ask for help.

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About the author – Scott Archibald is an Education Consultant with Navitas. His background as a school administrator and 28 years of experience in the education sector help him bring a practical approach to developing strategies for school districts wanting guidance on how to initiate an energy conservation program in their facilities. He can be reached at sarchibald@navitas.us.com. 

Many school administrators face a daily struggle to balance their school budget in terms of paying for existing needs and finding dollars to implement needed improvements. K-12 schools spend around $8 billion on energy annually, making energy the second-highest operating expenditure for schools after personnel costs. This is more than is spent on instructional materials and computers combined.

Many school districts are also faced with aging facilities that require attention. The average construction year for school buildings in the United States is 1968. This means that many of our schools are over 50 years old. They have served generations of students well, but many are in dire need of improvements in order to serve future generations. However, without the passing of a bond issue, there is very little money in a school district’s budget for these improvements.

One answer maybe clean energy-related improvements. A well-designed energy efficiency and renewable energy improvement project can stabilize or reduce operating costs. These projects can include upgrades such as replacing lighting, adding insulation, replacing heating and cooling equipment, installing energy management systems and controls, adding solar systems, and replacing windows, doors, and roofs.

Clean energy-related improvements offer a range of benefits, such as:

• Lower energy consumption and bills
• Modernized infrastructure and reduced facility maintenance costs
• Improved comfort, health, and safety for students and staff
• Environmental benefits, such as bringing in more outside air into the classrooms

The Cost of Waiting Until More Money is Available

It may seem like a good idea to wait until the operating of capital budget dollars are available before implementing clean energy-related improvements rather than financing the installation immediately. This idea is attractive because if internal budget dollars are used, paying interest can be avoided completely. But delaying installation of energy conservation improvements delays the point at which energy savings can begin.

For example, if proposed project costs $500,00 (like when interior lighting is upgraded to LEDs) and has a 5-year simple payback, the average monthly savings will be about $8,333/month ($500,000 divided by 60 months). But if the school district decides to delay the project for 12 months, they will lose this savings and end up paying the local utility $100,000 ($8,333 multiplied by 12) more than if the equipment was installed immediately. That is a lot of money. In fact, the savings realized by installing the equipment immediately, rather than waiting for 12 months, would effectively reduce the interest rate for borrowed funds to 0%.

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About the author – Paul Harrell is a business development manager with Navitas. His background as a Certified Public Accountant and 33 years of experience in the education sector help him bring a practical approach to developing strategies for school districts wanting guidance in how to manage their overall budget and utility costs. He can be reached at pharrell@navitas.us.com or 913-344-0049