Scaling Low-Income Solar with the Inflation Reduction Act

The document argues that tax-exempt entities—such as CDFIs, green banks, and cooperatives—can overcome financial barriers to low-income solar adoption by becoming third-party owners. This model utilizes the IRA's 'direct pay' mechanism, Greenhouse Gas Reduction Fund (GGRF) capital, and bonus tax credits to reduce costs for LMI households, who often lack the tax liability to benefit from traditional residential credits.

• Low-income households face three primary barriers to solar adoption: high up-front costs, lack of affordable financing from trusted sources, and a federal tax incentive structure that requires sufficient tax liability to monetize credits. RMI analysis indicates that 40% of US households would receive no benefit from residential solar tax credits due to insufficient tax liability.
• The proposed model enables tax-exempt entities to act as third-party owners, utilizing 'elective pay' (direct pay) to receive cash payments from the US Treasury for Investment Tax Credits (ITC) and Production Tax Credits (PTC). This allows projects to access bonus 'adders'—including a 10%–20% credit for LMI communities—that are unavailable to individual taxpayers under the Section 25D residential credit.
• The model can significantly increase household savings compared to traditional loans. In a southern Nevada example, a system owned by an individual without tax liability might save $10,000 over 20 years, whereas a solar lease leveraging direct pay at 30% or 60% ITC could save between $12,600 and $17,800. Savings could rise to $20,400 if mission-driven lenders reduce required returns from 12% to 8%.
• Several organizations have implemented versions of this model: Georgia BRIGHT (a nonprofit CDFI lease program), the Columbus Region Green Fund's Impact Solar Initiative (targeting 40 MW of solar), a partnership between Solar United Neighbors and One Roof in Duluth, MN, and the Solar4Us @ Henderson-Hopkins project in Baltimore, MD.
• Implementation challenges include CDFI certification compliance (as leasing is not currently an eligible activity), Davis-Bacon Act prevailing wage requirements for GGRF-funded projects, and domestic content requirements for projects 1 MW or larger to avoid ITC reductions.
• The model's impact could be scaled by stacking direct pay with other capital sources, such as the New Markets Tax Credit (NMTC), Community Reinvestment Act (CRA) eligible investments from commercial banks, and Program Related Investments (PRI) from philanthropic foundations.

APA

Blanchard, J., Hochstrasser, F., Liu, Y., Mann, W., Mendell, R., Meyer, A., Nolette, V., Posner, A., Posner, D., Turner, A., & Varadarajan, U. (2024). Scaling Low-Income Solar with the Inflation Reduction Act. RMI. https://rmi.org/resources/scaling-low-income-solar-with-the-inflation-reduction-act/

Chicago

Blanchard, Jillian, Franz Hochstrasser, Yuning Liu, Whitney Mann, Russell Mendell, A.C. Meyer, Vincent Nolette, et al. Scaling Low-Income Solar with the Inflation Reduction Act. RMI, 2024. https://rmi.org/resources/scaling-low-income-solar-with-the-inflation-reduction-act/.

Wikipedia

{{cite report |last1=Blanchard |first1=Jillian |last2=Hochstrasser |first2=Franz |last3=Liu |first3=Yuning |last4=Mann |first4=Whitney |last5=Mendell |first5=Russell |last6=Meyer |first6=A.C. |last7=Nolette |first7=Vincent |last8=Posner |first8=Andy |last9=Posner |first9=David |display-authors=etal |title=Scaling Low-Income Solar with the Inflation Reduction Act |publisher=RMI |date=3 September 2024 |url=https://rmi.org/resources/scaling-low-income-solar-with-the-inflation-reduction-act/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{blanchard2024scaling, author = {Blanchard, Jillian and Hochstrasser, Franz and Liu, Yuning and Mann, Whitney and Mendell, Russell and Meyer, A.C. and Nolette, Vincent and Posner, Andy and Posner, David and Turner, Amy and Varadarajan, Uday}, title = {{Scaling Low-Income Solar with the Inflation Reduction Act}}, institution = {RMI}, year = {2024}, month = sep, url = {https://rmi.org/resources/scaling-low-income-solar-with-the-inflation-reduction-act/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }