EarthDance Farm Reduces the Cost of Solar Using Direct Pay
- Published on Thursday January 9th, 2025
Authors: Anna Chott (East-West Gateway Council of Governments), with review from William Hatch (Guarantee Electrical) and Doug Kolker (Wipfli LLP)
Solar arrays on buildings at EarthDance Organic Farm School (Photo credit: Terry O'Connor)
The information in this article is not tax advice. Check with a reliable tax professional to make sure that a potential project is eligible.
EarthDance Organic Farm School, a teaching farm rooted in Ferguson, MO, is excited to be generating 87% of its energy needs with its new solar array. Join them to celebrate at their solar ribbon-cutting ceremony on Wednesday, January 15th at 2pm, at 233 S Dade Ave, Ferguson, MO 63135! (Please RSVP here.) The farm worked with Guarantee Electrical to install solar panels on its McBride Community Pavilion and George Fujii Harvest House.
EarthDance received an estimate that the panels would save more than $150,000 in avoided utility costs over the course of 30 years. So in about year 14, the system should have paid for itself. By reducing the farm’s utility costs, the project enables EarthDance to reinvest in its programs, such as sliding-scale educational offerings and “Pay What You Can” produce sales. EarthDance hopes to get 30% of the total cost of the solar array back using ‘direct pay,’ also known as ‘elective pay.’
Direct pay allows tax-exempt entities such as governments, schools, and nonprofits to take advantage of clean energy tax credits to reduce the cost of clean energy projects.
According to information released by the White House, applicable entities can use direct pay for 12 of the Inflation Reduction Act’s tax credits, including for solar, wind, and battery storage; electric vehicle (EV) charging infrastructure; and clean vehicles. See a full list of applicable tax credits for direct pay here.
However, using the tax credits can be quite complicated. It is best to work with a reliable renewable energy company or tax professional to make sure that a potential project is eligible. Lawyers for Good Government also offers a Clean Energy Tax Navigator tool that can help direct you to resources on direct pay for specific potential, planned, or completed projects.
In terms of advice for other organizations considering direct pay, Walker Carlson, EarthDance’s Accounting & Data Manager, recommends: “Start a year ago! It's one of those things that's subject to political decisions in Washington. You have to stay well up-to-date on any changes that are made to the availability of the tax credit, the rules on what kind of organizations can receive direct pay, how to go about receiving the direct pay, requirements for domestic vs. international manufacturing that can change the amount of the payment, etc.”
Regarding the process to claim tax credits through direct pay, Carlson says, “We had to pre-register the project with the IRS, after the panels were put into service. Then we will receive a project registration number that will be included on our annual form 990, so that we can receive the tax credit.” A sample timeline for claiming direct pay is available here.
This solar initiative represents the first phase of an ambitious long-term goal for EarthDance Organic Farm School: creating a Water-Wise Washroom on the farm. This planned facility will feature ecological waste management, rainwater recycling, and renewable energy, providing sustainable restroom options for the farm’s many visitors, volunteers, and program participants.
In addition to EarthDance, nonprofits and local governments around the country are taking advantage of direct pay to install clean energy. The City of Denver, Colorado has completed three new solar gardens with the help of direct pay, saving over $1 million dollars. In Detroit, Michigan, the Lord of Lords Christian Church is installing solar and will use direct pay to refund 30% of the costs. Even with solar loan payments, the switch to solar will immediately save the church about $739 annually on energy costs after those federal funds come in.
