Importance of Direct Pay & ITC for Tribal Solar – Amid Threats in 2025
What is direct pay? How does it impact the economic viability of Tribal solar projects?
The 2022 Inflation Reduction Act (IRA) opened the doors for tax-exempt entities to receive a cash payment for solar panel installations through a program called “direct pay” or “elective pay.”
Prior to 2022, Tribal Nations did not have direct access to tax incentives due to their status as tax-exempt entities. This meant that Tribal-owned solar projects were functionally more expensive than solar projects owned by non-Tribal entities that could take advantage of the federal Investment Tax Credit (ITC) and a reduction in income taxes. To claim renewable energy tax credits and reduce the project's capital costs, Tribes were required to structure deals with a tax equity partner.
Thanks to the Inflation Reduction Act (IRA), Tribal Nations can now benefit from direct pay, a mechanism that allows tax-exempt entities to receive a cash payment equal to the value of certain clean energy tax credits. This means Tribes can recover 30% to 70% of the cost of eligible renewable energy systems, depending on bonus credit qualifications such as domestic content, energy communities, and prevailing wage and apprenticeship requirements. Instead of reducing tax liability, Tribal Nations will receive the benefit as a direct cash refund from the federal government. For example, a community solar project with a capital cost of $5 million could qualify for up to $3.5 million in refundable tax credits, bringing the effective cost down to $1.5 million.
What’s at Stake?
In May 2025, the House passed a “One Big Beautiful Bill” backed by former President Trump aimed at eliminating Investment Tax Credits and other clean energy incentives included in the Inflation Reduction Act (IRA). The bill is currently with the Senate for markup and consideration.
The bill proposes to end the 30–70 % tax credit abruptly at the end of 2025, cutting short the original IRA schedule and jeopardizing ongoing solar deployments.
Why This Matters for Tribal Nations
Direct Pay levels the playing field—Tribes no longer must partner with tax‑equity investors to benefit from ITC; they can now claim the full value in cash from the IRS.
Without a reliable and upfront tax incentive, Tribal solar projects become significantly more expensive, undermining community ownership, sovereignty, and financial viability.
Removing ITC threatens to halt or stall Tribal community solar projects, many already in planning or under construction.
Nationwide, analysts expect hundreds of thousands of clean energy jobs and hundreds of billions in investment to vanish if credits are repealed.
For Tribes, this means missing opportunities for energy cost savings, job creation, and local economic growth.
What Tribal Leaders Should Know
Congress could amend or repeal IRA provisions in future sessions. The Senate plays a key role, and visible Tribal and grassroots support can influence outcomes.
The current Section 48 Investment Tax Credit (ITC) for most energy property sunsets December 31, 2025. After that, new projects must qualify under Section 48E Clean Electricity ITC (CEITC), which begins in 2025 and is available through at least 2032, then phases out based on emissions targets.
Direct Pay allows Tribes and other tax-exempt entities to receive the full value of clean energy tax credits as cash payments from the IRS, without needing a tax equity partner. You must register with the IRS before placing a facility in service and then file to claim the refund.
Consider working with experienced developers, legal counsel, or financiers. Insurance, credit enhancement tools, and legislative risk protections can help safeguard your project from potential policy changes.
Response
Advance Tribal-led or Tribal-partnered projects now. Secure site control, conduct feasibility assessments, and begin construction to lock in eligibility under current IRA incentives before key deadlines.
Engage policymakers as individual Tribal Nations and through coalitions. Mobilize Tribal leadership, delegations, and grassroots advocates to urge Senators to protect and defend clean energy incentives critical to Tribal economic sovereignty and climate resilience.