NRECA and a coalition of public power and state and local government groups asked the Treasury Department for more certainty on how electric cooperatives and other tax-exempt entities can claim the value of direct-pay incentives for clean energy projects.

The groups are seeking clarity around domestic content requirements for the direct-pay credits, with the goal of pursuing innovative technologies to develop cleaner sources of energy.

“Applicable entities cannot enter contracts today for projects—construction of which may take a year, or years, to begin, let alone complete—if they have no certainty as to whether the project may, or may not, qualify for a tax credit,” the groups said in comments filed July 15 with the IRS.

Congress gave electric co-ops direct access to energy innovation tax incentives under a provision championed by NRECA in the Inflation Reduction Act of 2022.

The direct-pay credits can cut the cost of co-ops’ projects by 30% or more and are available for a range of technologies, including wind and solar energy, carbon capture and nuclear power.

To qualify for direct pay—also known as elective pay—energy facilities must purchase certain amounts of project materials from domestic sources. Any steel or iron that is part of the project, for example, must be fully produced in the U.S. For manufactured products, 40% of the total cost of project components and subcomponents must be attributed to products mined, produced or made in America.

In May, Treasury issued guidance on certain safe harbor provisions for the domestic content requirements. But it did not clarify whether the notices applied to projects pursuing direct-pay credits.

“We strongly urge Treasury to issue formal guidance as soon as possible clarifying that the notices apply for purposes of elective payment,” NRECA’s July 15 comments said. “The vast majority of potential projects that would use elective payment remain idled because of uncertainty about the domestic content requirement (and exceptions to that requirement) for elective payment.”

The groups also asked the IRS to incorporate the following elements in its domestic content program, among other policies:

• Allow relevant entities to certify that they comply with the domestic content requirements or an exception to the requirements at the time of financial commitment to the project.
• Allow project developers to use the purchased cost, rather than the supplier’s direct cost, to show domestic content percentage requirements have been met.
• Let applicable entities with a good-faith belief in the accuracy of their cost records use those records to show compliance even if they later prove inaccurate through no fault of their own.

“It is imperative that Treasury provide prompt and definitive guidance on the domestic content provisions for direct pay,” NRECA Legislative Affairs Director Paul Gutierrez said. “Starting Jan. 1, 2026, if electric cooperatives and other eligible entities cannot satisfy the domestic content provision of the IRA, they will not receive a direct payment for the energy tax credits. Electric cooperatives need to have clear guidance so they can make an informed financial decision to pursue clean energy projects.”

Visit the direct-pay page on cooperative.com for more information.