Solar Rebates and Solar Tax Credits for New Jersey

New Jersey offers a full exemption from the state's sales tax for all solar energy equipment. This exemption is available to all taxpayers. All major types solar energy equipment, including equipment for passive solar design, are considered eligible for the exemption as described by the New Jersey Division of Taxation Publication S&U-6 (Sales Tax Exemption Administration). According to S&U-6, the exemption includes all solar energy "devices or systems specifically approved by the Board of Public Utilities, Division of Energy and designed to provide heating or cooling or electrical or mechanical power by converting solar energy to some other usable energy source, including devices for storing solar-generated energy." The exemption does not apply to devices that would be required regardless of the energy source being utilized. In order to claim the exemption, the purchaser must fill out and submit Form ST-4 (Exempt Use Certificate) to the seller instead of paying sales tax.

Note: The Inflation Reduction Act of 2022 (H.R. 5376) made several significant changes to this tax credit, including expanding the eligible technologies, extending the expiration date, modifying the scheduled step-down in its value, providing for new bonus credits, and establishing new criteria to qualify for the full credit. It also phases out this tax credit under section 48 of the Internal Revenue Code and replaces it with a new technology-neutral tax credit under section 48E of the Internal Revenue Code. The summary below describes the current section 48 tax credit as modified by the Inflation Reduction Act, and below that, the new 48E tax credit.   

The federal Business Energy Investment Tax Credit (ITC) has been amended a number of times, most recently and most significantly by the Inflation Reduction Act of 2022. That bill established new prevailing wage and apprenticeship requirements for larger system to qualify for the full 30% tax credit. In late-2022 or 2023, the Treasury Secretary will issue guidance for these new labor provisions. The credit for different project types and available bonus credits is described below.

Base Credit

Projects under 1 MW (or larger projects that are commenced no more than 60 days after the Treasury Secretary develops labor guidelines) do not need to meet the new labor standards established by the Inflation Reduction to receive the full 30% tax credit. Such projects that begin construction after 2021 and before 2025 can receive the full tax credit of 30%. Note, projects that commence construction on or after January 1, 2025 can receive a tax credits under the new Clean Electricity Investment Tax Credit (48E) described below. 

Projects over 1 MW that begin construction 60 days after the Treasury Secretary releases labor guidelines and no later than January 1, 2025 will receive a base tax credit of 6%. However, projects can qualify for the full 30% tax credit if they ensure that all laborers and mechanics involved in the construction of the project or the maintenance of the project for 5 years after project completion are paid wages at rates not less than prevailing wages. Projects must also ensure that a percentage of total labor hours are performed by qualified apprentices. The percent of hours increases over time to a maximum requirement of 15% in 2024 and thereafter. Note, projects that commence construction on or after January 1, 2025 can receive a tax credits under the new Clean Electricity Investment Tax Credit (48E) described below. 

Bonus Credits

Projects in which 100% of any steel or iron that is a component of the facility and 40% of the manufactured products that are components of the facility were produced in the United States can qualify for the Domestic Content Bonus. Projects that are under 1 MW and projects that are larger than 1 MW and meet the labor requirements specified above, the Domestic Content Bonus increases the tax credit by 10 percentage points. For larger projects that do not meet the labor requirements, the Domestic Content Bonus increases the tax credit by 2 percentage points. 

Projects that are located within an energy community can receive the Energy Community Bonus. To qualify, a facility must be located at one of the following: (i) a brownfield site, (ii) a metropolitan or non-metropolitan statistical area which (A) has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas, or (B) has an unemployment rate above the national average for the previous year, or (iii) a census tract or a census tract that is adjoining a census tract in which a coal mine has closed after 1999 or a coal-fired electric generating unit was retired after 2009. Projects that are under 1 MW and projects that are larger than 1 MW and meet the labor requirements specified above, the Energy Community Bonus increases the tax credit by 10 percentage points. For larger projects that do not meet the labor requirements, the Energy Community Bonus increases the tax credit by 2 percentage points. Note, these percentage bonuses are applied to the base credit amount, not the installed cost of the project. 

Solar and wind facilities less than 5 MW may also be eligible for low-income bonuses. A project built in a low-income community as defined by the New Markets Tax Credit or on Indian Land can receive an increased tax credit of 10 percentage points. A project associated with a low-income residential building project or a low-income economic benefit project can receive an increased tax credit of 20 percentage points. 

Eligible Technologies

• Solar Technologies
• Fuel Cells
• Wind Turbines 
• Geothermal Systems
• Microturbines
• Combined Heat and Power (CHP)
• Offshore Wind
• Waste Energy Recovery. Qualified waste energy recovery property means property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. The term “waste energy recovery property” does not include any property that has a capacity in excess of 50 megawatts.
• Energy Storage Systems, both paired with generation and installed as a stand-alone system
• Thermal Energy Storage Systems
• Qualified Biogas Property
• Microgrid Controllers
• Interconnection Property associated with the installation of energy property with a maximum net output of not greater than 5 MW-AC to provide for the transmission or distribution of the electricity produced or stored by such property, and which are properly chargeable to the capital account of the taxpayer.

Credit Monetization

Section 13801 of The Inflation Reduction Act of 2022 also established procedures for other parties to monetize certain tax credits, including this one, for equipment placed in service on or after January 1, 2023 and through December 31, 2032. 

The direct pay option allows non-taxable entities to directly monetize certain tax credits. The provisions apply to nonprofits, a state or political subdivision thereof, the Tennessee Valley Authority, Indian tribal governments (as defined in Section 30D(g)(9)), any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act), or any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas. Such applicable entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. 

The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer. Transfers must be reported to IRS and only one transfer is permitted. Must be elected no later than the due date for tax filing for the tax year the tax credit is claimed.

Clean Electricity Investment Tax Credit (48E)

Section 13702 of the Inflation Reduction Act created a new tax credit, the Clean Electricity Investment Tax Credit to replace the traditional ITC for systems placed in service on or after January 1, 2025. The tax credit is functionally similar to the ITC, but is not technology-specific. It applies to all generation facilities and energy storage systems that have an anticipated greenhouse gas emissions rate of zero. The credit amount is generally calculated in the same manner as described above, but will be phased out as the U.S. meets greenhouse gas emission reduction targets. For a project whose construction is commenced in the year following the year in which greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the 2022 levels, the tax credit will not be reduced. However, for projects commenced in the second year following the target being met, the tax credit will be worth 75% of what it would otherwise be. Projects commenced in the third year will receive a credit worth 50%, and all projects commenced after then will not be eligible for a tax credit. 

According to Section 136 of the U.S. Code, energy conservation subsidies provided (directly or indirectly) to customers by public utilities* are non-taxable. This exclusion does not apply to electricity-generating systems registered as "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978 (PURPA). If a taxpayer claims federal tax credits or deductions for the energy conservation property, the investment basis for the purpose of claiming the deduction or tax credit must be reduced by the value of the energy conservation subsidy (i.e., a taxpayer may not claim a tax credit for an expense that the taxpayer ultimately did not pay).

The term "energy conservation measure" includes installations or modifications primarily designed to reduce consumption of electricity or natural gas, or to improve the management of energy demand. Eligible dwelling units include houses, apartments, condominiums, mobile homes, boats and similar properties. If a building or structure contains both dwelling units and other units, any subsidy must be properly allocated.

The definition of "energy conservation measure" implies that utility rebates for residential solar-thermal projects and photovoltaic (PV) systems may be non-taxable. However, the IRS has not ruled definitively on this issue. Taxpayers considering using this provision for a renewable energy system should discuss the details of the project with a tax professional. Other types of utility subsidies that may come in the form of credits or reduced rates might also be non-taxable, according to IRS Publication 525.


* The term "public utility" is defined as an entity "engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers." The term includes federal, state and local government entities.

Note: The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023. 

Under the federal Modified Accelerated Cost-Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property, ranging from three to 50 years, over which the property may be depreciated. A number of renewable energy technologies are classified as five-year property (26 USC § 168(e)(3)(B)(vi)) under the MACRS, which refers to 26 USC § 48(a)(3)(A), often known as the energy investment tax credit or ITC to define eligible property. Such property currently includes*:

• a variety of solar-electric and solar-thermal technologies
• fuel cells and microturbines
• geothermal electric
• direct-use geothermal and geothermal heat pumps
• small wind (100 kW or less)
• combined heat and power (CHP)
• the provision which defines ITC technologies as eligible also adds the general term "wind" as an eligible technology, extending the five-year schedule to large wind facilities as well.

