Solar for churches: How congregations can benefit by installing solar

Businesses and homeowners have been able to enjoy the benefits of federal solar tax credits for years. But it’s just recently that nonprofits and non-taxable entities like houses of worship have finally been able to claim clean energy credits from the federal government, too.

The Inflation Reduction Act of 2022, or IRA, changed the requirements for claiming clean energy tax credits, adding organizations that don’t typically have tax liability, such as houses of worship, to the list of qualifying establishments. Specifically, under a provision in the IRA called “elective pay” (more commonly referred to as direct pay), houses of worship can receive a check from the federal government for up to 30% of the total cost of their solar installation if they go solar or invest in other clean energy improvements. 

Since nonprofits and religious organizations often lack the funds to pay for expensive investments like renewable energy, direct pay can be a game changer for houses of worship because it makes the project more affordable, according to Barry Jacobson, co-founder of Solar Impact, a solar installer based in Gainesville, Florida. 

“Now you can apply at the end of the project and get a direct payment from the government,” said Jacobson. “So it's a check for non-taxable entities, which has been a huge help.”

Typically, when a homeowner or business installs solar panels they can qualify for a tax credit of up to 30% of the installation cost when they file their taxes. Through direct pay, nonprofits and houses of worship can now also enjoy similar benefits and "receive a payment equal to the full value of tax credits for building qualifying clean energy projects," according to the Biden administration. The payment is made after the organization files its annual tax returns.   

The list of qualifying projects eligible for the applicable credit includes, but is not limited to: 

• Solar

• Wind

• Battery storage projects

• Community solar arrays

• EV charging infrastructure

Although most nonprofits, local government entities, and houses of worship can now take advantage of direct pay, it’s still important to double-check that your organization qualifies.

Your organization must also accurately register its qualifying project in order to receive the full tax credit. Once you're approved, the process can take anywhere from four to 18 months. The final step is filing your taxes. Once you've filed, you can expect to receive your payment within 45 days. Since the credit is a direct payment, your organization will receive up to 30% of the cost of your solar installation as a check. Keep in mind, you'll have to register your project with the IRS in advance and get approval. 

The new tax rules can create a multiplier effect when it comes to religious organizations seeking donations to fund clean energy projects, according to Jacobson.

“What we're finding is that groups we're working with have had really good success at fundraising for solar,” Jacobson said. “People don’t necessarily love to donate to pay the electric bill, so it becomes a way to fundraise for basic costs that are hard to fundraise for normally.” 

Each donation a house of worship receives on top of the 30% federal reimbursement, helps make a solar installation a more valuable investment in renewable, reliable energy. 

Some churches made the decision to install solar panels even before the IRA’s direct pay program was approved. The church had to weigh the pros and cons of installing solar panels without the benefit of a 30% tax credit, and ultimately decided it was worth it. Thanks to the IRA’s updated qualifications, it’s now more realistic for many other religious organizations to go solar without worrying about the financial impact.

Recently, EnergySage helped guide the Sudbury United Methodist Church (SUMC) in Massachusetts through the evaluation and installation of a solar photovoltaic system, also known as solar panels and solar power systems. While SUMC is financially sound, like most not-for-profit organizations, its resources are limited. There is a continual need for capital, which often results in some projects being delayed or not approved because of funding. 

With these factors in mind, two church members suggested church leaders consider investing in a solar energy system to save money through reduced power bills, and also move towards a sustainable source of energy. Both members had personal experience with solar systems. One of them, Diane Hammond, previously had worked with EnergySage on her own home's solar installation, and the second, Patrick Helsingius, is a church board member who had prior experience evaluating the same decision at another church. 

Intrigued by their suggestions, the board issued a soft mandate to begin the research process, assigning Patrick as the project manager to lead the effort. Initially, the church board did not have a clear understanding of the financial benefits of a solar PV system. They also did not consider the environmental benefits to be the driving force. Some thought that a purely "environmental" motivation could be a polarizing issue within the congregation due to varying opinions regarding climate change. 

"Doing the right thing for the environment may not necessarily be the primary driving force, but it's consistent with the mission of the church– being good stewards of the earth," Patrick said. "The solar system could be a powerful statement to the community of what the church stands for and what our values are."

While Patrick saw himself as an objective information gatherer, to some extent, he also became the project's "internal champion." As both a computer scientist and electrical engineer, he was further along in understanding the basics than most. Still, he spent a considerable amount of time familiarizing himself with solar photovoltaic technology. His earliest efforts were focused on getting his arms around most of the industry jargon and the many details related to the underlying economics, including:

• How much electricity would the church need, and how much could a solar PV system generate?

• What were the church's options for financing the system? Buy it outright? Lease it? Sign a power purchase agreement (PPA)?

• What rebates and incentives were available for a church?

• Was there an opportunity for the church to generate additional income in addition to free electricity by selling Solar Renewable Energy Certificates (SRECs)?

• How could the church secure the best financial deal? Or select the best installers?

He also knew that he would need to shepherd the rest of the church board through its own learning process. It would be important to make sure that the decision-makers had all of the information needed to make an informed decision. Once the board had bought into the project, it would be presented to the rest of the congregation. 

