Final Rules for the Inflation Reduction Act’s Low-Income Bonus Credit Program

Final Rules for the Inflation Reduction Act’s Low-Income Bonus Credit Program

The community solar industry now has the final rules for program year 2023 for the low-income bonus credit program it’s been anxiously awaiting since the Inflation reduction Act passed in 2022. The final rule was officially filed into the register on August 15th, with an effective date of October 16th. At that time the program will accept applications for allocation awards for program year 2023.

The final ruling reflects many best practices and recommendations made by solar industry stakeholders' feedback over several months. Though the final rules do not include every recommendation Perch and several other stakeholders think will make the program strongest, we are optimistic that the early years of this program will lead to long-term improvements and efficiencies as the program matures.

Program Category Clarifications

The Treasury Department can provide credit bonuses for up to 1.8GWs annually. Per the initial guidance, four separate categories were envisioned which separate projects by facility type. In the final rule, the categories are largely unchanged but include some clarification on the carveouts for subcategories.

• Category 1, which provides an additional 10% bonus credit for 700 MWs of projects located in low-income communities, has a 70% carveout for behind the meter residential projects with the remaining 30% to go to front of the meter commercial projects.
• Category 4, which provides an additional 20% bonus credit for 700 MWs of projects that provide benefits for low-income customers, is now fully reserved for behind the meter non-residential projects, specifically community solar projects.

Both of these changes provide ample opportunity for additional growth of the community solar market.

Annual Capacity Limitations for following program years will be established but the Treasury has the discretion to re-allocate capacity across categories and sub-reservations in the event one is oversubscribed and another has excess capacity.

Additional Geographic and Ownership Criteria Prioritization

The Treasury Department announced in June that all categories would reserve 50% of their total capacity for projects that are able to meet one or multiple additional selection criteria:

• Developing projects in low-income communities
• Developing projects that promote innovative ownership structures that favor underserved groups.

The initial proposal’s requirements were considered by many stakeholders to be too narrow for most applicants to meet. To ensure capacity did not go unallocated, stakeholders sought to modify the total carveout and propose alternative or relaxed criteria for the Treasury Department to consider.

The final guidance maintains the 50% threshold but relaxes the additional “ownership” selection criteria from meeting several benchmarks, to just meeting one. Though the threshold is lower, successfully meeting more than one criterion will result in an earlier capacity grant in the program.

Additionally, the new guidance expanded on the definition of “Qualified Renewable Energy Company” to include a $20 million cap in annual gross receipts from the previous year, up from the initial $5 million.

Eligibility and Verification Methods

Perch has been most focused on the eligibility verification process for low- and moderate-income customers for Category 4. The final order explained the verification methods that can be used:

• Categorial eligibility: obtaining proof of the household’s participation in a need’s based Federal, State, Tribal or utility program with an income limit at or below the limits set for Qualifying Households.
• Other income verification: includes paystubs, federal or state tax returns, or income verification through credit agencies and commercial data sources to establish a household is a Qualifying Household.

Methods not allowed for verification

• Geo-eligibility: geographic based eligibility verification does not prove that a particular household meets the income parameters of section 48(e)(2)(C)
• Self-attestation: A self-attestation from a household is not a permissible method to establish a household is a Qualifying Household.

However, this prohibition on direct self-attestation from a household does not extend to categorical eligibility for needs-based Federal, State, Tribal, or utility programs with income limits that rely on self-attestation for verification of income. The final regulations clarify that income verification is accepted via program verification where the relevant jurisdiction specifically accepts self-attestation.

On Geo-Eligibility

Stakeholders advocated for a process that minimizes the burden on customers and maximizes their participation. However, one of the most widely used methods to verify qualifying LMI households in most mature markets – geo-eligibility – is not allowed. To comply with the order, which says applicants must submit documentation that shows the benefits from this program will only accrue to Qualifying Households, we cannot use geo-eligibility. While statistically sound, it does not meet the level of precision Treasury requires.

Thus, customers who live in a disadvantaged community (DACs), an economic justice community or an area with high rates of persistent poverty alone cannot be considered “qualifying households” for the federal program by only showing proof of residency in these areas. The customer must provide additional documentation to prove that they either meet the income or categorical eligibility.

We at Perch think that, given the extent and quality of research many states have done to ensure residents of DACs and other socially burdened communities see the greatest impact, it is inappropriate to disallow geo-eligibility. While disappointing, we appreciate the view the Treasury has in amending the program to better serve consumer interests in later program years.

On Self-Attestation

The Treasury did take into consideration the use of self-attestation. The final rule states that self-attestation alone is not sufficiently reliable or verifiable but has a notable exception: if an individual can use self-attestation to qualify for a needs-based program with income limits outlined under the categorial eligibility umbrella, the customer only needs to demonstrate participation in the Federal, State or utility program as proof of eligibility.

The final sentence on page 14 of the final regulation outlining the clarification on the use of self-attestation is a great relief to many. In jurisdictions like New Jersey and Maryland where legislators and other stakeholders have made great efforts to ensure easier enrollment processes for LMI customers, this is welcome news.

On Savings Rate and Affordable Housing Participation

Lastly, Category 4 projects must deliver a minimum savings to participants of 20%. The minimum 20% savings requirement is to be calculated on an annual basis which means actual savings can fluctuate month-to-month, avoiding a violation. While some states have higher minimum discounts, we think the 20% minimum discount requirement is sufficient, especially considering some jurisdictions where they would otherwise get fewer benefits due to lower state mandates.

Perch also sees a great deal of promise for the expansion of community solar by giving residents of affordable housing properties the ability to participate. To expand those offerings, the rules for Category 3 projects provide flexibility for building owners to share savings with tenants by requiring the owners to pass on a minimum of 50% of benefits. This establishes the right incentives to encourage greater participation. Coupled with the recently updated HUD guidance for benefits sharing for tenants in affordable housing projects, this will go a long way to ensure community solar savings result in greater savings to residents with no adverse impact to public benefits.

Perch is excited the new rules are now in place and is keen to help developers and asset owners meet eligibility requirements for this exciting program. We will continue advocating for a stronger program, but for now, the program is off to a good start.