In addition, for certain other types of renewable energy property, such as biomass or marine and hydrokinetic property, the MACRS property class life is seven years. Eligible biomass property generally includes assets used in the conversion of biomass to heat or to a solid, liquid or gaseous fuel, and to equipment and structures used to receive, handle, collect and process biomass in a waterwall, combustion system, or refuse-derived fuel system to create hot water, gas, steam and electricity. Marine and hydrokinetic property includes facilities that utilize waves, tides, currents, free-flowing water, or differentials in ocean temperature to generate energy. It does not include traditional hydropower that uses dams, diversionary structures, or impoundments.

The 5-year schedule for most types of solar, geothermal, and wind property has been in place since 1986. The federal Energy Policy Act of 2005 (EPAct 2005) classified fuel cells, microturbines and solar hybrid lighting technologies as five-year property as well by adding them to § 48(a)(3)(A). This section was further expanded in October 2008 by the addition of geothermal heat pumps, combined heat and power, and small wind under The Energy Improvement and Extension Act of 2008.

Bonus Depreciation

Bonus Depreciation has been sporadically available at different levels during different years. Most recently, The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% for qualified property acquired and placed in service after September 27, 2017 and before January 1, 2023.

Bonus Depreciation History

The 50% first-year bonus depreciation provision enacted in 2008 was extended (retroactively for the entire 2009 tax year) under the same terms by the American Recovery and Reinvestment Act of 2009 (H.R. 1), enacted in February 2009. It was renewed again in September 2010 (retroactively for the entire 2010 tax year) by the Small Business Jobs Act of 2010 (H.R. 5297). In December 2010 the provision for bonus depreciation was amended and extended yet again by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (H.R. 4853). Under these amendments, eligible property placed in service after September 8, 2010 and before January 1, 2012 was permitted to qualify for 100% first-year bonus depreciation. The December 2010 amendments also permitted bonus depreciation to be claimed for property placed in service during 2012, but reverted the allowable amount from 100% to 50% of the eligible basis. The 50% first-year bonus depreciation allowance was further extended for property placed in service during 2013 by the American Taxpayer Relief Act of 2012 (H.R. 8, Sec. 331) in January 2013. The Tax Increase Prevention Act Of 2014 (H.R. 5771, Sec. 125), extended  these provisions through to December 31, 2014, and thus retroactively for the 2014 tax year.

For more information on the federal MACRS, see IRS Publication 946, IRS Form 4562: Depreciation and Amortization, and Instructions for Form 4562. The IRS web site provides a search mechanism for forms and publications. Enter the relevant form, publication name or number, and click "GO" to receive the requested form or publication. For guidance on bonus depreciation, including information relating to the election to claim either 50% or 100% bonus depreciation, retroactive elections to claim 50% bonus depreciation for property placed in service during 2010, and eligible property, please see IRS Rev. Proc. 2011-26.


*Note that the definitions of eligible technologies included in this entry are somewhat simplified versions of those contained in tax code, which often contain additional caveats, restrictions, and modifications. Those interested in this incentive should review the relevant sections of the code in detail prior to making business decisions.

According to Section 136 of the U.S. Code, energy conservation subsidies provided (directly or indirectly) to customers by public utilities* are non-taxable. This exclusion does not apply to electricity-generating systems registered as "qualifying facilities" under the Public Utility Regulatory Policies Act of 1978 (PURPA). If a taxpayer claims federal tax credits or deductions for the energy conservation property, the investment basis for the purpose of claiming the deduction or tax credit must be reduced by the value of the energy conservation subsidy (i.e., a taxpayer may not claim a tax credit for an expense that the taxpayer ultimately did not pay).

The term "energy conservation measure" includes installations or modifications primarily designed to reduce consumption of electricity or natural gas, or to improve the management of energy demand. Eligible dwelling units include houses, apartments, condominiums, mobile homes, boats and similar properties. If a building or structure contains both dwelling units and other units, any subsidy must be properly allocated.

The definition of "energy conservation measure" implies that utility rebates for residential solar-thermal projects and photovoltaic (PV) systems may be non-taxable. However, the IRS has not ruled definitively on this issue. Taxpayers considering using this provision for a renewable energy system should discuss the details of the project with a tax professional. Other types of utility subsidies that may come in the form of credits or reduced rates might also be non-taxable, according to IRS Publication 525. 


* The term "public utility" is defined as an entity "engaged in the sale of electricity or natural gas to residential, commercial, or industrial customers for use by such customers." The term includes federal, state and local government entities.

Note: The Inflation Reduction Act of 2022 (H.R. 5376) made several significant changes to this tax credit, including extending the expiration date, providing for new bonus credits, and establishing new criteria to qualify for the full credit. It also phases out this tax credit under section 45 of the Internal Revenue Code at the end of 2024 and replaces it with a new technology-neutral tax credit under section 45Y of the Internal Revenue Code. The summary below describes the current section 45 tax credit as modified by the Inflation Reduction Act, and below that, the new 45Y tax credit.   

The federal renewable electricity production tax credit (PTC) is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service.

Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently by the Inflation Reduction Act of 2022. That bill established new prevailing wage and apprenticeship requirements for larger system to qualify for the full value of the tax credit -- 2.6 cents per kilowatt-hour (kWh) for wind, closed-loop biomass, and geothermal energy; 1.3 cents per kWh for open-loop biomass facilities, small irrigation power facilities, landfill gas facilities and trash facilities. In late-2022 or 2023, the Treasury Secretary will issue guidance for these new labor provisions. The credit for different project types and available bonus credits is described below.

Base Credit

Projects under 1 MW (or larger projects that are commenced no more than 60 days after the Treasury Secretary develops labor guidelines) do not need to meet the new labor standards established by the Inflation Reduction to receive the full 1.3 or 2.6 cents/kWh (depending on the facility type) tax credit. This amount may be adjusted annually for inflation. Such projects that begin construction after 2021 and before 2025 can receive the full tax credit. Note, projects that commence construction on or after January 1, 2025 can receive a tax credit under the new Clean Energy Production Tax Credit (45Y) described below. 

Projects over 1 MW that begin construction 60 days after the Treasury Secretary releases labor guidelines and no later than January 1, 2025 will receive a base tax credit of 0.5 cents/kWh. However, projects can qualify for the full tax credit if they ensure that all laborers and mechanics involved in the construction of the project or the maintenance of the project for the entire 10-year PTC period are paid wages at rates not less than prevailing wages. Projects must also ensure that a percentage of total labor hours are performed by qualified apprentices. The percent of hours increases over time to a maximum requirement of 15% in 2024 and thereafter. Note, projects that commence construction on or after January 1, 2025 can receive a tax credit under the new Clean Energy Production Tax Credit (45Y) described below. 

Bonus Credits

The Domestic Content Bonus increases the credit amount by 10% for projects in which 100% of any steel or iron that is a component of the facility and 40% of the manufactured products that are components of the facility were produced in the United States. Note, the required percentage of domestic manufactured products for offshore wind facilities is 20%. 

The Energy Community Bonus increases the credit amount by 10% for projects that are located at one of the following: (i) a brownfield site, (ii) a metropolitan or non-metropolitan statistical area which (A) has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas, or (B) has an unemployment rate above the national average for the previous year, or (iii) a census tract or a census tract that is adjoining a census tract in which a coal mine has closed after 1999 or a coal-fired electric generating unit was retired after 2009. 

Credit Monetization

Section 13801 of The Inflation Reduction Act of 2022 also established procedures for other parties to monetize certain tax credits, including this one, for equipment placed in service on or after January 1, 2023 and through December 31, 2032. 

The direct pay option allows non-taxable entities to directly monetize certain tax credits. The provisions apply to nonprofits, a state or political subdivision thereof, the Tennessee Valley Authority, Indian tribal governments (as defined in Section 30D(g)(9)), any Alaska Native Corporation (as defined in Section 3 of the Alaska Native Claims Settlement Act), or any corporation operating on a cooperative basis which is engaged in furnishing electric energy to persons in rural areas. Such applicable entities can elect to be treated as having made a tax payment equal to the value of the tax credit they would otherwise be eligible to claim. The entity can then claim a refund for the excess taxes they are deemed to have paid. The option effectively makes this tax credit refundable for these entities. 

The act also allows eligible taxpayers to transfer all or a portion of their eligible tax credits to an unrelated taxpayer. Transfers must be reported to IRS and only one transfer is permitted. Must be elected no later than the due date for tax filing for the tax year the tax credit is claimed.

Clean Energy Production Tax Credit (45Y)

Section 13701 of the Inflation Reduction Act created a new tax credit, the Clean Energy Production Tax Credit to replace the traditional PTC for systems placed in service on or after January 1, 2025. The tax credit is functionally similar to the PTC, but is not technology-specific. It applies to all generation facilities that have an anticipated greenhouse gas emissions rate of zero. The credit amount is generally calculated in the same manner as described above, and all technologies that satisfy the labor requirements will be eligible for the full value of the tax credit as adjusted for inflation. The credit will be phased out as the U.S. meets greenhouse gas emission reduction targets. For a project whose construction is commenced in the year following the year in which greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25% of the 2022 levels, the tax credit will not be reduced. However, for projects commenced in the second year following the target being met, the tax credit will be worth 75% of what it would otherwise be. Projects commenced in the third year will receive a credit worth 50%, and all projects commenced after then will not be eligible for a tax credit. 

