SOLAR PROJECTS FOR NONPROFITS, CHURCHES, HOAs
Type of Organization Contemplating Solar Energy
On the surface there is not much difference in the type of organization contemplating solar energy. However, in reality, commercial is quite different that that of nonprofit organizations, churches and HOAs (homeowners associations).[3] The primary difference is in the decision making process, financing the project and the use of the solar tax credits. My services help your organization move forward with the process. I understand the restrictive laws and bylaws that may be in place and know how to move forward within these restrictions.
Solar Tax Credit Sharing
The single largest issue that arises with nonprofit organizations, churches and HOAs is that they do not qualify for the solar tax credits and related tax benefits that are geared to the for the for-profit world. I have arrangements with solar support organizations who can help finance the solar projects and create a situation that allows them to share the tax benefits with the nonprofit organization, church or HOA. Specifically, what this means, is that by sharing these credits you now receive a “discount” on the solar installation cost of about 12-20%.[1] I can explain this to you and help in arranging the contracts accordingly.
Purchase Solar with Cash, Financing or PPA
Many times the organization is financially sound but cannot afford the immediate cash outlay for solar. I can help explain financing and other no cash outlay solar programs (PPAs )to help you fully understand the pros and cons of these financial arrangements. [2]
Specializing in Nonprofit Organizations , Churches and HOAs
Working with nonprofits , churches and HOAs is an important skill set to help ensure the organization is paying the fair price, making use of the solar tax credit sharing and not being taken advantage of.[2]
Remember, I am an independent consultant with the sole role of educating you on the choices, helping to move the process along and am not tied to any one solar contractor or finance company.
Solar Tax Credits
Nonprofit organizations, churches and HOAs typically cannot use the solar tax credits (currently 30%) as they don’t pay taxes. However, there are solar tax credit sharing arrangements that can be made with tax paying entities where they get the credit and share it with the organization in the amount ranging from 12-20%. This, in effect, reduces the contracted price of solar by that amount.
Residential vs. Commercial Solar Systems
I get a lot of questions from individuals and members of these organizations that are based on their understanding of rules for residential installations. While there are many similarities between residential and commercial much of which is common knowledge may not apply to commercial installations. I can assist with clearing up any such misunderstandings.
Inflation Reduction Act and Solar Credits
[1] Wait a minute! I thought the new Inflation Reduction Act (August 16, 2022) now allows nonprofit organizations to receive the benefit of the 30% tax credit. For nonprofit exempt organizations, this appears to be true. For HOAs it may not be true as they file either a 1120 or 1120-H tax return which are corporation tax returns. For churches it’s not clear as the religious exemption results in no tax return requirement. However, it does look like they would file a 990-T return. The early guidelines appear to say the credit is available by the type of tax return filed. In summary, it’s too early to know for sure how this will play out for any of these organizations until the regulations are issued. Since the intent of the new rules is to make the 30% tax credit available, there’s hope the regulations, once issued, resolve this.
Applying organizations must first register with the IRS to take advantage of the 30% solar tax credit. The IRS will reply with a registration number. Then the organization files for the credit with their next tax return after completion (and paid for) of the installation. Depending on the turn-around time for the registration number and the timing of the organization’s tax return due date (with extensions), the entire process could take up to two years to receive the payment from the IRS.
To say all this a different way, the Act discussed solar credits to be available to nonprofit organizations as defined by the type of tax return they file. Nonprofits (such as 501(c)(3) organizations) are clearly within the scope of the Act as they are tax exempt and file a 990 or similar tax return but it’s not clear on how they get the credit. Churches are usually 501(c)(3) organizations with a religious exemption resulting in no tax return filing requirement. HOA’s typically are not 501(c)(3) or 501(c)(4) organizations and fall under Section 528 which gives the option of filing a 1120 or 1120-H tax return. Acts passed by Congress, such as the Inflation Reduction Act, rarely have the specifics on how the Act’s intent plays out. This is done with tax regulations issued by the Treasury Department. As of January 13, 2024 such regulations have not been issued.
(Oct 2022, updated July 2023, updated January 13, 2024)
[2] Nonprofit organizations, churches and HOAs are many times preyed upon by unscrupulous vendors and this is especially true in the solar business environment. The to be good to be true deal can strap the organization into a 25 year catastrophic agreement. Case in point: the HOA signed a “good deal, no down payment” solar contract that resulted in a $1,300,000 loss over the next 25 years with no control over the solar energy asset.
My service helps in evaluating solar energy proposals with an eye out for such deals. Typically, my report will present the pros and cons both financially (the numbers) and not-so-clear traps (landmines) in the contract. Where appropriate, I will suggest a review by your attorney.
NEM 2 and NEM 3
For San Diego organizations, SDGE’s NEM 2 (Net Energy Metering commonly referred to as Net Metering) has expired and NEM 3.0 is now in effect (after April 14, 2023). Customers can no longer be grandfathered into NEM 2.0. This applies to all California solar installations but I’m more knowledgeable on the specifics with SDGE.
Under NEM 3, solar customers can still “sell” their excess solar production to SDGE, however the rate received has dropped significantly from that with NEM 2. This dramatically changes the analysis in deciding on a solar energy project.
Independent Solar Advisor
HOAs
[3] The type of solar that I can help with is commercial-type, meaning that it’s for a general area; one big solar generation area servicing typically buildings, community centers, sporting facilities, etc. Solar for individual condo or similar units is considered residential. For example an HOA was formed specifically for the community center, sporting areas, etc. and is separate from the condo HOA’s. Another HOA was formed in condo association with several residential units and a common community center with auditorium, swimming pool, etc. Solar for common area only is very feasible.
Where I can help is with a commercial type solar system for the HOA. As mentioned elsewhere on this site, I can help with the contractor selection, educating the board, etc. and, more importantly, assist is getting the solar tax credit sharing in place, effectively reducing the cost by 12-20%. Remember, HOAs qualifying for the 30% tax credit from the government is uncertain.
I can also act as the project manager, being independent and bring experience to the process. I would report to the appropriate HOA committee or board and they would make the final decisions but are kept out of the weeds and the trap of committee decision making with each step of the process.
Jim Colville, your independent solar advisor and consultant.