Unlocking Opportunities in Renewable Energy Tax Credits for Tribal Nations

At Drummond Woodsum, we are champions of tribal sovereignty and of nation-building through economic development. Today, given the uncertainties of climate change, truly sustainable tribal economic development and long-term community planning requires an understanding of opportunities to develop renewable energy sources to serve the needs of tribal communities and their neighbors. And so, we are excited to share the latest developments in federal tax credits, which are revolutionizing the landscape of renewable energy development in ways that can promote tribal economic self-determination and sovereignty. With the recent passage of the Inflation Reduction Act of 2022 (IRA), the Biden Administration has ushered in a new era of support for renewable energy initiatives, opening doors to unprecedented opportunities for Tribal nations as part of the green energy revolution.

A Game-Changing Expansion

Since its inception in 2005, federal income tax credits have been pivotal in incentivizing the growth of renewable energy facilities. However, the IRA represents a seismic shift, significantly amplifying both the value and scope of these credits. Under the IRA, the potential credit for developing renewable energy projects has skyrocketed, with the maximum credit soaring to a staggering 50% of project costs, thanks to the introduction of lucrative “bonus” credits.

Introducing the Elective Pay Option

One of the IRA’s most groundbreaking provisions is the introduction of the Elective Pay option, which holds immense promise for tribal communities seeking to leverage renewable credits to fuel their projects. Traditionally, using these credits involved navigating complex corporate transactions to convert the credits into cash to build, for instance, a solar panel on top of a tribal office building or tribally owned casino. However, the IRA’s Elective Pay option simplifies the process by allowing tribes to receive the value of tax credits generated by renewable projects as a cash payment from the IRS.

Elective Pay will make these credits much more flexible and usable by tribal governments seeking to build renewable energy projects. The new Elective Pay provisions can allow a tribe to get paid between 30% to 50% of the cost of a renewable project, depending on the details of the project.

Navigating the Requirements

While the opportunities presented by the Elective Pay option are tantalizing, navigating its intricacies requires careful consideration. Maximization of the benefits of the Elective Pay option requires a tribe to comply with some basic criteria. Depending on the size of the project, you may need to satisfy certain prevailing wage and apprenticeship requirements. There are also bonus credits available for building renewable projects with “domestic content,” meaning materials made here in the US, and also for projects in qualifying low-income communities.

As with any tax program, these requirements are technical. And, due to the relative “newness” of the IRA’s myriad of initiatives and tax credit programs, much of the regulatory guidance about how to comply is still emerging. DW’s Tribal Nations Energy Team can guide you through this regulatory maze to secure the best result for a tribally owned renewable project.

Partnering for Success

At Drummond Woodsum, we’re committed to empowering our Tribal Nation clients to capitalize on emerging opportunities in the renewable energy sector. With our expertise in navigating the legal landscape surrounding renewable tax credits, we are here to be your trusted partner in realizing your community’s green energy ambitions.

With the renewable energy sector poised for exponential growth, now is the time to consider whether a renewable energy project makes sense for your town. Embrace the power of renewable tax credits and embark on a journey towards a greener, more prosperous future.

Ready to harness the full potential of renewable energy tax credits? Contact us today to learn how we can guide you toward success.