Homeowners can take advantage of energy efficient mortgages (EEM) to either finance energy efficiency improvements to existing homes, including renewable energy technologies, or to increase their home buying power with the purchase of a new energy efficient home. The U.S. federal government supports these loans by insuring them through Federal Housing Authority (FHA) or Veterans Affairs (VA) programs. This allows borrowers who might otherwise be denied loans to pursue energy efficiency, and it secures lenders against loan default.

FHA Energy Efficient Mortgages
The FHA allows lenders to add up to 100% of energy efficiency improvements to an existing mortgage loan with certain restrictions. FHA mortgage limits vary by county, state and the number of units in a dwelling. See their website for more details. These mortgages were previously limited to $8,000.The maximum amount of the portion of an energy efficient mortgage allowed for energy improvements is now the lesser of 5% of:

• The value of the property,
• 115% of the median area price of a single-family dwelling, or
• 150% of the Freddie Mac conforming loan limit

Loan amounts may not exceed the projected savings of the energy efficiency improvements. These loans may be combined with FHA 203 (h) mortgages available to victims of presidentially-declared disasters and with financing offered through the FHA 203 (k) rehabilitation program. FHA loan limits do not apply to the EEM. Borrowers must obtain a home energy assessment by a qualified energy rater, assessor, or auditor using whole-assessment standards, protocols, and procedures. 

Borrowers may include closing costs and the up-front mortgage insurance premium in the total cost of the loan. The loan is available to anyone who meets the income requirements for FHA’s Section 203 (b), provided the applicant can meet the monthly mortgage payments. New and existing owner-occupied homes of up to two units qualify for this loan. Cooperative units are not eligible. Homebuyers should submit applications to their local HUD Field Office through an FHA-approved lending institution.

Department of Veterans Affairs (VA) Energy Efficient Mortgages
The VA insures EEMs to be used in conjunction with VA loans either for the purchase of existing homes or for refinancing loans secured by the dwelling. Homebuyers may borrow up to $3,000 if only documentation of improvement costs or contractor bids is submitted, or up to $6,000 if the projected energy savings are greater than the increase in mortgage payments. Loans may exceed this amount at the discretion of the VA. Applicants may not include the cost of their own labor in the total amount. No additional home appraisal is needed, but applicants must submit a HER, contractor bids and certain other documentation. The VA insures 50% of the loan if taken by itself, but it may insure less if the total value of the mortgage exceeds a certain amount.

This mortgage is available to qualified military personnel, reservists and veterans. Applicants should secure a certificate of eligibility from their local lending office and submit it to a VA-approved private lender. If the loan is approved, the VA guarantees the loan when it is closed.

Conventional EEMs
Conventional mortgages are not backed by a federal agency. Private lenders sell loans to Fannie Mae and Freddie Mac, which in turn allows homebuyers to borrow up to 15% of an existing home’s appraised value for improvements documented by a HER.

Fannie Mae also lends up to 5% for Energy Star new homes. Fannie Mae EEMs are available to single-family, owner-occupied units, and Fannie Mae provides EEMs to those whose income might otherwise disqualify them from receiving the loans by allowing approved lenders to adjust borrowers’ debt-to-income ratio by 2%. The value of the improvements is immediately added to the total appraised value of the home.

Freddie Mac offers GreenChOICE mortgages to "provide greater affordability for borrowers, offer more flexibility and combine the flexibilities of Home Possible Mortgages to offer borrowers additional affordable financing opportunities." Borrowers should apply directly to the lender. Click here for more details.

ENERGY STAR Partnership for Lenders
To promote EEMs and lenders who offer them, the federal ENERGY STAR program offers a partnership program for lenders who provide EEMs to borrowers. Becoming a partner allows lenders to utilize the Energy Star brand to promote themselves as Energy Star partners offering EEMs. To become a lender, partner lenders must first provide proof that they know how to write EEMs. To maintain their partnership benefits, lenders must write a certain number of EEMs per year. Energy Star does not have a lender certification program or process. Click here for more information about ENERGY STAR's lender partnership program, and here to access the partner locator tool. ENERGY STAR requires that its lender partners provide EEMs to qualified borrowers regardless of whether it is an FHA EEM, Fannie Mae EEM, or VA EEM.

Note: The U.S. Department of Agriculture's Rural Development issues periodic Notices of Solicitation of Applications for the Rural Energy for America Program (REAP) in the Federal Register. The FY 2018 solicitation for the REAP program includes a total budget of approximately $800 million. 

The Rural Energy for America Program (REAP) provides financial assistance to agricultural producers and rural small businesses in America to purchase, install, and construct renewable energy systems, make energy efficiency improvements to non-residential buildings and facilities, use renewable technologies that reduce energy consumption, and participate in energy audits and renewable energy development assistance.

Renewable energy projects for the Renewable Energy Systems and Energy Efficiency Improvement Guaranteed Loan and Grant Program include wind, solar, biomass and geothermal, and hydrogen derived from biomass or water using wind, solar, or geothermal energy sources. These grants are limited to 25% of a proposed project's cost, and a loan guarantee may not exceed $25 million. The combined amount of a grant and loan guarantee must be at least $5,000 (with the grant portion at least $1,500) and may not exceed 75% of the project’s cost. In general, a minimum of 20% of the funds available for these incentives will be dedicated to grants of $20,000 or less. For more information on grant, loan guarantees, loan financing, and opportunities for combinations thereof, visit the USDA website. 

Application due dates are published annually in the Notice of Funding Availability. 

Eligibility

Grants and Guaranteed Loans are generally available to small businesses and agricultural producers and other entities as determined by USDA. To be eligible for REAP grants and guaranteed loans, applicants must demonstrate sufficient revenue to cover any operations and maintenance expense as well as any applicable debt service of the project for the duration of the guaranteed loan or grant. Rural small businesses must be located in rural areas, but agricultural producers may be located in non-rural areas.

Eligible project costs include purchasing energy efficiency improvements or a renewable energy system, energy audits or assessments, permitting and licensing fees, and business plans and retrofitting. For new construction the replacement of older equipment with more efficient equipment may be eligible as a project cost only when a new facility is planned to be more efficient and similarly sized than the older facility. Working capital and land acquisition are only eligible for loan guarantees.

For more information regarding applicant and project eligibility for loans and grants, visit the USDA REAP eligibility webpage, read the eligibility requirements in the most recent Solicitation of Applications for REAP funding in the Federal Registry, and/or contact your state rural energy coordinator.

Regional rural energy coordinators provide loan and grant applications upon request.

History

The Food, Conservation, and Energy Act of 2008 (H.R. 2419), enacted by Congress in May 2008, converted the federal Renewable Energy Systems and Energy Efficiency Improvements Program,* into the Rural Energy for America Program (REAP). Similar to its predecessor, the REAP promotes energy efficiency and renewable energy for agricultural producers and rural small businesses through the use of (1) grants and loan guarantees for energy efficiency improvements and renewable energy systems, and (2) grants for energy audits and renewable energy development assistance. Congress has allocated funding for the new program in the following amounts: $55 million for FY 2009, $60 million for FY 2010, $70 million for FY 2011, and $70 million for FY 2012. REAP is administered by the U.S. Department of Agriculture (USDA). In addition to these mandatory funding levels, up to $25 million in discretionary funding may be issued each year. The American Taxpayer Relief Act of 2012 (H.R. 8) extended discretionary funding for FY 2013. The 2014 Farm Bill reauthorized the USDA to offer these programs and removed the mandate to offer grants for feasibility studies.

* The Renewable Energy Systems and Energy Efficiency Improvements Program was created by the USDA pursuant to Section 9006 of the 2002 federal Farm Security and Rural Investment Act of 2002. Funding in the amount of $23 million per year was appropriated for each fiscal year from FY 2003-2007. In March 2008, the USDA announced that it would accept $220.9 million in applications for grants, loan guarantees, and loan/grant combination packages under the Renewable Energy Systems and Energy Efficiency Improvements Program. The application deadline was June 16, 2008.

Land grant colleges and universities are referred to in the summary table as "schools" and "institutional" eligible sectors. K-12 schools are not eligible for this grant.

The U.S. Department of Energy's (DOE) Office of Indian Energy Policy and Programs promotes tribal energy sufficiency, economic growth, and employment on tribal lands through the development of renewable energy and energy efficiency technologies. The program provides financial assistance, technical assistance, and education and training to tribes for the evaluation and development of renewable energy resources and energy efficiency measures.

