03/29/2023
Maximizing Green: Unleashing the Power of Rebates and Tax Incentives for Multi-Family Retrofits
RMI gave a great webinar discussing the Inflation Reduction Act (IRA) and how it can benefit multi-family affordable housing retrofits. The focus is on the IRA's provisions, rebate programs, tax incentives, and the administration of these programs by federal and state governments.
Rebate Programs - HOMES Program and HERA Program:
1. HOMES Program: a. Offers up to $8,000 per unit for energy savings b. Measured and performance-based approach c. Administered by state energy offices
2. HERA Program: a. Offers up to $14,000 per unit for efficient electric appliance installation b. Targets lower and moderate-income households c. Focuses on appliance electrification
Tax Incentive Programs - 45L and 48:
1. Tax Credit 45L: a. Designed for new construction and major renovations b. Provides $500 to $5,000 per unit based on efficiency achievements or prevailing wage
2. Tax Credit 48: a. Designed for larger projects and utility-scale renewable energy b. Offers opportunities to stack different incentives
Federal and State Administration of Programs:
1. Rebate programs are administered by state energy offices under the guidance of the Department of Energy
2. Tax credits are administered by the Treasury Department and the IRS
Overview of Rebate Programs:
1. HOMES Program is designed to save households 20-45% on energy use through envelope and equipment upgrades
2. High Efficiency Electric Home Rebate Program is an appliance electrification rebate program for low-income households, offering 50-100% cost coverage depending on income levels
Clarifications Needed:
1. Stacking of HOMES and HERA programs
2. Baseline for energy use
3. $14,000 maximum as a one-time or lifetime limit
4. Rebate program funds may run out before the program ends
Tax Credits:
1. 45L Energy Efficient Home Tax Credit is for new constructions and major renovations meeting Energy Star and Zero Energy Ready Home program standards
2. Stacking tax credits has been improved with changes within the Inflation Reduction Act
Overview of Tax Credit Changes:
1. Changes to the Low-Income Housing Tax Credit (LIHTC) and 45L tax credit, now allowing stacking without reducing basis under the LIHTC program
2. IRS guidance on stacking details is pending
Updates for Direct Paid Nonprofit Entities:
1. Aligning building performance qualification programs, such as the ENERGY STAR construction and the DOE Zero Energy Ready Home program
2. Tax credit incentives range from $500 to $5,000 per unit depending on program compliance and prevailing wage structures
Clean Energy Tax Credit:
1. Commercial investment tax credit for solar, geothermal, and battery storage
2. Base credits available through 2031, with bonus add-ons for domestic content, energy community, and low-income residents or community
3. Competitive application through the IRS or Treasury Department for bonus credits
Stacking Bonus Credits
The base credit is 30 percent, with additional credits for domestic energy communities at 10 percent. Low-income community, residential, and economic benefit projects can add between 10 and 20 percent. These additional credits are only available for solar and wind projects. If a project complies with four of these criteria, it could stack credits up to 70 percent. A 50 percent credit is likely viable for multi-family projects.
Domestic Content and Energy Community
Domestic content refers to panels made primarily in the U.S., while energy communities are designated Brownfield sites or areas of fossil fuel production with below-average unemployment rates or closed coal-fired electric plants.
Financial Benefits and Rebate Uncertainties
Financial benefits from electricity produced are allocated to residents. There is a need to clarify the residential and economic benefit classifications, as well as questions about the 45L and 48 rebates. Nonprofits are waiting for guidance on accessing direct pay refunds. There is also a need for clarification on the definition of major renovations in 45L.
Project Details and Costs
A Boston project example has a total development cost of almost $6 million, with projected energy savings of about 69 percent. The mechanical system will be replaced with an all-electric system and solar maximized. Anticipated funding includes lean multi-family utility incentives, leaving a gap of almost $1.2 million.
Applying IIJA to the Project
The IIJA benefits will be applied to a project expected to be under construction by the end of the year. Assumptions include stacking Hera homes and allocating homes for envelope improvements only to achieve the 45 energy savings. The Hera electrification rebate and 45L tax credit will be applied, along with a DOE Zero Energy Ready Home classification, providing additional benefits. The solar rooftop is anticipated to add $260,000 in value, bringing the total potential benefit to over $500,000.
Other Funding Sources
Potential funding sources include the Mayor's office of housing for Boston properties, the DOER's $50 million for multi-family retrofit decarbonization, the IRA's embedded funding, HUD's Green and Resilient Retrofit Program ($1 billion), and the EPA GHG reduction fund ($27 billion). Massachusetts is also expecting a Zero Carbon Renovation fund.
HUD's Green and Resilient Retrofit Program
HUD has allocated $1 billion in grant money, aiming to leverage up to $4 billion in loans. The program includes energy and water benchmarking, low emission technologies, and zero-emission technologies. Guidance is expected soon.
EPA's Green Bank Program
The EPA has allocated $27 billion between grants and financing options for greenhouse gas reduction opportunities, focusing on low-income environmental justice and disadvantaged communities. Funds will flow to green bank-style financing entities.
Massachusetts Zero Carbon Renovation Fund
The fund hopes to surpass $300 million in the current legislative session, focusing on buildings in environmental justice communities. No guidance is currently available on incentive types or program requirements.
Timeline for Rebate Programs and Grants
The IRA timeline focuses on the next decade, with staggered fund release. The DOE plans to have rebate program funds available to consumers by the end of the year, while states must develop and apply for funds by August 2024. Money, while states must develop and apply for funds by August 2024. Money is expected to start flowing out the door before the end of the calendar year 2023 as these programs are developed and implemented.
