Center For Public Enterprise’s Chirag Lala explains Direct Pay

When we learned last year that the Inflation Reduction Act would open up Direct Pay provisions for clean energy tax credits, like the Investment Tax Credit & Production Tax Credit,  to tax exempt entities, we on the Public Power Program here at Climate Cabinet were psyched. This new development immediately stuck out as a major game changer in the clean energy transition. What piqued our interest in particular—you’ll be shocked to hear—was what this means for publicly owned utilities. 

Following conversations with public power leaders across the country, however, we found that many people in the positions to bring home these amazing benefits provided by the Inflation Reduction Act (IRA) were not aware of Direct Pay and many of those who were aware were not exactly sure the extent of what it means for their utilities and the communities they serve. As the landscape has had more time to unfold and federal guidance has trickled out, it is crucial to connect leaders to information and support to reach for the opportunities available to them. That is why we were happy to see that Center for Public Enterprise released a report on Direct Pay—written by fellow Chirag Lala—at the end of March.

The report, titled Direct pay: an uncapped promise of the IRA, communicates the paradigm shift that is occurring. In a comprehensive yet very readable breakdown, Lala explains Direct Pay as and some major questions surrounding it including: how it was before changes and what possibilities have opened up with the changes, how it fits into existing financial models for renewable energy, and the benefits the expanded eligibility can have both in bolstering clean energy economies and achieving the goals set out by the IRA. You find the report answers questions you didn’t know you had, and for that I highly recommend giving it a read.

Lala concludes the report by—importantly—acknowledging the challenges that Direct Pay faces moving forward, namely: implementation, awareness, incompleteness, and state capacity. We agree, and are actively building out our capacity to connect Public Power leaders to the support and resources they need to bring IRA funds home. Center for Public Enterprise hopes to help address these challenges by, in Lala’s words, “working with prospective public and private beneficiaries of direct pay and seeking practitioners’ understanding of the capacities they need, legal obstacles or barriers to further action, and policy changes that would facilitate the deployment of public investment.” Go to this page for the release of the CPE report!

Further guidance on Direct Pay is set for release on June 6th, we’re looking forward to seeing further how things will unfold, and will be back with more thoughts.

Ethan Kirkham
Public Power Program Manager

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