DOE's program offerings consist of program management through DOE headquarters, program implementation and project management through DOE's field offices, and technical support through DOE laboratories. Program management is carried out by DOE's Weatherization and Intergovernmental Program, which provides programmatic direction and funding to DOE field offices for program implementation. DOE's Golden Field Office solicits, awards, administers, and manages financial assistance agreements.

Program funding is awarded through a competitive process. Click here to view current program funding opportunities, and here to apply for technical assistance.

Note: Section 13302 of The Inflation Reduction Act of 2022 (H.R. 5376) extended the expiration date and modified the phase down of this tax credit. It also made stand-alone energy storage systems eligible for the credit, and biomass heaters ineligible for the credit. Biomass heaters are now eligible for the residential energy efficiency tax credit. The summary below reflects the credit after the enactment of H.R. 5376.

A taxpayer may claim a credit for a system that serves a dwelling unit located in the United States that is owned and used as a residence by the taxpayer. Expenditures with respect to the equipment are treated as made when the installation is completed. If the installation is at a new home, the "placed in service" date is the date of occupancy by the homeowner. Expenditures include labor costs for on-site preparation, assembly or original system installation, and for piping or wiring to interconnect a system to the home. If the federal tax credit exceeds tax liability, the excess amount may be carried forward to the succeeding taxable year. The maximum allowable credit, equipment requirements and other details vary by technology, as outlined below.

Solar-electric property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Solar water-heating property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• Equipment must be certified for performance by the Solar Rating Certification Corporation (SRCC) or a comparable entity endorsed by the government of the state in which the property is installed.
• At least half the energy used to heat the dwelling's water must be from solar in order for the solar water-heating property expenditures to be eligible.
• The tax credit does not apply to solar water-heating property for swimming pools or hot tubs.
• The home served by the system does not have to be the taxpayer’s principal residence.

Fuel cell property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The maximum credit is $500 per half kilowatt (kW).
• The fuel cell must have a nameplate capacity of at least 0.5 kW of electricity using an electrochemical process and an electricity-only generation efficiency greater than 30%.
• In case of joint occupancy, the maximum qualifying costs that can be taken into account by all occupants for figuring the credit is $1,667 per 0.5 kW. This does not apply to married individuals filing a joint return. The credit that may be claimed by each individual is proportional to the costs he or she paid.
• The home served by the system must be the taxpayer’s principal residence.

Small wind-energy property

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The home served by the system does not have to be the taxpayer’s principal residence.

Geothermal heat pumps

• 30% for systems placed in service by 12/31/2019
• 26% for systems placed in service after 12/31/2019 and before 01/01/2022
• 30% for systems placed in service after 12/31/2021 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• There is no maximum credit for systems placed in service after 2008.
• Systems must be placed in service on or after January 1, 2006, and on or before December 31, 2034.
• The geothermal heat pump must meet federal Energy Star criteria.
• The home served by the system does not have to be the taxpayer’s principal residence

Battery Storage Systems (Standalone Systems)

• 0% for systems placed in service before 1/1/2023
• 30% for systems placed in service after 12/31/2022 and before 01/01/2033
• 26% for systems placed in service after 12/31/2032 and before 01/01/2034
• 22% for systems placed in service after 12/31/2033 and before 01/01/2035
• The system must have a capacity of at least 3 kilowatt hours
• The home served by the system does not have to be the taxpayer’s principal residence.

Significantly, The American Recovery and Reinvestment Act of 2009 repealed a previous limitation on the use of the credit for eligible projects also supported by "subsidized energy financing." For projects placed in service after December 31, 2008, this limitation no longer applies.

Energy Storage

Prior to the enactment of the Inflation Reduction Act of 2022, the federal tax code did not explicitly reference energy storage, so stand-alone energy storage systems did not qualify for the tax credit.  However, the IRS issued Private Letter Rulings in 2013 and 2018, which address energy storage paired with PV systems. In both cases, the IRS ruled that the energy storage equipment when paired with PV met the statutory definition of a "qualified solar electric property expenditure," as was eligible for the tax credit. It is important to note that Private Letter Rulings only apply to the taxpayer who requested it, and do not establish precedent. Any taxpayer considering the purchase of an energy storage system should consult their accountant or other tax professional before claiming a tax credit.  

History

Established by The Energy Policy Act of 2005, the federal tax credit for residential energy property initially applied to solar-electric systems, solar water heating systems and fuel cells. The Energy Improvement and Extension Act of 2008 extended the tax credit to small wind-energy systems and geothermal heat pumps, effective January 1, 2008. Other key revisions included an eight-year extension of the credit to December 31, 2016; the ability to take the credit against the alternative minimum tax; and the removal of the $2,000 credit limit for solar-electric systems beginning in 2009. The credit was further enhanced in February 2009 by The American Recovery and Reinvestment Act of 2009, which removed the maximum credit amount for all eligible technologies (except fuel cells) placed in service after 2008.

Note: The Tax Cuts and Jobs Act of 2017 repealed section 54C of the Internal Revenue Code, which authorized the use of New CREBs. IRS Notice 2018-15  announced that the IRS will no longer process applications for or issue allocations of New CREBs. The summary below describes CREBs before they were repealed, and is here for historical purposes only. 

Clean renewable energy bonds (CREBs) may be used by certain entities -- primarily in the public sector -- to finance renewable energy projects. The list of qualifying technologies is generally the same as that used for the federal renewable energy production tax credit (PTC). CREBs may be issued by electric cooperatives, government entities (states, cities, counties, territories, Indian tribal governments or any political subdivision thereof), and by certain lenders.  The bondholder receives federal tax credits in lieu of a portion of the traditional bond interest, resulting in a lower effective interest rate for the borrower.* The issuer remains responsible for repaying the principal on the bond.

The Energy Improvement and Extension Act of 2008 (Div. A, Sec. 107) allocated $800 million for new Clean Renewable Energy Bonds (CREBs). In February 2009, the American Recovery and Reinvestment Act of 2009 (Div. B, Sec. 1111) allocated an additional $1.6 billion for New CREBs, for a total New CREB allocation of $2.4 billion. The Energy Improvement and Extension Act of 2008 also extended the deadline for previously reserved allocations ("Old CREBs") until December 31, 2009, and addressed several provisions in the existing law that previously limited the usefulness of the program for some projects. A separate section of the law extended CREBs eligibility to marine energy and hydrokinetic power projects.

Participation in the program is limited by the volume of bonds allocated by Congress for the program. Participants must first apply to the Internal Revenue Service (IRS) for a CREBs allocation, and then issue the bonds within a specified time period. The New CREBs allocation totaling $2.4 billion does not have a defined expiration date under the law; however, recent IRS solicitations for new applications require the bonds to be issued within 3 years after the applicant receives notification of an approved allocation (see History section below for information on previous allocations). Public power providers, governmental bodies, and electric cooperatives are each reserved an equal share (33.3%) of the New CREBs allocation. IRS Notice 2015-12, however, divided the remaining volume cap differently: $516,565,691.35 for public power providers, $597,134,963.60 for governmental bodies, and $280,778,469.00 for cooperative utilities.

The tax credit rate is set daily by the U.S. Treasury Department. Under past allocations, the credit could be taken quarterly on a dollar-for-dollar basis to offset the tax liability of the bondholder. However, under the new CREBs allocation, the credit has been reduced to 70% of what it would have been otherwise. Other important changes are described in IRS Notice 2009-33.

CREBs differ from traditional tax-exempt bonds in that the tax credits issued through CREBs are treated as taxable income for the bondholder. The tax credit may be taken each year the bondholder has a tax liability as long as the credit amount does not exceed the limits established by the federal Energy Policy Act of 2005. Treasury rates for prior CREB allocations, or "Old" CREBs are available here, while rates for New CREBs and other qualified tax credit bonds are available here.

In April 2009, the IRS issued Notice 2009-33, which solicited applications for the New CREB allocation and provided interim guidance on certain program rules and changes from prior CREB allocations. The expiration date for New CREB applications under this solicitation was August 4, 2009. Further guidance on CREBs is available in IRS Notices 2006-7 and 2007-26 to the extent that the program rules were not modified by 2008 and 2009 legislation. In October 2009, the Department of Treasury announced the allocation of $2.2 billion in new CREBs for 805 projects across the country. A new solicitation (IRS Announcement 2010-54) was issued in September 2010 for roughly $191 million in unallocated New CREB bond volume available only to electric cooperatives. The award announcement for this allocation was made in March 2011. It remains to be seen if or when the IRS will issue new funding announcements for Old CREB allocations which were not issued by the December 31, 2009 deadline, or New CREB allocations which miss the three-year issuance period.

