Solar on Multifamily Housing: A 2024 Guide to Navigating Incentives and Laws

With its potential to reduce carbon emissions, lower energy costs, and promote energy independence, solar power has emerged as a viable solution for multifamily housing complexes. However, navigating the landscape of incentives and laws surrounding solar installations can be a complex endeavor. Solar-focused policies are implemented at the federal and state levels, resulting in benefits that vary according to your area or location. In this guide, we aim to provide you with a comprehensive overview of the incentives and laws relevant to solar on multifamily housing, empowering you to make informed decisions and harness the benefits of solar energy. This is essential to understanding the true cost and ROI of your multifamily solar investment.

Inflation Reduction Act (IRA)

The Inflation Reduction Act (IRA), signed into law in 2022, offers extended tax credits, grants, and incentives that make renewable energy, particularly solar, more accessible and affordable. It also promotes workforce development, expands funding options, and encourages real estate owners to invest in solar. Here, we’ll break down exactly how IRA benefits solar on multifamily housing.

Solar Investment Tax Credit (ITC)

IRA has a substantial impact on the Solar Investment Tax Credit (ITC). IRA reverted the ITC to a 30% rate, meaning that you can claim a tax credit for 30% of your total solar system and installation cost over as many tax years as needed. This percentage will remain in effect until the end of 2032, at which point it drops to 26% for 2033 and 22% for 2034.

Commercial solar projects larger than 1 MW can qualify for the 30% ITC if they meet certain labor requirements, such as paying prevailing wages and allocating a portion of labor hours to apprentices. Projects smaller than 1 MW are eligible for the 30% ITC without workforce requirements. The continuation of the commercial solar and storage ITC beyond 2025 will depend on an analysis of greenhouse gas emission goals.

Renewable Electricity Production Tax Credit (PTC)

For those who want to explore other incentive options, the Renewable Electricity Production Tax Credit (PTC) provides an alternative to the ITC for solar projects. PTC provides a tax credit based on solar production for the first 10 years of your system’s operation. There is no size limit and commercial projects can qualify for:

• 2.75 cents/kWh if they meet workforce requirements with 0.3 cents/kWh bonuses available for domestic content and energy communities.
• Or, 0.55 cents/kWh if they do not meet workforce requirements with lower 0.1 cents/kWh bonuses available for domestic content and energy communities.

Note that this credit is adjusted annually for inflation and will begin to phase out with lower credits as early as 2034, depending on greenhouse gas emissions.

ITC and PTC Bonuses

Also, the IRA introduces bonus credit for either the ITC or PTC if your project meets certain conditions. This includes:

• Domestic Content Bonus - An additional 10% credit for using 100% structural steel or iron and 40% of the total components made in the USA.
• Energy Community Bonus - An additional 10% credit if the project is sited in an energy community. This includes brownfield sites, a census tract where a coal mine closed after 1999, a census tract where a coal-fired electric generating unit closed after 2009, or an area that had either 0.17%+ of direct employment or 25%+ of tax revenues from coal, oil, or natural gas industries after 2009 and now has an unemployment rate at or above the national average.

One bonus is limited to projects under 5 MW using the ITC, but it has a 1.8 GW annual program cap that is managed by the IRS:

• 10% Low-Income Bonus - Projects in a low-income community or on Indian land can receive an additional 10% credit.
• 20% Low-Income Bonus - Projects that qualify as low-income residential building projects or low-income economic benefit projects can receive an additional 20% credit if they equitably share the financial benefits of the solar system with their residents.

Bipartisan Infrastructure Law (BIL)

Another bill signed into law in 2022 is the Bipartisan Infrastructure Law (BIL). The most exciting part of the BIL is its impact on funding for the Weatherization Assistance Program (WAP). This increases support for home weatherization and energy efficiency, expanding to cover funding for solar. The BIL also contains funding for utility bill payment assistance and weatherization upgrades for low-income housing.

With approximately $3.2 billion in funding available, the WAP offers a unique chance to incorporate solar into energy efficiency projects. Unlike traditional WAP initiatives, these funds specifically allow for solar installations. Solar is evaluated based on its savings-to-investment ratio and must meet the average cost-per-unit rules.

Self-Generation Incentive Program (SGIP)

Installing batteries alongside your solar system is not mandatory, but it can be a game-changer, especially during power outages. Luckily, the California Public Utilities Commission (CPUC) has set aside $1 billion for the Self-Generation Incentive Program (SGIP). This program offers substantial rebates, covering approximately 85% to 100% of the total installation cost of energy storage systems, making it incredibly valuable for eligible multifamily property owners.

The SGIP is particularly important for supporting communities at higher risk of wildfires and aiding low-income or medically vulnerable individuals. In fact, the program has already exhausted most of its budget due to high demand. Depending on your location, you may be placed on a waitlist until additional funding becomes available in your area. You can check the latest available funds, sorted by budget category, on the SGIP program metrics page.

Once your application is approved and the program is funded, you could potentially receive $850 per kWh or $1,000 per kWh for your clean energy storage system. Keep in mind that the SGIP covers both residential and non-residential solar storage systems, with specific eligibility categories such as "Equity" and "Equity Resiliency" that determine the rebate amounts. Homeowners and businesses located in areas at high fire risk or those that have experienced multiple Public Safety Power Shut-off (PSPS) events are given priority.

Solar Energy System Property Tax Exclusion

While solar does increase your property value, you don’t have to be concerned about an increase in property taxes thanks to the Solar Energy System Property Tax Exclusion. California allows you to exclude the increased property value resulting from your solar system installation from your property tax calculations. It's a win-win situation, as you reap the benefits of solar energy without facing a higher tax burden. It's important to note that this incentive does come with an expiration date. Initially set to end in 2016, the California tax exclusion has been extended until January 1, 2025. So, if you're considering going solar, take advantage of this opportunity while it lasts and enjoy the financial benefits and environmental advantages without the worry of increased property taxes.

Your Next Step? Call Ivy Energy.

In conclusion, solar energy has the potential to cut utility bills and bridge financing gaps for multifamily housing. However, it's crucial to understand that incentives and laws surrounding solar installations are state-dependent and subject to expiration dates. To navigate these effectively, it's essential to stay informed and seek expert guidance. Ivy Energy is well-prepared to assist with navigating these changes and can provide guidance and revenue estimates for multifamily and commercial solar projects that want to take advantage of this tax credit.

Exploring the incentives and opportunities can help you offset costs and maximize the financial benefits of solar. By understanding the specific incentives and laws in your state, you can make informed decisions and take full advantage of the benefits that solar energy offers for multifamily housing. Interested in harnessing the power of solar for your multifamily property? Get a free demo of Virtual Grid by Ivy today to understand how you can maximize benefits and navigate the landscape of solar energy incentives!

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