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Elective Pay
The Illinois Power Agency (IPA) is interested in ensuring that entities across Illinois leverage federal tax credits for their solar and other clean energy projects, including by using Elective Pay to reimburse up to 30% or more of project costs. To further that goal, the IPA will be conducting outreach and providing education and technical assistance on this new opportunity for tax-exempt entities. Starting in Fall 2025, IPA will host webinars for Elective Pay-eligible entities and Approved Vendors to provide detailed information on qualification, compliance, and filing. If you are an eligible entity or Approved Vendor interested in IPA’s resources on Elective Pay, please contact us.
House Resolution 1 (“H.R.1”), signed into law on July 4, 2025, introduces significant changes to clean energy tax credits made available under the Inflation Reduction Act, including those that can be claimed via Elective Pay (Find out more information on H.R.1 here).
It is still possible for Elective Pay-eligible entities to claim these tax credits for projects recently placed into service, and for projects still in the planning or construction phases.
Urgent deadlines may apply, including:
Deadline to file a tax return and claim the tax credit (or request a 6-month extension): 4.5 months following the end of an entity’s tax year in which they placed an eligible project into service
December 31, 2025: entities must ensure their projects have met “beginning of construction” milestones in order to avoid more onerous sourcing requirements that begin 1/1/26
July 4, 2026: solar projects beginning construction on 7/5/26 or later must be placed in service by 12/31/2027
IRS website: Frequently Asked Questions
Background
The Inflation Reduction Act of 2022 (Public Law 117-169) created a mechanism called Elective Pay (sometimes referred to as “direct pay”), which enables tax-exempt entities to claim federal tax credits for their investments in renewable energy and clean energy projects.
Tax-exempt entities such as municipal governments, public school districts, nonprofits, rural electric-cooperatives, and faith-based organizations can now, for the first time, get reimbursed for a portion of their project costs by submitting a federal tax return and claiming these credits. Claiming these credits for eligible projects is treated as an overpayment of taxes resulting in entities receiving a check from the Internal Revenue Service (IRS) for the credit amount.
Twelve federal tax credits can be claimed via Elective Pay, and these credits determine the types of technologies and projects that can make use of the credits. Some examples include:
Solar projects
Geothermal HVAC systems
Battery energy storage systems
State of Illinois Resources
Elective Pay enables these entities to claim the commercial clean energy tax credits, which can be paired with the Illinois Shines and Illinois Solar for All program incentives, net metering credits, and smart inverter rebates, all of which are outlined in this IPA Fact Sheet: Credits and Rebates for Installing Solar.
Entities that need financing for up-front project costs may be eligible for Illinois Climate Bank’s solar bridge loans. These bridge loans provide short-term financing to cover the period between funding a solar project and receiving federal tax credits (including Elective Pay), renewable energy credits (RECs), or other financial incentives. These loans help ensure that solar providers and customers can move forward with projects without waiting for tax credits, U.S. Treasury payments, Illinois Solar for All incentives, Illinois Shines incentives, or utility payments.
IPA Educational Webinars
Eligible tax-exempt entities are invited to register for the IPA’s first webinar on Elective Pay. Municipalities, public school districts, nonprofits, and other tax-exempt organizations that have placed a clean energy project in service in the approximately the last year, or will soon do so, are encouraged to attend.
IPA Elective Pay Webinar
Date: December 3, 2025
Time: 3 p.m. CT