History
The federal Energy Policy Act of 2005 (EPAct 2005) established Clean Energy Renewable Bonds (CREBs) as a financing mechanism for public sector renewable energy projects. This legislation originally allocated $800 million of tax credit bonds to be issued between January 1, 2006, and December 31, 2007. Following the enactment of the federal Tax Relief and Health Care Act of 2006, the IRS made an additional $400 million in CREBs financing available for 2008 through Notice 2007-26.

In November 2006, the IRS announced that the original $800 million allocation had been reserved for a total of 610 projects. The additional $400 million (plus surrendered volume from the previous allocation) was allocated to 312 projects in February 2008. Of the $1.2 billion total of tax-credit bond volume cap allocated to fund renewable-energy projects, state and local government borrowers were limited to $750 million of the volume cap, with the rest reserved for qualified municipal or cooperative electric companies.

For further information on CREBs, contact Zoran Stojanovic or Timothy Jones of the IRS Office of Associate Chief Counsel at (202) 622-3980. Questions on recent IRS Notice 2009-33 can be directed to Janae Lemley at (636) 255-1202.


*In March 2010 Congress enacted H.R. 2847 (Sec. 301) permitting New CREB issuers to make an irrevocable election to receive a direct payment -- a refundable tax credit -- from the Department of Treasury equivalent to and in lieu of the amount of the non-refundable tax credit which would otherwise be provided to the bondholder. This option only applies to New CREBs issued after the March 18, 2010 enactment of the law. In April 2010 the IRS issued Notice 2010-35 providing guidance on the direct payment option.

The Rural Energy for America Program (REAP) provides financial assistance to agricultural producers and rural small businesses in rural America to purchase, install, and construct renewable energy systems, make energy efficiency improvements to non-residential buildings and facilities, use renewable technologies that reduce energy consumption, and participate in energy audits and renewable energy development assistance.

Renewable energy projects for the Renewable Energy Systems and Energy Efficiency Improvement Guaranteed Loan and Grant Program include wind, solar, biomass and geothermal, and hydrogen derived from biomass or water using wind, solar, or geothermal energy sources. These grants are limited to 25% of a proposed project's cost, and a loan guarantee may not exceed $25 million. The combined amount of a grant and loan guarantee must be at least $5,000 (with the grant portion at least $1,500) and may not exceed 75% of the project’s cost. In general, a minimum of 20% of the funds available for these incentives will be dedicated to grants of $20,000 or less. For more information on grant, loan guarantees, loan financing, and opportunities for combinations thereof, visit the USDA website.

Application due dates are published annually in the Notice of Funding Availability.

Eligibility

Grants and Guaranteed Loans are generally available to small businesses and agricultural producers and other entities as determined by USDA. To be eligible for REAP grants and guaranteed loans, applicants must demonstrate sufficient revenue to cover any operations and maintenance expense as well as any applicable debt service of the project for the duration of the guaranteed loan or grant. Rural small businesses must be located in rural areas, but agricultural producers may be located in non-rural areas.

Eligible project costs include purchasing energy efficiency improvements or a renewable energy system, energy audits or assessments, permitting and licensing fees, and business plans and retrofitting. For new construction the replacement of older equipment with more efficient equipment may be eligible as a project cost only when a new facility is planned to be more efficient and similarly sized than the older facility. Working capital and land acquisition are only eligible for loan guarantees.

For more information regarding applicant and project eligibility for loans and grants, visit the USDA REAP eligibility webpage, read the eligibility requirements in the most recent Solicitation of Applications for REAP funding in the Federal Registry, and/or contact your state rural energy coordinator.

Regional rural energy coordinators provide loan and grant applications upon request.

History

The Food, Conservation, and Energy Act of 2008 (H.R. 2419), enacted by Congress in May 2008, converted the federal Renewable Energy Systems and Energy Efficiency Improvements Program,* into the Rural Energy for America Program (REAP). Similar to its predecessor, the REAP promotes energy efficiency and renewable energy for agricultural producers and rural small businesses through the use of (1) grants and loan guarantees for energy efficiency improvements and renewable energy systems, and (2) grants for energy audits and renewable energy development assistance. Congress has allocated funding for the new program in the following amounts: $55 million for FY 2009, $60 million for FY 2010, $70 million for FY 2011, and $70 million for FY 2012. REAP is administered by the U.S. Department of Agriculture (USDA). In addition to these mandatory funding levels, up to $25 million in discretionary funding may be issued each year. The American Taxpayer Relief Act of 2012 (H.R. 8) extended discretionary funding for FY 2013. The 2014 Farm Bill reauthorized the USDA to offer these programs and removed the mandate to offer grants for feasibility studies.

* The Renewable Energy Systems and Energy Efficiency Improvements Program was created by the USDA pursuant to Section 9006 of the 2002 federal Farm Security and Rural Investment Act of 2002. Funding in the amount of $23 million per year was appropriated for each fiscal year from FY 2003-2007. In March 2008, the USDA announced that it would accept $220.9 million in applications for grants, loan guarantees, and loan/grant combination packages under the Renewable Energy Systems and Energy Efficiency Improvements Program. The application deadline was June 16, 2008.

Land grant colleges and universities are referred to in the summary as "schools" and "institutional" eligible sectors. K-12 schools are not eligible for this grant.

NOTE: The program held its 17th round of solicitation from January 23, 2017 to February 13, 2017. Applications are accepted through 4-6 competitive solicitations on an every-other month basis until program capacity of 97 MW is met.

Public Service Electric and Gas (PSE&G) of New Jersey, the largest utility in the State, offers loans for "behind the meter" photovoltaic (PV) systems to all customer classes in its electric service territory.  The program opened in April 2008 with a goal of installing 30 megawatts (MW) of customer-sited PV through the issuance of loans totaling $105 million. The initial program, termed Solar Loan I, was operating with a waiting list by July 2009. Solar Loan II was opened in December 2009 to provide additional loans of $143 million with an initial goal of supporting a further 51 MW of capacity. The most recent version Solar Loan III began accepting application in Fall 2013 with a goal of installing additional 97.5 MW of solar over 2-3 years. 

The current program provides loans which typically cover 40-60% of the cost of PV systems with the remainder to be paid for or financed separately by the customer.  A loan term of 10 years is available to both residential and non-residential customers at an interest rate of 11.179%. The actual maximum loan amount is based on how much energy the customer’s PV system is expected to produce over the term of the loan. The loan program website contains a loan calculator tool for this purpose. Loans are only available to systems of 5,000 kW DC or less that are eligible for net metering and to generate Solar Renewable Energy Certificates (SRECs) under New Jersey State regulations.

Customers may repay the loan through cash payments or by assigning their SRECs to PSE&G. An SREC is equivalent to 1 megawatt-hour (MWh) of solar electric generation under the State SREC trading system. The value of an SREC will vary according to market conditions.  However, customers lock in a guaranteed floor price on their SRECs when they enter into a PSE&G solar loan.  This floor price is bid in by the customer when the customer applies to the Solar Loan III Program.  Bids must be made in $5 increments.  Bids are evaluated by a third-party Solicitation Manager, which determines if floor price bids are competitive and should be accepted.

The floor price accepted for a loan remains in effect for the duration of the loan.  Customers will receive at least the floor price per SREC toward the repayment of loan principal and interest, but may receive more if market trading prices for SRECs are higher. For the purposes of loan repayment the market value of SRECs will be determined using the average monthly cumulative weighted price of SRECs published by the New Jersey Office of Clean Energy.  Higher SREC prices will reduce the time period over which the loan is paid off. The customer will own all SRECs generated subsequent to the end of the loan term.  Under the New Jersey SREC related regulations solar facilities only eligible to generate SRECs for 15 years after the solar facility is placed in service.

Participants in this program remain eligible for benefits offered by PSE&G or New Jersey Board of Public Utilities (BPU) renewable energy programs, including net metering, as well as other forms of assistance (e.g., federal tax credits). Solar panels must be covered by a 20-year warranty and the customer is responsible for having a system maintenance agreement in place to ensure system performance. In addition, the customer must currently have a PSE&G account in good standing, and meet the minimum credit rating and insurance requirements determined by the PSE&G. Previously the applications for solar loan program was accepted on a rolling basis, starting 2015, applications are accepted through 4-6 competitive solicitations each year. 

Loan applications are scheduled to be accepted on an every-other month basis until program capacity is met. Loan availability is divided into five segments, with each segment allocated a portion of the overall target. Total allocations are as follows (in dc):

• Residential: 9.75 MW
• Residential Aggregated: 9.75 MW
• Non-residential Small, up to 150 kW: 13.14 MW
• Non-residential Large, greater than 150 kW but up to 2,000 kW: 59.86 MW
• Landfill, up to 5,000 kW: 5.00 MW

For each application period, each segment is allocated a certain amount of capacity to serve eligible applicants on a first-come, first-serve basis. Excess capacity that exists from a solicitation may be carried forward to the following solicitation, while applications in excess of the available allocation will be prioritized based on the time of application submission and SREC floor price bid.  Such applications are then put on a waiting list for the next solicitation. 

