As the executive director of a nonprofit affordable housing developer in rural Kentucky, Scott McReynolds has to justify every expense, despite running an organization with a $10 million annual budget. That’s why a solar installation, while environmentally attractive, didn’t seem financially viable.

However, recent updates that allow nonprofit organizations to take advantage of tax credits changed the equation.

“Once we heard about direct pay, we thought now’s the time to do it,” McReynolds said. “This can become a real cash savings for us.”

The “direct pay” he was referring to was folded into the Inflation Reduction Act (IRA), which was signed into law by President Biden. Before its implementation, nonprofits couldn’t benefit from tax credit opportunities because they generally don’t need to offset tax liabilities. With the IRA, nonprofit organizations are eligible to receive a direct payment for credit that other for-profit organizations have been utilizing all along.

McReynolds expects the Housing Development Alliance to receive upwards of $23,000, covering about a third of the cost of the $66,700 solar installation at the nonprofit’s offices. The Housing Development Alliance also worked with the Mountain Association, a nonprofit community economic development organization, to secure grant funding that covered the bulk of the cost for the organization’s 22.88kw system.

“When it’s all said and done, we will have only invested $7,900. And we’re saving $400 a month,” McReynolds said. “We have a $30-a-month electric bill for a 4,000-square-foot office. In less than two years, it’ll pay for itself.”

An improved environmental footprint, lower energy costs, and a return on investment are all positive outcomes for a solar installation at the headquarters of a nonprofit that develops affordable housing. Funders, McReynolds said, don’t think about supporting the utilities when donating to an organization. They focus on supporting the organization’s mission, or its staff. Utilities are a blind spot. So, the savings helps.

“It’s one of those things that it’s a lot of money, but it’s not a lot of money. It’s $5,000 a year, give or take. I don’t want to downplay that, but it won’t revolutionize us,” he said, of the organization’s savings. 

But, more than almost zeroing out a line-item expense, the solar installation experience gave McReynolds and his team a blueprint the organization can use to trim even more costs for the individuals they help. When creating affordable housing opportunities for rural Kentucky, the Housing Development Alliance works with people who live on “extraordinarily low” amounts of money. 

McReynolds said it’s not uncommon for the individuals they serve to be living off of $1,000 a month. Eliminating a $150 to $200 a month utility bill with solar, in that situation, could be life-changing. 

“We know a tremendous number of people where even if we gave them a home, they couldn’t pay the utilities, taxes or insurance on it,” McReynolds said. “We’re exploring now how to use solar to enhance affordability. If we could save someone $100 a month, that could be significant money.”

Flooding that devastated the area in 2022 prompted the Housing Development Alliance to build a model home, which staff used while responding to the disaster. McReynolds said, with the organization’s new, first-hand knowledge of solar’s financial benefits, the Housing Development Alliance plans to convert that model home into a rental unit with the addition of a solar array. 

The organization is also considering developing small, solar-powered, one-bedroom homes that would save on construction costs, utility costs, and taxes — offering an even more affordable home for those who need it most.

“Then, we have rental units where we pay the electric bill, so we’re probably going to evaluate them for viability for solar,” McReynolds said. “That $5,000 could quickly become $20,000 and now you’re saving. We’re currently building a house for a flood-surviving family and they’ve asked us to figure out if solar is viable on their house.”

McReynolds said the savings the organization is seeing from solar, and the ability to recoup tax credits directly, sheds light on how that tool could be used to further their mission.

“I think the direct pay is a game changer,” he said.