Written by: Brian Anderson – Director, Credits & Incentives
As budgets reset and new projects move from pipeline to planning, renewable energy developers who look beyond federal programs are finding new value in the layers of state and local incentives designed to accelerate clean energy growth.
Federal Credits Are Only Part of the Picture
For years, the Investment Tax Credit (ITC) and Production Tax Credit (PTC) have dominated renewable energy conversations. They remain cornerstone programs for financing solar, wind, and storage projects.
However, many of the expanded federal benefits introduced under the Inflation Reduction Act (IRA) are set to phase down or sunset over the next few years. As federal guidance tightens and qualification thresholds evolve, developers who rely solely on these credits risk missing critical windows of opportunity.
The most forward-thinking renewable energy developers are realizing that federal incentives are just the starting point. A complex but rewarding landscape of state and local tax credits, exemptions, abatements, and grants can significantly improve project financials, reduce capital costs, and smooth long-term tax exposure.
The Opportunity: Layering renewable energy tax Incentives Strategically
Every project site represents a unique tax incentive profile. By aligning project planning with state legislative cycles and local policy updates, developers can often layer multiple benefits on top of federal credits.
Examples include:
Property Tax Abatements and PILOT Agreements
Many counties and municipalities offer partial or full abatements of property tax for renewable energy installations, often tied to job creation or local sourcing requirements. Negotiating these early can save millions over a project’s lifecycle.
Sales and Use Tax Exemptions
Several states exempt solar panels, wind turbines, and battery systems from sales and use tax, though eligibility definitions (“used directly in generation”) vary. Proper documentation and exemption certificate management are key to preserving value.
State-Specific Renewable Energy Credits (RECs)
In certain regions, projects can earn tradable credits or payments through Renewable Portfolio Standard (RPS) programs. These markets often evolve annually with new rulemaking.
Infrastructure and Economic Development Grants
Some jurisdictions offer direct financial support for interconnection costs, access roads, or grid upgrades that benefit public infrastructure.
When structured correctly, these local and state benefits can enhance returns by 10–20% (or more) when compared to federal incentives alone.
Common Challenges and Missteps
Despite their value, state and local incentives come with complexity that can trip up even experienced developers:
Varying Eligibility Rules
Some programs apply only to utility-scale projects, others to distributed generation or storage. Misinterpretation can lead to clawbacks or noncompliance.
Inconsistent Valuation Practices
Property tax assessors may apply cost-based valuation for one jurisdiction and income-based for another, creating unpredictable liabilities.
Short Legislative Windows
Many incentives depend on legislation that expires or resets annually. Missing a filing period or approval cycle can mean forfeiting major savings.
Documentation Burdens
Audit support, labor certification, and environmental documentation requirements can overwhelm smaller teams without dedicated tax expertise.
A proactive, coordinated approach to incentive intelligence—tracking pending bills, maintaining relationships with local taxing authorities, and verifying compliance conditions—can mitigate these risks.
How to Integrate renewable energy tax Incentive Strategy into Annual Budgeting
For developers and CFOs, early Q1 is the ideal time to align financial modeling with incentive capture. Key steps include:
Map Incentive Eligibility by Site
Build an early-phase incentive matrix that includes all potential jurisdictions under consideration.
Engage Local Authorities Early
Many abatements or PILOTs are discretionary. Early outreach helps tailor agreements to community priorities.
Model Incentive Scenarios
Include conservative, base, and enhanced incentive layers in financial models to understand sensitivities.
Coordinate Across Teams
Tax, legal, finance, and development teams should align documentation and compliance milestones from the start.
Plan for Legislative Variability
Maintain a watchlist of active state sessions and pending bills that could alter credit or exemption availability.
Why It Matters Now
With inflation pressures, high interest rates, and tightening supply chains, every marginal gain in project economics counts. And with several federal credit provisions set to phase out or become more restrictive, time is of the essence.
Renewable energy developers who act now can maximize value from both the remaining federal windows and the ever-evolving patchwork of state and local incentives that often go untapped. Federal incentives may drive headlines, but the next generation of competitive advantage lies in mastering those local opportunities before federal benefits start to narrow.
For developers, that means turning indirect taxes into strategic levers—not just compliance costs. For CFOs, it means building a renewable energy tax incentive strategy that’s agile, data-driven, and forward-looking.
DMA Insight
At DMA, we’ve worked alongside renewable energy developers, utilities and energy companies, and investors to integrate tax and incentive strategy into the earliest stages of project planning. Our team combines technical tax knowledge with an understanding of how renewable projects are financed and built—helping clients capture available value while maintaining compliance throughout the project lifecycle.
Our work often focuses on helping teams:
- Identify and align overlapping state and local programs with federal incentives like the ITC and PTC
- Negotiate and structure discretionary abatements, PILOT agreements, and infrastructure grants in coordination with local stakeholders
- Manage and defend property tax valuations and sales and use tax exemptions to protect long-term project returns
- Stay ahead of policy changes by tracking state legislative activity and evolving program requirements
This practical, data-driven approach has helped organizations strengthen project finances, reduce exposure to future tax risk, and build positive relationships with local governments and communities.
As new sessions begin and budgets reset, DMA’s specialists are available to help renewable developers explore what may be available beyond the ITC—and how to bring those opportunities into upcoming projects with clarity and confidence.
TAX CREDITS AND INCENTIVES DONE RIGHT
Explore what’s available beyond the ITC. Connect with DMA’s credits and incentives team to identify opportunities for your next project.