It is expected that the Solar Loan III program will issue $100 million in loans with certain costs to be recouped by PSE&G through the Regional Greenhouse Gas Initiative (RGGI) recovery charge (RRC) on all PSE&G New Jersey electricity customer accounts. The utility will periodically sell the SRECs it acquires through the program in auctions open to all SREC market participants. The proceeds from these auctions will be circulated back into the program cost calculations that will be used to determine the actual charge.  For further information on this program, please consult the program web page or contact PSE&G.

Note: The Tax Cuts and Jobs Act (HR 1) of 2017 repealed the use of tax credit bonds effective January 1, 2018.  Issuers of QECBs that elected to receive direct payments from the Treasury issued on or before December 31, 2017, consistent with the Internal Revenue Code (Section 54D), will continue to receive direct payments. The summary presented below is for historical purposes. 

The Energy Improvement and Extension Act of 2008, enacted in October 2008, authorized the issuance of Qualified Energy Conservation Bonds (QECBs) that may be used by state, local and tribal governments to finance certain types of energy projects. QECBs are qualified tax credit bonds, and in this respect are similar to new Clean Renewable Energy Bonds or CREBs. The October 2008 enabling legislation set a limit of $800 million on the volume of energy conservation tax credit bonds that may be issued by state and local governments. The American Recovery and Reinvestment Act of 2009, enacted in February 2009, expanded the allowable bond volume to $3.2 billion. In April 2009, the IRS issued Notice 2009-29 providing interim guidance on how the program will operate and how the bond volume will be allocated. Subsequently, H.R. 2847 enacted in March 2010 introduced an option allowing issuers of QECBs and New CREBs to recoup part of the interest they pay on a qualified bond through a direct subsidy from the Department of Treasury. Guidance from the IRS on this option was issued in April 2010 under Notice 2010-35.

With tax credit bonds, generally the borrower who issues the bond pays back only the principal of the bond, and the bondholder receives federal tax credits in lieu of the traditional bond interest. The tax credit may be taken quarterly to offset the tax liability of the bondholder. The tax credit rate is set daily by the U.S. Treasury Department; however, energy conservation bondholders will receive only 70% of the full rate set by the Treasury Department under 26 USC § 54A. QECB rates are available here. Credits exceeding a bondholder's tax liability may be carried forward to the succeeding tax year, but cannot be refunded. Energy conservation bonds differ from traditional tax-exempt bonds in that the tax credits issued through the program are treated as taxable income for the bondholder.

For QECBs issued after March 18, 2010, the bond issuer may make an irrevocable election to receive a direct payment from the Department of Treasury equivalent to the amount of the non-refundable tax credit described above, which would otherwise accrue to the bondholder. The direct payment comes in the form of a refundable tax credit to the issuer in lieu of a tax credit to the bondholder. This option was formerly limited to Build America Bonds (see 26 USC § 6431, H.R. 2847 and IRS Notice 2010-35 for details). The advantage of either option is that it creates a lower effective interest rate for the issuer because the federal government subsidizes a portion of the interest costs.

In contrast to CREBs, QECBs are not subject to a U.S. Department of Treasury application and approval process. Bond volume is instead allocated to each state based on the state's percentage of the U.S. population as of July 1, 2008. Each state is then required to allocate a portion of its allocation to "large local governments" within the state based on the local government's percentage of the state's population. Large local governments are defined as municipalities and counties with populations of 100,000 or more. Large local governments may reallocate their designated portion back to the state if they choose to do so. IRS Notice 2009-29 contains a list of the QECB allocations for each state and U.S. territory. Implementing allocations and reallocations most often, but not always, takes place through State Energy Offices. As of this writing some states have yet to assign implementation responsibilities to a specific state agency.

The definition of "qualified energy conservation projects" is fairly broad and contains elements relating to energy efficiency capital expenditures in public buildings that reduce energy consumption by at least 20%; green community programs (including loans and grants to implement such programs); renewable energy production; various research and development applications; mass commuting facilities that reduce energy consumption; several types of energy related demonstration projects; and public energy efficiency education campaigns. In July 2012 the IRS issued Notice 2012-44 clarifying the meaning of "capital expenditures" and "green community program", and providing guidance on meeting the 20% energy consumption reduction requirement for energy -efficiency related capital expenditures in publicly-owned buildings (see 26 USC § 54D and IRS Notice 2012-44 for additional details). Renewable energy facilities that are eligible for CREBs are also eligible for QECBs.

In October 2008, New Jersey enacted legislation exempting renewable energy systems used to meet on-site electricity, heating, cooling, or general energy needs from local property taxes. (There is not a state component to property taxes in New Jersey). Eligible renewable energy systems* include solar PV, wind, fuel cells, sustainable biomass, geothermal electric, landfill gas, hydroelectric, resource recovery, wave, and tidal systems that produce electricity. Systems that produce energy from solar thermal energy (e.g., solar hot water) or geothermal energy (e.g., geothermal heat pumps) are also eligible for the exemption. The exemption may be claimed for all qualified systems installed on residential, commercial, industrial, or mixed use buildings as accessory uses.

In order to claim the exemption, property owners must apply for a certificate from their local assessor which will reduce the assessed value of their property to what it would be without the renewable energy system. Exemptions will take effect for the year after a certification is granted. The New Jersey Department of Treasury, Division of Taxation is required to develop the rules and regulations necessary to implement this law. According to the law, rules relating to the technical qualifications for eligible renewable energy systems will be developed by the New Jersey Board of Public Utilities (BPU) and the Commissioner of Community Affairs. The Department of Community Affairs (DCA) has determined that the existing Uniform Construction Code, which requires compliance with a manufacturer's instructions in cases not specifically covered by the code, is a sufficient basis for determining whether or not a system qualifies for the exemption. Thus, as of this writing detailed technical standards are not expected.

The New Jersey Division of Taxation has developed an Application for Certification of Renewable Energy Systems. Prospective applicants should direct questions about the law to their local assessor.

*Biomass, hydroelectric, and resource recovery facilities must meet environmental standards as defined by the New Jersey Department of Environmental Protection and minimize environmental and community impacts.

Per the State of New Jersey Board of Public Utilities, the EDA Edison Green Growth Fund Loan closed December 2012

The Edison Innovation Clean Energy Manufacturing Fund (CEMF) is intended to provide assistance for the manufacturing of energy efficient and renewable energy products that will assist Class I renewable energy and energy efficiency technologies in becoming competitive with traditional sources of electric generation. The CEMF is administered by the New Jersey Economic Development Authority (EDA) and is structured to provide grants (Tranche I) and loans (Tranche II) for certain business development activities that further these goals within the State of New Jersey. Applicants may apply for both tranches together or separately apply for Tranche II funds, but Tranche I applicants must also apply for Tranche II funding. The program first opened early 2009, but the most recent solicitation was issued in May 2011. The program is currently accepting applications on an open, rolling basis.

The total amount of available funding is capped at a maximum of $3.3 million per project. A minimum 50% cash match of total project costs is required to be from non-state derived matching funds. This incentive program is directed at commercial manufacturing; prototype development projects are not eligible. Further details of each Tranche are provided below:

Project Assessment and Design Grants (Tranche I)
The CEMF will provide a grant of up to $300,000 for costs associated with site assessment, procurement, and design of an eligible facility. Qualified Tranche I costs may include identifying and securing a project site and obtaining the necessary permits and regulatory approvals. The grant may not exceed 10% of the total amount of funding requested for the project as a whole. Twenty percent of the grant is available up front at the time of closing.

Project Construction and Operation Loan (Tranche II)
A maximum $3 million is available in the form of a ten-year loan at an interest rate of 2% to support site improvements, equipment purchases, facility construction and completion. Repayments begin at the start of the fourth year following the close of the loan. Projects that meet certain milestones may be eligible to convert up to $1 million of the loan into a performance grant.

The CEMF is funded by the state societal benefits charge (SBC), thus proposed projects in municipalities that do not pay into the SBC will not be eligible for funding under this program. The 2012 Board of Public Utilities Clean Energy Budget Order specifies new 2012 funding of $2 million for the program. The overall program budget for 2012 is somewhat larger because it contains unused funds from prior years. In order to be considered for funding, applicants must submit an Eligibility Intake Form. For additional details please see the program web site, which contains the program solicitation, application information, and FAQs.

