Why NY E-SFA and S-SFA Fall Short of Category 4 Low-Income Bonus ITC

Community solar projects enrolled in New York’s Expanded Solar for All (“E-SFA”) and Statewide Solar for All (“S-SFA”) program (together the “SFA Programs”) are being denied their post-award Low-Income Communities Bonus Investment Tax Credit under Category 4 (“LI Bonus ITC”) by the U.S. Department of Energy (“DOE”). These rejections present a material and acute financial risk to the viability of these solar assets.

Project owners and operators that have either applied or expected to meet Category 4 requirements through the SFA Programs must rethink their approach immediately to avoid this potential pitfall.

In this article I will unpack why owners and operators find themselves in this predicament, why DOE is likely rejecting these post-award ITC Bonus applications, and what affected project owners can do to adjust course to meet the Category 4 requirements prior to placement in service.

How Did We Get Into This Mess?
Under the Inflation Reduction Act, Treasury and the IRS promulgated rules that provided for an additional 20% ITC on top of the baseline 30% ITC so long as the project owner delivered the financial benefit of the community solar project to low-income qualified households. The Category 4 rules provided that at least 50% of the financial benefit of the community solar project must be allocated to these qualified households and be given no less than a 20% discount on the value of their utility bill credits. Treasury and the IRS released updated rules, guidance documents, and examples to help applicants appreciate the obligations necessary to meet these Category 4 requirements.

Simultaneous with the rollout of the Low-Income Communities Bonus ITC rules, New York State Energy Research and Development Association (“NYSERDA”) was implementing both its Inclusive Community Solar Adder (“ICSA”) and SFA Programs. These programs provided increased benefits to developers who subscribed low- and moderate-income households to community solar projects via opt-in community solar and delivered monetary benefits to all Low-Income Home Energy Assistance Program participants across the utility territory, respectively.

While these federal and state frameworks were developing in parallel, they were not reconciled. The SFA Programs were devised as an alternative for solar developers to take advantage of New York’s community solar program without having costs related to subscriber acquisition and ongoing management. NYSERDA marketed the SFA Programs as being compatible with the LI Bonus ITC, implying that the SFA Program mechanics aligned with the LI Bonus ITC rules.

Statewide Solar for All: Program Design
Understanding S-SFA’s compensation and crediting structure is essential, because these mechanics determine whether projects can satisfy Category 4 ITC requirements.

S-SFA launched in 2024 by order of the NYS Public Service Commission (“PSC”), supported by DPS Staff and NYSERDA. As described by the PSC, the program operates as follows: “[P]rojects participating in the S-SFA program would inject their generation into utility service territory’s systems and be compensated by that utility through its Value Stack tariff, similar to the existing compensation methodology for opt-in CDG projects… The Value Stack credits would be split into three portions: (1) a Customer Share to be used for participating customers’ benefit, based on that project’s compensation level; (2) a Utility Administrative Fee; and (3) the remainder, which will be paid directly to the project owner.”¹

Additionally, “the S-SFA program will… adopt a backwards-looking methodology, where each utility will first procure projects and pool the Customer Share of the Value Stack credits for those participating projects in operation… On an annual basis, the pooled Customer Share aggregated dollars associated with those Value Stack credits will then be distributed among S-SFA customers as a monthly credit on electric bills the following program year.”²

Why Is DOE Rejecting S-SFA Projects for LI Bonus ITC?
The DOE has not publicly provided explanations for these rejections, making it unclear why the applications were denied. That said, under the Trump administration, I expect that the DOE is assessing the regulations under the strictest interpretation. Both the intent and the regulatory language of the LI Bonus ITC require direct, measurable, project-specific benefits flowing to identifiable low-income households. The SFA Programs fall short of meeting those LI Bonus ITC requirements in two fundamental ways:

1. No direct relationship between subscriber and solar project. The LI Bonus ITC rules require specific households to be tied to specific projects through actual enrollment. The nexus between a low-income household and a community solar project is foundational to the intent of the law. The SFA Programs fail to meet this requirement because beneficiaries are not tied to any specific community solar project, never sign a subscriber agreement with a specific solar project, and will never know which solar project is responsible for delivering the bill credits received.


2. Financial benefits are not meaningful. The LI Bonus ITC rules require individual low-income households to receive at least a 20% discount on the value of bill credits. The SFA Programs fail to meet this requirement because while a 20% discount rate is applied to the solar project, these dollars associated with the discount rate are pooled and then distributed equally to all S-SFA customers. Instead of receiving up to 20% savings on their utility bill, beneficiaries receive only a de minimis nominal dollar credit value on their bill—undermining the core intent of the LI Bonus ITC.

The Consequence: Material ITC Risk for Developers
DOE’s rejections are a clear warning sign. If your project is relying on the SFA Programs to secure the Category 4 ITC adder, you are exposed to significant, avoidable risk. Under this administration, we have no expectation that DOE’s position will change or be reconsidered. We know efforts have already been made to do so and such efforts have failed. NYSERDA’s prior guidance overpromised eligibility, and developers now face the consequences.

Recommended Next Steps

1. Immediate Consultation: Developers should contact the PowerMarket team to ensure projects are structured correctly and ITC bonuses are protected.
2. Termination of SFA Program Contract: Contact the utility for which you’ve enrolled in the SFA Programs and request the termination.
3. Pivot to Opt-In Community Solar: Engage with a partner, like PowerMarket, to immediately commence enrollment of ITC-eligible qualified households to ensure you meet the LI Bonus ITC rules as written.

Conclusion
DOE’s rejections are unfortunate, but unsurprising. Whether NYSERDA was overly confident in the compatibility of the SFA Programs with the LI Bonus ITC is irrelevant to the reality we face today. This administration won’t be changing its mind and certainly won’t provide our industry the benefit of the doubt. Developers stuck in this predicament have a choice; Pivot your strategy and enroll individual low-income households in traditional opt-in community solar, or risk the loss of the LI Bonus ITC. I haven’t seen any client take the latter option.

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¹ State of New York Public Service Commission - Order Approving Statewide Solar for All Program with Modifications, May 16, 2024, at p. 51.
² Id. at 54.