Clean energy investment decisions are shaped not only by project costs, but also by the incentives available to support those costs. Federal law currently provides a range of tax credits designed to support clean energy investment. These credits can influence project economics and should be evaluated as part of your broader financial and procurement strategy. Most tax credits start at a base credit level, and then offer “adders” — further incentives for developers to use certain materials, support labor requirements, or benefit specific communities.
While tax credits are statutory tools rather than guaranteed funding, they may materially improve project feasibility depending on eligibility, structure, and market conditions.
Determine Whether Tax Credits Enhance Your Strategy
Tax credits can be integrated into financial models for renewable energy projects, even for tax-exempt entities. Historically, cities often relied on third-party ownership structures—such as power purchase agreement, green tariff, or virtual power purchase agreement—to monetize federal tax credits.
Under current federal law, certain tax credits may be claimed directly by eligible tax-exempt entities through direct pay (also known as elective pay), subject to statutory eligibility and program requirements. The following credits may be eligible for direct pay, depending on project structure and compliance.
Because tax credit rules, eligibility thresholds, and compliance requirements evolve over time, cities should confirm currentU.S. Department of the Treasury and IRS guidance for federal tax credits when structuring projects. State tax credits may also be available and are subject to separate state requirements and guidance.