There would also be permitting reviews by the town, such as the historical district commission, so it was vital that Patrick had all of the information necessary to address the concerns of his various stakeholders. It was feasible that even one person could derail the project, so in-depth due diligence was critical.

How EnergySage can offer research and assistance for churches, mosques, and synagogues

Patrick began by collecting details about the church's energy consumption and costs, as well as information about the orientation and structural integrity of the roof. He then engaged EnergySage to assist with the research and evaluation process, as well as  the process of selecting an installer. Like many of us, he asked for referrals from friends. He also received suggestions from EnergySage. He found not all installers were eager for the church's business for several reasons:

• The size of the system the church would require was smaller than typical commercial installations.

• As a not-for-profit, many installers considered the church to be a higher financial risk.

• Some of the financing options were not suitable for a nonprofit institution.

With these factors in mind, Patrick and EnergySage contacted several installers to gauge their interest, schedule site visits, discuss potential financing options, and eventually secured several project quotes. 

From the outset, Patrick assumed that there would be little to no funds available to install a solar system. He knew that the church could save money, but was less sure about the required upfront investment and projected savings. 

However, his initial discussion with EnergySage and the other vendors he contacted helped him understand not only the potential for the church to obtain free energy without an upfront capital outlay, but also the potential to generate additional cash flow. Based on these initial findings, the project was extremely appealing from a financial standpoint.

Exhibit 1: Electricity costs and solar financing breakdown for the MA church

The church spends about $1,000 a month or $12,000 a year on electricity. While electricity costs have declined over the last two years, they rose over 7% annually between 1990-2010. Depending on its size, a solar PV system not only could provide the church with all its electricity needs, but it also would provide the same environmental benefits as planting over 1,100 trees each year.

Because the church went solar before the IRA was enacted in 2022, it didn’t qualify for most of the tax incentives available to commercial property owners, so purchasing the system outright was not an attractive option. Leases or a power-purchase agreement (PPA) were alternatives, however. 

The table below lists the details of some of the potential financing options that were presented to the church1.

One of the challenges Patrick faced was evaluating the competing quotes and determining which provided the best financial returns and fewest risks. He had to "normalize" the quotes so that he would be able to compare them apples to apples. He used the EnergySage Marketplace, which allowed Patrick to directly compare contract terms, analyze financials, compare solar panel quality, and evaluate installer credibility and responsiveness. Based on his analysis, he was able to shortlist suitable options for presentation to the church’s board. 

While the project was quite attractive financially, a green light was not necessarily guaranteed. Patrick needed to address a multitude of concerns before the project could proceed. Like most not-for-profit boards, the church's leaders tended to be fiscally conservative and would need to have a complete understanding of the level and source of the risk involved. Concerns included:

• How would other expenses such as insurance and taxes be impacted?

• How would the addition of solar panels affect the overall look of the church?

• What were the risks involved vis-à-vis the roof? What would be the impact on the life of the roof?

• How certain would the financial rewards be? How would the equation change if the SREC market were to change?

As an integral part of this process, Patrick and other members of the board gathered the information necessary to address or mitigate these concerns. They consulted an accountant and a tax attorney about tax implications, had an installer bring in a structural engineer to verify the strength of the roof, and did some financial return calculations for the proposals. They were as transparent as possible with the rest of the board about the research they had conducted during the evaluation. 

A similar process was needed with the town's historical commission, which was primarily concerned with the appearance of the church. While the commission understood the benefits the panels would provide, it needed to weigh this against the potential visual impact on the historic district. To overcome this, Patrick, together with another member of the board, presented computer-generated renderings of what the panels would look like, along with pictures of similar installations.

The 47.5 kW, 190-solar panel system at Sudbury United Methodist Church, MA, made possible by the church using EnergySage.com.

Today, the church is benefitting from the solar installation – thanks in part to EnergySage. To get across the finish line, church leaders had to present the project to the congregation, review the multiple bids they received on the EnergySage Marketplace to make sure they matched expectations, and agree on the final system design layout. This included understanding the technology and the market, understanding contract terms, and eventually selecting the best pricing option. The installer they chose also needed to perform the final electrical system and structural integrity analysis.

In the end, the church received the approvals it needed, from the town's historical commission, from its leadership team, and from its congregation. In May 2023, it installed a 47.5 kwh, 190-panel system on its roof.

Looking back, Patrick thinks that it would have been extremely helpful if he had had an example to follow, someone else who had blazed the trail before him. He is happy to serve in that pioneering role for others who follow. He recommends that anyone evaluating a similar project seek out objective sources of credible information. For Patrick, the ability to get multiple solar installation quotes on EnergySage.com, in conjunction with our impartial information and counsel, helped make this process possible.

Solar panel systems can be rewarding from both a financial and environmental standpoint – and will have broad appeal to most stakeholders and decision-makers. Despite their appeal, however, the process can be a long and complex one. Time and effort are needed to research and understand the technology and the underlying financials. The project lead needs to be committed to seeing it through to the end, and the organization’s leadership team needs to solidly be onboard.

If you are a congregation member or faith leader interested in receiving and comparing multiple solar installation quotes for your house of worship for free, simply sign up your organization on the EnergySage Marketplace today (no phone calls required to sign up). Our dedicated team will help you consider all of your solar options and make the right decision for your congregation.