What is Direct Pay (or Elective Pay Policy)?

What is Direct Pay (or Elective Pay Policy)?
Published on
July 12, 2023

Clean energy has emerged as a prominent subject of discourse these days, and it's no longer just a concern for environmental activists. It's about energy security, job creation, technological innovation and even financial opportunities.  

That's where the Direct Pay provision under the Inflation Reduction Act steps in. Whether you're a taxpayer, a manufacturer, a governmental entity, or a non-profit organization, understanding this could potentially help you play an active role in the clean energy economy. 

Direct Pay provision under the Inflation Reduction Act

The Inflation Reduction Act 

The Inflation Reduction Act, signed into law by President Biden in 2022, represents a big leap forward for clean energy and climate change action in America. The act doesn't just aim at reducing inflation; it's also about building a better, greener America, staying at the forefront of global clean energy tech and creating good-paying jobs. 

The Direct Pay (or Elective Pay) Policy 

One of the game-changing provisions of The Inflation Reduction Act is the Direct Pay (or elective pay) policy. So, what's the big deal about it? Well, traditionally, tax credits for clean energy technologies were enjoyed mostly by taxable entities. However, Direct Pay changes that. It lets tax-exempt entities like local governments, states, tribes, territories, and nonprofits also cash in on the action. They can now actively participate in building the clean energy economy and make renewable energy more affordable for working families, contributing to environmental justice. 

That's not all. The Inflation Reduction Act also includes other incentives to speed up the shift to a clean energy economy. It includes provisions related to prevailing wages and apprenticeship programs and a massive commitment of over $369 billion in new investments to build the clean energy economy. The provision also provides a direct payment option for non-taxable entities investing in and producing clean energy, in lieu of tax credits. 

In a nutshell, the Inflation Reduction Act and its Direct Pay provision is more than just law; it's an invitation to every American - individual or entity, taxable or tax-exempt - to join in the fight against climate change and in building a greener future. It's also an opportunity for everyone to benefit from the economic opportunities presented by the clean energy industry. So, whether you're a policy guru, an environmental enthusiast, or just an ordinary citizen, it's definitely worth your time to understand this. 

Direct Pay provision under the Inflation Reduction Act

How to Benefit from the Direct Pay Policy

The Inflation Reduction Act's Direct Pay policy has significant implications for local governments, states, tribes, territories, and nonprofits, entities that traditionally have been unable to access the tax credits that encourage the adoption of clean energy technologies due to their tax-exempt status. However, the Direct Pay policy changes this by allowing these tax-exempt entities to participate in the clean energy economy by using tax credits and grants for the development and expansion of clean energy projects. 

Specifically, tribal governments now have access to three major types of funding: grant and loan guarantee programs for implementing energy projects, direct payments for implementing clean energy technologies and energy efficiency projects, and expanded funding for environmental and energy programs. This is particularly significant given that tribal governments have historically faced challenges in accessing public finance tools to stimulate economic development and deliver essential services. 

The Inflation Reduction Act offers substantial benefits for local governments and states. Under the new Direct Pay policy, non-profits, state entities, and municipalities can treat certain tax credits, like the Investment Tax Credit (ITC) and Production Tax Credit (PTC), as payment and receive a cash refund. Tax-exempt organizations can leverage tax credits and grants provided by the Inflation Reduction Act's Direct Pay policy to purchase tech solutions like Sesame Solar's Renewable Mobile Nanogrids.  

These measures mean that local governments, states, tribes, territories, and nonprofits now have a unique opportunity to participate in the drive towards a clean energy economy. They can leverage the funding and incentives offered by the Inflation Reduction Act to build infrastructure that supports renewable energy generation, thereby reducing energy costs for their constituents and contributing to the broader effort to combat climate change

For additional information or to schedule a call, please email us today at  TeamSeasame@Sesame.solar  

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