Solar Energy and Affordable Housing: A Win-Win Partnership

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The Inflation Reduction Act (IRA) has significantly impacted the affordable housing landscape by providing generous tax credits and incentives for renewable energy projects. The IRA is transforming the affordable housing sector, bringing substantial financial and
environmental benefits.

Understanding the IRA’s Impact
Before the IRA, the financial viability of installing solar panels on affordable housing units was often challenging due to the upfront costs. However, the IRA offers several incentives that can be combined with affordable housing benefits, making solar energy a financial asset to these housing projects. Key incentives include:

  • Low-Income Housing Tax Credit (LIHTC): This program provides tax credits to developers who build affordable housing units. The IRA has expanded the eligibility criteria for LIHTC projects to include those with renewable energy systems, making solar integration more appealing; 
  • Investment Tax Credit (ITC): The ITC provides a significant tax credit for purchasing and installing solar systems. For affordable housing projects, this credit is even more generous, starting at 30 percent;
  • Bonus Credits: Additional bonus credits are available for projects in designated low-income communities or those serving low-income households. These bonus credits can further increase the financial attractiveness of solar installations; and
  • Direct Pay Option: The IRA allows eligible projects, including affordable housing developments, to elect the direct pay option. This means that the project can receive a direct payment from the federal government instead of receiving a tax credit. This is particularly beneficial for affordable housing developers who may not have the immediate tax liability to offset the credit.

Financial Benefits of Solar Integration
Integrating solar power into affordable housing projects offers numerous financial and environmental benefits. From a financial perspective, solar energy can significantly reduce the long-term operating costs of affordable housing developments. By generating their own electricity, these projects can lower their reliance on the grid and mitigate the impact of rising energy prices. Ultimately, the goal is to reduce energy costs for residents. If enough solar electricity is generated, an owner can potentially reduce or eliminate the need for residents to purchase electricity from the grid. This can result in significant savings on monthly utility bills, improving the affordability of housing. This translates into savings for both developers and residents, ensuring that affordable housing remains affordable over time.

Environmental Benefits of Solar Integration
In addition to the financial advantages, solar energy also provides substantial environmental benefits. By harnessing clean, renewable energy, affordable housing projects can reduce their carbon footprint and contribute to a healthier planet. Solar power eliminates harmful emissions associated with traditional fossil fuels, improving air quality and mitigating the effects of climate change. This aligns with the broader sustainability goals of the affordable housing industry and demonstrates a commitment to creating healthier and more environmentally responsible communities.

Developer Experience
One notable example is Tapestry Development Group’s Highland Terrace II development in Columbus, GA, a 132-unit affordable housing project. Working with Housing Sustainability Advisors (HSA), Tapestry was able to design a system that generates 100 percent of the community’s common electricity and leverages $300,000 in tax credits through the IRA. This will result in substantial energy cost savings for the developer over time and help to offset the upfront costs of the solar installation.

Another successful project is Dillon Grade School in Dillon, SC. This project is a gut renovation of a former school that will now be rehabilitated into a senior affordable community featuring a community gymnasium, auditorium and medical clinic – among other community amenities. HSA designed a 278kW solar array that will power over 70 percent of the total energy load generated by the residents and site at large – significantly reducing electric costs and securing over $400,000 in tax credits for this project. The credits create additional financial feasibility and demonstrate the immediate benefits of incorporating solar PV projects into affordable housing developments.

Conclusion
The IRA has created a favorable environment for solar development in affordable housing. The generous tax credits and incentives offered by the IRA are making it easier for developers to integrate solar power into their projects, providing significant financial and environmental benefits for residents. As demonstrated by Tapestry Development Group’s experiences, solar energy is a viable and attractive option for affordable housing communities. By embracing solar power, developers can create more sustainable, affordable and resilient communities for low-income families.

Jared Lang is the Owner and Principal of Housing Sustainability Advisors (HSA), working at the intersection of housing and energy. Jared is a specialist at infusing energy funding into the complicated financial structures of affordable housing. He previously served as a Senior Project Manager for Wesley Housing Development Corporation, serving as the lead developer on several multifamily affordable housing development projects in Washington, DC.
Jon Toppen has been in the affordable housing development field since 2002 and involved in the development or preservation of over 2,000 units of affordable rental housing. In his current position at Tapestry Development Group, he administers its corporate affairs and works with the staff and Board of Directors to implement the goals of the organization.