Unpacking the Low-Income Communities Bonus Credit Program for Community Solar

The U.S. Department of the Treasury recently released the long-anticipated Final Rules and Guidelines for Low-Income Communities Bonus Credit program, part of 2022’s historic Inflation Reduction Act’s (IRA) Investment Tax Credit (ITC) bonus adders. This crucial component incentivizes solar development, particularly those benefitting low-income communities.


Let’s take a closer look at the current state of community solar in the country, what’s in the final rules and guidelines, and how an innovative solar solution can deliver more project value. 


The Current State of the US Community Solar Sector

As of Q2 2023, the United States has successfully installed 5.8 gigawatts (GW) of community solar, with an anticipated total of 6GW by year-end. The next five years should undergo an impressive growth trajectory, with forecasts indicating existing markets expanding at an annual average of 8%. The projection suggests that the U.S. community solar market will more than double its current capacity, reaching nearly 14 GW of cumulative capacity by 2028.


What’s driving this anticipated growth? Community solar projects offer more equitable access to solar energy's economic and environmental benefits, regardless of property ownership or physical constraints. These installations vary in size but are typically less than 5MW and situated on leased land.


Community solar emerges as a preferred solution for Low-to-Moderate Income (LMI) communities because of the zero upfront costs for participants. Moreover, many customers in these communities can secure electricity rates, providing a strategic hedge against the rising cost of power.


What’s in the Low-Income Communities Bonus Credit Program?

Due to this important role of community solar in servicing LMI communities, the U.S. Department of Energy's (DOE’s) Low-Income Communities Bonus Credit Program was designed to spur renewable energy development while ensuring a fair and equitable distribution of incentives.


Administered by the DOE's Office of Energy Justice and Equity in collaboration with the U.S. Department of the Treasury and the IRS, the Low-Income Communities Bonus Credit Program represents a key facet of the IRA's mission. This program introduces a bonus credit that offers a 10% or 20% point adder to the solar ITC for installations smaller than 5MW. The IRS is authorized to allocate credits to a maximum of 1.8 GW of eligible solar and wind capacity annually. 


The IRA's bonus credit structure is specifically tailored to benefit low-income communities, with a 10% point adder available for solar installed in such areas or on Indian land. A more substantial 20% point credit adder is extended to eligible solar installations integrated into qualified low-income residential buildings or participating in qualified low-income economic benefit projects.


Strategic Allocation Targets

The IRS has outlined strategic allocation targets to direct these incentives effectively. Up to 700MW are designated for facilities located in low-income communities, another 200MW for those on Indian land, and an additional 200MW for facilities within federally subsidized residential buildings. Moreover, 700MW are allocated to facilities where at least 50% of the financial benefits derived from electricity production go to households with incomes below 200% of the poverty line or below 80% of the area’s median gross income.


Overcoming Community Solar Challenges

Despite substantial momentum and robust incentives, installation volumes of community solar projects have slowed, mainly due to challenges around interconnection and the growing backlog of projects seeking grid connectivity.


Community solar-battery projects provide a solution, sidestepping the interconnection challenge by directly linking to lower-voltage distribution grids responsible for carrying power to end customers. Unlike their large-scale utility-scale counterparts, the smaller footprint of a community solar installation allows for flexible and diverse siting locations, including empty lots, warehouse rooftops, and spots closer to the communities they serve.


A single solar solution that bundles high-powered solar PV panels with a solar tracker, energy storage system, and inverters can deliver widespread component interoperability, optimized system performance, and lower levelized cost of electricity (LCOE).

Interested in learning more about how a single solar solution makes community solar-battery projects economically viable and competitive? Reach out to Trina Solar today.

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