Making Clean Energy Tax Credits Deliver for the Public: A User Guide for Governments, Schools, and Nonprofits
Through the Inflation Reduction Act of 2022, clean energy tax credits for technologies such as solar panels, geothermal heat pumps, and battery storage are accessible to public schools, non-profit hospitals, state and local governments, and other tax-exempt entities. This is possible through a mechanism known as direct pay (also known as elective pay), where these tax-exempt entities can get reimbursed up to 50 percent for the cost of clean energy projects from the U.S. Internal Revenue Service once projects are placed in service. Recent changes under the One Big Beautiful Bill Act (OBBBA), passed in July 2025, have modified the availability and terms of these credits, including shortened timelines for solar and additional procurement requirements—known as Foreign Entity of Concern (FEOC). The changes brought about by OBBBA are reflected in this updated user guide for schools, hospitals and local governments interested in utilizing direct pay to fund clean energy projects.