Clean Energy Incentives and Nonprofits: What’s Happening?

April 10, 2025
Publications

By Martha (Frannie) Reilly and Matthew Garber

Whether in the news or everyday gossip, the topic of energy is always close at hand —whether the discussion is about gasoline prices, electric bills, or solar panel installation at the local school. The public may be generally aware of tax incentives favoring clean energy development, but fewer are aware of the many energy-related opportunities for nonprofit organizations.

Clean Energy Incentives and Projects for Nonprofits

Nonprofit leaders are constantly searching for ways to further their core missions while reducing costs, and clean energy projects can be beneficial in accomplishing both goals. Clean energy projects broadly fit within two categories: (1) energy efficiency and (2) energy sourcing. The first category, energy efficiency, focuses on using less energy and includes projects such as smart thermostats, more efficient heating/cooling equipment, improved insulation, and energy audits, which can aid an organization in identifying ways to reduce energy use. The second category, energy sourcing, focuses on more efficient or renewable sources of energy. Projects in this category include on-site energy production (e.g., solar or geothermal), changing on-site fuel sources, or purchasing power derived from renewable sources. 

At the state level, many incentives exist for energy efficiency projects. In Pennsylvania, the Department of Community & Economic Development manages various grant and loan programs, such as the Alternative and Clean Energy Program and the Solar Energy Program. Many programs available to “businesses” are also available to nonprofit organizations. Pennsylvania also mandates net metering in most locations statewide, allowing small, on-site generation projects like solar panels to sell their excess power back to the electric company. Pennsylvania also has a deregulated energy market, meaning consumers (including nonprofits) can shop for their power and, if desired, choose to purchase power from certain sources.

At the federal level, tax credits have existed for some time for certain clean energy projects. However, prior to the Inflation Reduction Act of 2022 (IRA) and the Infrastructure Investment and Jobs Act (IIJA), nonprofit organizations generally did not receive any benefits from tax credit incentives because they are tax-exempt entities without taxable income. Now, the IRA permits these nonprofit organizations to benefit from a tax credit incentive by receiving an equivalent of a direct payment by investing in eligible energy property or energy production activities. Since the passage of those laws, nonprofit organizations have participated in various federal clean energy tax credit incentives, including investments in renewable energy projects such as solar and geothermal.

Some examples of clean energy projects under the IRA or the IIJA include building and/or renovating buildings to ensure they are energy-efficient, installing solar panels, implementing geothermal energy systems, incorporating energy-efficient vehicles used by nonprofits (i.e., electric vehicles), and installing charging stations. Nonprofit organizations such as universities and healthcare facilities typically have buildings and land in which clean energy renovations could significantly reduce energy costs, in addition to the available tax credit incentives. For example, renovating previously energy-inefficient buildings can result in large cost savings over a longer term.

Benefits of Clean Energy Investments

When evaluating whether to move forward with certain clean energy initiatives, nonprofit organizations may feel constrained by limited funds to implement these initiatives. However, direct payments, grants, loans, and other incentives can help offset the costs associated with incorporating these clean energy production activities. Ideally, a nonprofit’s clean energy capital investment can lead to reduced ongoing energy costs, which then may be used for the nonprofit organizations’ programs and services. 

In addition to financial benefits, some nonprofits participate in clean energy projects to meet environmental, social, and governance (ESG) goals. Wise energy investments can foster a nonprofit’s positive reputation with community members and donors by “putting their money where their mouth is,” demonstrating good stewardship and thoughtfulness about the impact of dollars the organization spends. In doing so, nonprofits can demonstrate the positive impact of both clean energy and responsible purchasing. Additionally, nonprofits focused on clean energy research may now use these tax credit incentives to study further and implement these clean energy initiatives.

Changing Landscape = Challenges & Opportunities

As we progress through 2025, significant changes are occurring in both energy and public policy. Politically, with the new administration, there is a de-emphasis on combating climate change. More generally, there is also some pushback on ESG from a corporate law standpoint, as some jurisdictions may view ESG as damaging to a corporation’s core mission of earning profits. This also provides an opportunity for nonprofits to stand out, as they are built around a separate set of incentives and are not organized for the purpose of profits — though if it is a tax-exempt entity, a nonprofit must adhere to its tax-exempt purpose. In the energy industry, there is a surging demand for power capacity due to the construction of data centers, the retirement of old generators, and the need to be prepared for extreme weather events. While this creates a need for more “dispatchable” sources of power generation that can be activated when needed (unlike solar and wind), there is still a strong interest in renewable generation projects. 

Recent executive actions have added more uncertainty to the current context at the federal level. Recently, an executive order entitled “Unleashing American Energy” (Executive Order) required government agencies to pause any and all disbursements of federal funding under the IRA and the IIJA for ninety days while applicable agencies review policies and programs. The stated goals of the Executive Order include “to ensure that all regulatory requirements related to energy are grounded in clearly applicable law” and to ensure that any disbursement of federal funds is in alignment with the current administration’s energy policy. While the full implications of this Executive Order continue to be evaluated, on its face, the primary immediate impact is the pause in disbursement of grant funds. While government agencies are reviewing the policies and programs as part of the Executive Order, organizations submitting for direct pay may experience delays in receiving these funds.

Given the continually changing political environment, organizations relying on federal tax incentives for their projects should monitor current developments in consultation with their legal and tax advisors. For organizations considering new projects, it may be prudent to see the outcome of the ninety-day review process before committing to a project with the expectation of receiving a federal grant, loan, or direct payment from clean energy tax incentives. In addition, nonprofit organizations should preserve records and potentially seek legal counsel if disbursements are delayed or withheld beyond the immediate time window.

While the Executive Order has injected some uncertainty into the current environment, there is also significant reason for optimism. First, the Executive Order, by its own terms, must be “implemented in a manner consistent with applicable law.” Programs like the direct pay provisions of the IRA were put in place by Congress, are part of U.S. tax law, and can only be legally changed by an act of Congress. Considering the popularity of some of the programs connected to the IRA and IIJA, a wholesale repeal of these acts is unlikely in a closely divided legislative branch.

Second, there is recognition on both sides of the aisle that new generation projects are needed, and a significant portion of new projects in the queue are renewable projects. Additionally, the financial case for renewable projects remains strong, and the need for new projects is unlikely to diminish anytime soon. Finally, at the state level, many programs remain intact that nonprofits can potentially take advantage of. The current moment may be a perfect opportunity for nonprofit organizations to assess what opportunities are available to them at the state level.

About the authors

Martha “Frannie” Reilly is Co-Chair of McNees Wallace & Nurick’s Public Finance and Government Services Group and a leader in the firm’s Corporate and Tax Group. She also heads the Charitable and Nonprofit and Environmental, Social, and Governance (ESG) Groups. Reilly advises clients on bond counsel matters, ESG strategies, and nonprofit governance. She can be reached at freilly@mcneeslaw.com or 484-329-8036.

Matthew L. Garber is an energy attorney with McNees Wallace & Nurick’s Energy and Environmental Law Group, advising clients on utility cost management, regulatory compliance, and energy transactions. He also counsels nonprofits on governance and compliance. He can be reached at mgarber@mcneeslaw.com or 717-237-5433.