Overview

The Inflation Reduction Act (IRA) makes the largest investment in clean energy in United States history, and much of that investment is delivered via tax incentives.

With “elective pay” (often informally called “direct pay”), tax-exempt and governmental entities that do not owe Federal income taxes – including local governments – can now receive a payment equal to the full value of tax credits for building qualifying clean energy projects or making qualifying investments.

Applicable entities can use elective pay for 12 of the Inflation Reduction Act’s tax credits, including:

• generating clean electricity through solar, wind, and battery storage projects
• community solar projects that bring clean energy to neighborhood families
• electric vehicle (EV) charging infrastructure
• purchasing clean vehicles for state or city vehicle fleets

Minh Le (LA County) presented on “Barriers and Solutions for Accessing Tax Credits for Local Energy Projects” alongside Yakov Feygin (Center for Public Enterprise), Sean Kennedy (Strategic Growth Council) and Angie Hacker (Prosper Sustainably) at CCEC’s State and Local Energy and Climate Coordination (SLECC) Meeting on June 25, 2024 in Palm Springs (130 local government representatives attended this session).

Benefits of Elective Pay

Unlike competitive grant and loan programs, in which applicants may not receive an award, elective pay allows entities to get their payment if they meet the requirements for both elective pay and the underlying tax credit.

• Grants, incentives, and loans can be used in conjunction with direct pay on qualified projects
• Elective Pay does not require applicable entities to compete for a limited pool of funding
• If a qualified project is funded by a tax-free grant or forgivable loan, entities would get the same value of eligible tax credit as if the investment were financed with their own funds, i.e., the amount of the tax-free grant and/or forgivable loan is INCLUDED in the total project cost for purposes of calculating the tax credit amount
• Elective pay credits can be accessed through a simple IRS pre-filing registration process
• Potential bonuses on tax credits
• Meeting prevailing wage & apprenticeship requirements
• Using products manufactured in the United States (domestic content)
• Completing projects in a Historical Energy Community or low income communities

How to Access Elective Pay Funds

For an overview and step-by-step guidance on accessing tax credits for local energy projects, please review this slide deck from the SLECC meeting on June 25, 2025 (at the 15th Annual CCEC Forum) featuring Strategic Council, Center for Public Enterprise, and LA County. 

Center on Budget and Policy Priorities: Direct Pay for States & Partners

Below you can find the recordings of two events hosted by the Center on Budget and Policy Priorities in partnership with Lawyers for Good Government and the Atlas Public Policy. These events took place on August 13th & 14th and were designed to provide attendees with valuable insights and tools to enhance their ability to navigate Direct Pay and other clean energy incentives.

More Help

IRS: Office hours for elective payment pre-filing registration process (July 2 – October 2)

Center for Public Enterprise (CPE) provides recent reports and guides related to tax credits and other energy topics. CPE’s updated Elective Pay Model is a guide and tool developed by CPE to help public agencies understand financial considerations related to elective pay investments in clean energy assets. The report details the Elective Pay Model, its assumptions, and results, and offers a simulator tool (below) comparing tradeoff scenarios for the primary clean energy tax credits (Investment Tax Credit and Production Tax Credit). Contact CPE’s Yakov Feygin for help: yakov.feygin@publicenterprise.org

Lawyers for Good Government: Elective Pay & IRA Tax Incentives Resources Page

Lawyers for Good Government & Atlas Public Policy: Clean Energy Tax Navigator