In New Jersey, under the Farmland Assessment Act, farmland actively devoted to an agricultural or horticultural use is assessed at its productivity value. This practice generally results in a lower tax burden for farmland owners compared to residential or commercial land owners. In January 2010 New Jersey enacted legislation (S.B. 1538), which among other things clarifies how farmland used for biomass, solar, and wind energy generation should be treated under the Farmland Assessment Act. Ultimately, the law states that the addition of a biomass, solar, or wind energy generating system to land that was assessed and taxed as farmland during the prior tax year does not automatically preclude the land from continuing to qualify for this treatment. Instead, the law sets a series of conditions that must be met in order for the land to continue to be assessed as farmland, as follows:*

• The land must be part operating farm for the current year and have been part of an operating farm during the preceding year.
• The power and heat generated by the system must generally, but not exclusively, be used to serve farm energy needs.
• A conservation plan must be filed with and approved by the conservation district.
• For solar energy systems, the property under the panels must be used to the greatest extent practical for shade crops, pasture, or grazing.
• The ratio land devoted to energy production to land devoted to agricultural operations may not exceed 1:5 acres (i.e., maximum 1 acre devoted to energy production for every 5 acres devoted to agricultural operations).
• Facilities are limited in size to the lesser of 10 acres or 2 megawatts (MW) of generating capacity.
• For biomass generation, the property owner must obtain approval from the New Jersey Department of Agriculture.

Income generated from the sale of heat or power generated by solar, wind, biomass facilities is not considered income for the purposes of meeting eligibility requirements for assessment, valuation, and taxation under the Farmland Assessment Act. However, there is no income requirement for land assessed according to the terms described in the law. Any qualifying generation equipment installed in pinelands remains subject to the Pinelands Protection Act.

For the purposes of this law, the definition of land used for energy production does not include land devoted to the production of biomass fuels used in a biomass energy generation facility. Biomass is defined as "an agricultural crop, crop residue, or agricultural byproduct that is cultivated, harvested, or produced on the farm, or directly obtained from a farm where it was cultivated, harvested, or produced, and which can be used to generate energy in a sustainable manner." Any farmland used for solar, wind, or biomass energy generation that does not meet the criteria defined in the law may not be assessed as land devoted to agricultural or horticultural use under the Farmland Assessment Act.

 The application to install energy generation facilities, structures, and equipment can be found here.

*It is also important to note that S.B. 1538 prescribes several other criteria for determining whether it is permissible to construct energy generation facilities on preserved farmland. Among these criteria are requirements that energy production facilities not interfere with farm production; be limited in size to that needed to meet no more than 110% of on-site energy needs; and not occupy more than 1% of the total area of the farm, including both preserved and non-preserved portions.

NOTE: The most recent solicitation for this program closed July 6, 2021. Please check the program website for information on future solicitations.

The U.S. Department of Agriculture (USDA) offers an ongoing grant program for the improvement of energy generation, transmission, and distribution facilities in rural communities. This program began in 2000. Eligibility is limited to projects in communities that have average home energy costs at least 275% above the national average. Retail power suppliers serving rural areas are eligible to apply for grant funding, including non-profits (cooperatives and limited dividend or mutual associations), commercial entities, state and local governments entities, and tribal governments. Under the most recent solicitation for projects, a total of $7 million was available for qualifying projects. Under this solicitation grants ranging from $100,000 to $3 million were available for a variety of activities, including:

• Electric generation, transmission, and distribution facilities;
• Natural gas or petroleum storage or distribution facilities;
• Renewable energy facilities used for on-grid or off-grid electric power generation, water or space heating, or process heating and power;
• Backup up or emergency power generation or energy storage equipment; and
• Weatherization of residential and community property, or other energy efficiency or conservation programs.

This grant program is not limited to renewable energy or energy conservation and efficiency measures, but these measures are eligible for this grant program.

• Energy Efficiency Products: Limited to those which conserve the end use of gas or electricity. Energy efficiency equipment and technology that reduce electric or natural gas consumption also apply.
•  Class I Renewable Energy: Photovoltaic, solar, wind energy, renewably fueled fuel cells, wave, tidal, sustainable harvested biomass, and methane gas from landfills qualify.

Requirements

• Must employ 75% of W-2 employees in New Jersey, or commit to growing 10 high-paying jobs (minimum salary of $75k) over two years
• Must have strong intellectual property position and/or satisfactorily available collateral and cash flow.
• Must have a full-time management team (working only at that company) with domain experience.
• Founders/management team must have equity in the company (sweat equity not considered)

Use of funds: Growth capital to advance newly discovered energy efficient, renewable energy or supply chain products that will assist Class I renewable energy or energy efficient technologies in becoming competitive with traditional sources of electric generation.

Federal Housing Administration (FHA) through its PowerSaver loan program offers three financing options for homeowners to make energy efficiency and renewable energy upgrades in their residences. For all three PowerSaver products, borrowers must select from a list of approved PowerSaver lenders. Please check the HUD website to find a list of participating FHA approved lender for the program. PowerSaver products are not currently offered in all states, so all potential applicants are encouraged to first check the program website to ensure product availability in their location. 

Eligibility

Homeowners must have following requirements to be eligible for the program:

•  Minimum credit score of 660
•  Maximum total debt to income ratio of 45% (monthly income divided by monthly debt payments)
• Maximum combined loan-to-value: 100%
• Property type: One-unit, owner-occupied, principal residence properties only
• Appraisal requirement: exterior-only inspection appraisal or other FHA method of valuation
• PowerSaver insures lien position in the first place, or second place, and also insures loans without lien, as long as the loan amount is less than $7,500. 

Eligible Measures

Eligible home energy upgrades include, but are not necessarily limited to, the following:

• A whole home upgrade through Home Performance with ENERGY STAR
• Insulation and air sealing
• Replacing doors and windows
• Upgrading heating, ventilation, and air-conditioning systems and hot water systems
• Home automations systems and controls (e.g., smart thermostats)
• Installing solar photovoltaic (PV) systems, solar thermal hot water systems, small wind power, or geothermal heat pumps

PowerSaver Home Energy Upgrade—Up to $7,500

This unsecured consumer loan is intended for smaller projects (e.g., insulation, air and duct sealing, water heating, replacing heating and cooling equipment, etc.). It does not require a home appraisal or lien on the property. Single-family homeowners may qualify for the loan if they have manageable debt and a credit score of 660 or higher. Interest rates vary, but typically range from 4.99% to 7.75%. PowerSaver participating lenders, markets, and contact information is available here.

PowerSaver Second Mortgage (Title I)—Up to $25,000

This Title I loan is intended for financing larger retrofit projects, including energy efficiency, PV, solar hot water, geothermal, or other renewable energy projects. A home appraisal or equity is generally not required, but PowerSaver lenders may request it if required by their investor. Borrowers cannot currently have an existing home equity loan, a second lien, or second mortgage to qualify for this product. Interest rates vary but typically range from 4.99% to 9.99%, and the maximum loan term is 20 years. PowerSaver Title I participating lenders, markets, and contact information is available here.

PowerSaver Energy Rehab (203(k))—First mortgage up to FHA loan limits

This 203(k) loan is for home purchase or refinance, targeting either home buyers wishing to combine home improvements with a home purchases or to homeowners wishing to include home improvements when refinancing an existing mortgage. It is FHA-insured up to 100% for a home purchase or refinance, plus the cost of a home improvement project. Current loan limits for a single-unit property vary by area from $217,500 to $625,000 (higher amounts are permitted for two-, three- and four-unit properties); specific loan limits for an area can be found at this website. In order to qualify as a 203(k) PowerSaver loan, at least $3,500 of the home improvements must consist of eligible PowerSaver measures. PowerSaver 203(k) participating lenders, markets, and contact information is available here.

The two types of PowerSaver 203(k) loans are Standard and Streamlined. Standard 203(k) loans are for major improvements, where a home improvement project costs at least $5,000 and includes $3,500 in energy upgrades. The Streamlined 203(k) loans are for minor home improvements, where the home improvement project cost must not exceed $35,000. A HUD consultant is only required for oversight of home improvements for Standard 203(k) loans. 

NOTE: Starting October 29, 2018, the SREC Registration program applications submitted will receive 10 year SREC qualifying life. Applications submitted before the date will receive 15 years SREC qualifying life. 

New Jersey’s Renewable Portfolio Standard (RPS) includes a carve-out for solar, requiring the each electricity Load Serving Entities (LSEs) to provide at least 4.1% of the electricity through in-state solar installations by 2028. This solar carve-out, in addition to other supporting incentives has established NJ as one of the largest and dynamic solar market in the US. The SREC registration program allows the solar projects in New Jersey generate Solar Renewable Energy Credit (SREC) which can be traded as commodities to  meet state's RPS requirements. 

Eligibility

Participants must register their solar project with the SREC Registration Program prior to the start of the construction in order to establish eligibility to earn SRECs.

