Washington Island Church Goes Solar Thanks to New Credits for Nonprofits

On Vashon Island in Washington State, across from Seattle, the Vashon United Methodist Church (UMC) recently received elective pay (a.k.a. direct pay) funds in lieu of federal clean energy tax credits for its installed solar and battery storage devices. This helped cover about a third of the costs of the installation, with the other two-thirds covered by a $130,000 Washington State Department of Commerce Solar plus Storage for Resilient Communities program grant that Vashon UMC won back in September 2023. The federal credit and state grant helped the church install 30 kilowatts (kW) of solar panels and six battery storage devices in two church-owned buildings.

The Solar plus Storage for Resilient Communities program helps community centers, schools, and houses of worship—like the Vashon church—install solar and battery storage devices to increase the resilience of disadvantaged communities, particularly in rural and remote areas, which face significant risks when the power goes out. Because Vashon UMC is located on an island in Puget Sound and is only accessible by ferry, it qualified as a remote and rural community for the Washington State grant. As a Solar plus Storage grant recipient, Vashon UMC must be open for the community at least two hours daily, particularly in the winter.

In addition to making communities more resilient, solar and battery devices cut emissions and reduce energy expenses so that facility operators can reinvest in core mission projects instead. In the case of Vashon UMC, the savings from its solar panels and electrification efforts can be dedicated to employing a part-time pastor (like many rural churches, Vashon UMC struggles to pay for a full-time pastor). The new clean energy devices are also attracting new tenants, such as a food bank and daycare center, which provide a revenue stream without overburdening energy usage.

In 2024, using the Solar plus Storage grant and a bridge loan, the church installed solar and battery storage devices for its parsonage and education buildings. These systems will help the church provide backup power generation and emergency shelter for vulnerable local populations when they lose power due to extreme weather events. The grant helped the church pay for the upfront costs of the solar panels and battery storage until it received the 30% base elective pay federal incentive for clean energy. Both solar panels and batteries are eligible for elective pay.

Thanks to the Inflation Reduction Act of 2022 (IRA) (P.L. 117-169) elective pay option, nonprofits and houses of worship like Vashon UMC can claim tax incentives when investing in clean energy projects such as rooftop solar, ground-source heat pumps, and battery storage devices. Elective pay, or the monetization of clean energy tax credits for nonprofits and other tax-exempt entities, allows these entities to claim up to 70% of a clean energy project’s costs as a direct payment from the federal government, greatly improving the project’s financial feasibility.

“Inspired by a green energy sermon, I championed the church to install clean energy projects to lower energy bills and increase resilience,” said Eric Walker, chair of the church’s governing council. “Because we are a small congregation, we need all the resources to install solar and battery storage devices that will allow us to provide power continuously if there is a power outage.”

Vashon United Methodist Church as a Green Community Hub

Besides its Methodist liturgical services, Vashon UMC offers an array of community services, including health clinics, a soup kitchen, showers, and spaces for community groups. In 2024, the church added a daycare center as a new tenant and, in 2025, a food bank will move in. The Vashon-Maury Community Food Bank has signed a lease agreement with the church to occupy the 3,500-square-foot education building and convert it into a new 3,800-square-foot warehouse. The food bank aims to complete its move to the church’s annex from its previous location outside of Vashon by the fall of 2025. The group hopes to make the solar panel-equipped building a fully sustainable facility that could achieve LEED Silver certification.

The food bank will join Vashon Youth and Family Services’ Family Place program, which has set up shop in the fellowship hall at Vashon UMC. The Family Place program provides child care and improves parents’ life skills. The group had lost its lease on another building on the island and needed a new place to offer its valuable services to the community, and Vashon UMC provided that space. These two new leases will provide rental income to the church.

Increasing Resilience with Solar plus Battery Storage

In total, the church installed 60 solar panels divided between two solar arrays, one over the parsonage and the other over the main education building, which will be taken over by the Vashon Food Bank. With 30 kW in total capacity, the solar arrays power the church facilities and charge the six Tesla Powerwalls that were installed to provide resilience to the congregation and its community. Each Tesla battery pack has 13.4 kWh in power capacity for 81 kWh in total, allowing the church to keep its power on for up to 10 hours in the event of an outage. The total cost for both projects was $200,000.

Since the solar panel installation, the church’s monthly electricity bills have dramatically decreased. Now, Vashon UMC only pays the monthly fixed fees required by its utility. Almost all of the church’s electricity needs are met by its solar panels, which are also being used to keep its batteries charged. When the sun is not shining, the stored battery power can be drawn. The church is also being paid by its utility for sending some of its solar energy back to the grid, which further lowers the church’s energy bills.

Clean energy tax credits can only be claimed after a project is put into service, and elective pay funds derived from tax credits are no different. It can take another three to 18 months to receive the funds once the claim has been filed. Since the Washington State grant was insufficient to cover the entire project’s cost, the congregation secured a bridge loan from the Faith Foundation Northwest. Together, the loan and state grant allowed the church to pay the contractors for a 2024 installation. The church then applied for the elective pay incentives as part of its 2024 tax return, filed at the end of that year (see the next section for details).

In addition to installing solar arrays and battery storage, the church is electrifying by replacing its gas furnace with a heat pump to cool and heat the main church building. Electrifying the church building maximizes the use of the electricity generated by the solar panels, which further reduces carbon emissions.

“The journey to install the solar panels and battery storage devices was long,” said Walker. “Initially, church leaders were skeptical about elective pay incentives and how they worked. However, we informed the key decision-makers each step of the way, as information was released by the U.S. Treasury Department on elective pay. Eventually, after many conversations, the solar and battery devices were approved by the church board.”

Elective Pay Application Process

As a tax-exempt house of worship and nonprofit organization, Vashon UMC was never obliged to file tax returns with the Internal Revenue Service (IRS). But because elective pay credits are processed through an organization’s tax return, the church had to file a tax return the year after its eligible clean energy project was put into service to claim its credits (the church will not need to file tax returns in subsequent years, unless it claims credits for future projects).

Through its communications with the IRS, the church found out that as a first-time tax filer, it could determine the starting month of its tax year (tax years need not match calendar years). Given that the clean energy system was fully commissioned in May 2024, Vashon UMC decided to end its tax year in June to speed up the elective pay process and apply for its funds six months early.

Vashon UMC filed the 990-T tax form, including the IRS Forms 3800 and 3468 that are necessary to claim elective pay, and requested $59,934 in elective payments in September 2024. Along with its tax return, the church had to provide a long list of evidentiary documents, such as proof of ownership, proof of electric permit, proof of interconnection, tax records, and a letter from the utilities commissioner. Most importantly, the church included the installation invoice from the installer detailing all the costs associated with the project, such as labor, solar panels, battery storage, and inverters.

Requesting elective pay for the installed clean energy devices involved a long, winding process. When the church pre-registered the solar and battery storage projects with the IRS, it discovered that the parsonage and sanctuary buildings were in two different tax lots and addresses. Because the IRS uses street addresses as the basis for tax returns, the church had to file two different tax returns, each with the corresponding IRS forms 3800 and 3468. The added time and work needed to divide the project documents across the two tax lots proved key as the church received the payments in a relatively speedy three months, on December 16.

“We learned a lot about filling out elective pay payments throughout the short but intensive application process,” said Walker. “First, working with a tax accountant who knows their way around the IRS and the required forms is critical. Second, collect all your tax documents and project invoices. Third, for us, it took almost three months for the check to arrive, so have some patience—it might take a while.”

Author: Miguel Yañez-Barnuevo

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