With respect to solar-electric systems, S.B. 1925 defines the term to include: (1) net metered facilities, (2) facilities that meet the definition of "on-site generation"; (3) facilities eligible for aggregated net metering; (4) facilities owned or operated by a public utility approved by the BPU; (5) facilities connected to the distribution system at 69 kilovolts (kV) or less and approved by the BPU; and (6) facilities certified by the BPU and DEP as being located on a brownfield, an area of historic fill, or a closed landfill. The definition does not include any facility connected to the grid at a voltage of higher than 69 kV, unless the facility is a net metering facility.

Program description

Solar projects installed in New Jersey that are registered with the SREC Registration Program are qualified to generate Solar Renewable Energy Certificates (SRECs). SRECs represent the renewable attributes of solar generation, bundled in minimum denominations of one megawatt-hour (MWh) of production. New Jersey’s SREC program provides a means for SRECs to be created and verified, and allows electric suppliers to buy and retire these certificates in order to meet their solar RPS requirements. All electric suppliers must use the SREC program to demonstrate compliance with the RPS. New Jersey’s on-line marketplace for trading SRECs, launched in June 2004, is the first such operation in the world. The price of SRECs is determined primarily by their market availability and the price of the Solar Alternative Compliance Payment (SACP) for the state RPS. The SACP is effectively a ceiling on the value of SRECs because it is the per MWh payment that electricity suppliers must make if they fail to obtain enough SRECs to cover their RPS obligation.

Prior to 2008 the SACP was set at $300 per MWh. This was amended in 2007, and an eight-year schedule was established by the BPU for Energy Year (EY) 2009 - 2016. In 2012 S.B. 1925 established a 15-year schedule for EY 2014 - 2028. Past and current SACP levels are as follows:

SREC prices vary according to supply and demand in the market. The wide fluctuations in the SREC prices in the NJ market have been a significant concern to the regulators and the solar industry. To address this issue, on May, 2014, the Board of Public Utilities (BPU) published a report addressing methods to mitigate SREC price volatility in the market. The report can be accessed here. Prices for recently traded SRECs can be accessed here. 

Solar facilities have a 10-year "qualification life", meaning that they are eligible to generate SRECs for 10 years after they are connected to the grid. The qualification life ends on the first May 31 (the end of the RPS compliance year) that is at least 10 years after the interconnection date. If a generator has accumulated a fraction of a MWh by the end of a reporting year (May 31), the fraction may be carried over and combined with energy generated in one or more subsequent reporting years in order to make a full MWh that is eligible for sale. Applications filed before October 29 2018, will have SREC life of 15 years. 

SREC Tracking

SRECs accrue from participating solar-electric facilities beginning March 1, 2004. SRECs generated prior to June 1, 2009 could only be used for compliance during the compliance year in which they were generated. Effective June 1, 2009 SRECs had a trading lifetime of two years, meaning that an SREC could be used for by an electric supplier for RPS compliance during the year it is issued or during the next compliance year. This lifetime was extended to three years -- the year of generation plus the following two compliance years -- by A.B. 3520 (2010), effective in July 2010. It has now been further extended to 5 years -- the year of generation plus the following four compliance years -- by S.B. 1925 effective July 23, 2012.

Pricing information for SRECs originating within New Jersey is available from the PJM Generation Attribute Tracking System (GATS) through the Public Reports section of the web site. REC owners can directly trade their credits from their GATS account or use other market place aggregators to trade their RECs. 

SREC based Financing Programs

In April 2008, Public Service Electric and Gas (PSE&G) received approval from the BPU to offer a loan program to help its customers finance PV systems. The PSE&G Solar Loan Program allows customers to take a loan from the utility for up to 40-60% of the cost of the PV system. Customers may then repay the loan using SRECs produced by their system at a basement price initially set at $475 per SREC. The initial $105 million program was scheduled to last two years. An extension of the program, Solar Loan II, was approved by the BPU in December 2009 to provide additional financing amounting to $143 million through 2011 under similar though not identical terms. Click here for further information on this program.

In July 2008 the BPU issued an order requiring the state's other electric distribution utilities (Jersey Central Power and Light, Atlantic City Electric, and Rockland Electric) to submit plans for purchasing SRECs from solar facilities through long-term contracts. The order contains several mandatory design requirements, including: (1) contract terms of 10-15 years; (2) separate market segments for projects of 50 kW or less and those between 50 and 500 kW (the upper limit); and, (3) an initial 3-year program period ending with the May 31, 2012 compliance year. The upper limit was subsequently raised to 2 MW in December 2010. So called "legacy" projects that received rebates through 2008 under the CORE program are not eligible for long-term contracts.

PSE&G is permitted to continue to offer its Solar Loan Program through its close. Atlantic City Electric and New Jersey Central Power and Light issued their first request for bids on July 30, 2009 and Rockland Electric began participating in the second solicitation issued October 1, 2009. Click here for further details on the individual utility programs and an FAQ on how the programs operate.

NOTE: Only multifamily properties are eligible for the program. Single family homeowners are not eligible for this program. 

The Fannie Mae Green Financing Business provides mortgage financing to apartment buildings and cooperatives (with 5 or more units) to finance energy and water efficiency property improvements. Its green financing programs include Green Rewards, and preferential pricing for loans secured by a property with an eligible Green Building Certification. All Fannie Mae green loans are securitized as Green Mortgage Backed Securities (Green MBS). To learn more about these programs, multifamily property owners should coordinate with a Fannie Mae DUS Lender:  https://multifamily.fanniemae.com/about-multifamily/our-partners/dus-lenders

Green Rewards, launched in 2015, provides preferential pricing and up to an additional 5% of loan proceeds by including up to 75% of projected owner energy and water savings and 25% of projected tenant savings in the loan underwriting. Conventional and affordable multifamily properties, as well as cooperatives, seniors, military, and student housing properties are eligible for this program. To qualify for a Green Rewards loan the property owner must commit to making property improvements that are projected to reduce the whole property’s annual energy and water consumption by at least 30%, which a minimum of 15% must be attributable to savings in energy consumption. Properties may be located anywhere in US, and the selected property upgrades must be completed within 12 months of loan closing.

Fannie Mae also provides preferential pricing for an acquisition or refinance loan on a conventional or affordable property that has a current, eligible Green Building Certification per Fannie Mae Form 4250.

Please visit the Fannie Mae Green Financing website for more information and detailed program requirements.

New Jersey’s Clean Energy Program offers the Residential New Construction Program to incentivize the construction of new homes that meet standards for the following: IECC 2015, EPA ENERGY STAR Certified New Homes, Multifamily High-Rise and the DOE Zero Energy Ready Home Program. The program provides a range of financial incentives depending on the energy efficiency of the homes. Both single family and multifamily buildings are eligible for the program.  

Program Description 

The Program offers builders flexibility and options to participate in the program by building homes to varying standards or guidelines. In all cases, the Home Energy Rating System (HERS) Index is used to calculate the home’s energy efficiency achieved and to determine the cash rebate the builder will earn. The three standards are outlined below:

Incentive Structure

The incentive structure offers the builder varying incentive amounts based on the type of residence (single-family, townhouse, and multi-family) and the level of energy efficiency that the home achieves compared to a reference home. Details of this structure are available on the program website. Please contact the program administrator for more information. 

By Board Order on July 28, 2021, the New Jersey Board of Public Utilities (NJBPU) established the SuSI Program to implement the Clean Energy Act of 2018 (L. 2018, c.17) and the Solar Act of 2021 (L. 2021, c. 169). The SuSI Program replaces the SREC Registration Program (SRP), which was closed to new registration on April 30, 2020 pursuant to the Clean Energy Act, and the Transition Incentive (TI) Program, which provided a bridge between the Legacy SRP and the SuSI Program.

The SuSI Program is made up of two sub-programs:

Administratively Determined Incentive Program

The ADI Program provides incentives for net metered residential projects, net metered non-residential projects of 5 MW or less, all community solar projects, and, for an interim period, projects previously eligible to seek conditional certification from the Board under Subsection (t). The interim market segment is blocked for 75 MW, while net-metered residential, net-metered non-residential, and community solar (LMI and Non-LMI) is blocked for 150 MW. The program will accept new registrations for each market segment on a first-come, first-served basis until the block is fully subscribed. Current available capacity is posted on the homepage of the ADI online portal. 

An additional $20 adder is available for a public entity, a customer that is a State entity, school district, county, county agency, county authority, municipality, municipal agency, municipal authority, New Jersey public college, or New Jersey public university. The Interim Subsection is available on an interim basis for solar facilities certified as being located on brownfield, historic fill, or properly closed landfills.

Registration opened on August 28, 2021.

Competitive Solar Incentive Program

This program will provide competitively set incentives for grid supply projects and net metered non-residential projects greater than 5 MW. Board Staff is currently working with stakeholders to develop the design of the CSI Program with the goal of holding the first solicitation by early-to-mid 2022.