Unlocking Sustainable Schools: Leveraging Federal Funds for Geothermal Systems
Written by Kevin Bright, Sustainability Manager
School districts are increasingly turning to geothermal systems for their building heating and cooling needs, driven by incentives offered under the Inflation Reduction Act (IRA). This funding bill includes a direct pay provision that opens opportunities for non-profit entities, governments, colleges, and schools to explore these funds for their projects. Kraus-Anderson, drawing from its extensive experience, is uniquely positioned to provide insights into the IRA, design strategies for accessing federal funds, and the range of funding sources available for sustainable, energy-efficient, and electrified designs.
Understanding the Inflation Reduction Act (IRA)
The IRA, passed in 2022, aims to beneficially electrify heating and cooling systems and other renewable energy generation or highly effective energy conservation systems. Electrification is deemed beneficial when:
- It results in a net reduction of energy and greenhouse gas emissions
- Is cost-effective
- Improves utility system load factor.
As electric utilities introduce more renewable energy sources into their grid mixes, the electricity sector has seen incredible greenhouse gas emission reductions. As a result, a pathway now exists for buildings that heat and cool with electricity (versus gas or other fossil fuel sources) in an efficient, cost-effective, and holistic way. The IRA provides a range of funding sources to accelerate this electrification activity in buildings and non-profit organizations are leading the way. We will focus on a couple of funding opportunities within the IRA that are directly impacting the design and performance of local buildings.
Key Funding Opportunities under the IRA
Within the IRA, two significant opportunities are available for building-focused projects.
Renewable Energy Investment Tax Credit (ITC):
- Historically offered a 30% tax credit for solar projects.
- Recent legislation reinstated the tax credit at 30% for 10 years, and expanded the credit to include ground-source heat pumps and energy storage projects.
- Funding levels range from 6% to 70%, depending on prevailing wage usage, apprenticeship program participation, and project location.
- Targets specific census tracts to encourage investment in disadvantaged communities and retired coal plant areas.
Energy Efficient Commercial Building Deduction (179D):
- Rewards projects demonstrating energy reductions of 25-50% compared to baseline models.
- Awards can reach up to $5.00 per square foot for achieving a 50% reduction.
- Requires prevailing wage and apprenticeship participation.
- Tax-paying entities can claim the deduction directly; nonprofits can transfer it to the project designer.
When combined, these programs significantly enhance project awards. For example, a geothermal heat pump system designed to meet ITC requirements can achieve substantial energy savings that align with the 25-50% reduction threshold of the 179D program.
Demonstrated Success in Schools
In early 2024, Kraus-Anderson began actively working with 10 project teams to pursue these federal funding opportunities, with expected project awards ranging from $400,000 to over $12 million. These ranges are based on the design and eligible technology investment. School projects that receive state bonding dollars and must meet the B3 sustainability program requirements, are discovering a strong alignment between the sustainability goals of the B3 program and the performance criteria mandated by the IRA funding. This synergy is proving highly beneficial for projects seeking both sustainability performance and financial support.
- Case Study: Mounds View Public Schools: Mounds View Public Schools, which launched a plan to reduce reliance on fossil fuels by 2030. The adoption of a geothermal system aligns with the board’s sustainability goals. With an aging and undersized cooling plant and plans to upgrade the heating plant, this presented an ideal opportunity to leverage significant financial support through the Inflation Reduction Act credits while also meeting the District’s sustainability goals.
Recommendations for Projects Considering IRA Funding
For projects curious about or considering these federal funding opportunities, we have a few recommendations that have demonstrated success:
- Evaluate Different Heating and Cooling Systems During Design: Creating energy models comparing the performance difference between geothermal and fossil-fuel based systems show the operational efficiency and cost-saving opportunities of the systems.
- Seek Professional Accounting Guidance: While the opportunity in the IRA and 179D is profound, the documentation process and guidance are not simple. We strongly recommend our project teams to work with accounting firms with experience in these programs to optimize designs, properly identify the eligible technologies, streamline the documentation process, and identify all the applicable funding sources.
- Ask Questions: Portions of these programs and their requirements are new to the federal government, IRS, construction, and design communities, and we are all learning and adapting as we learn how these programs operate and how they relate to project financing, planning, and implementation. That said, it is a great time for questions, validations, questioning assumptions, and determining if there is more that can be done.
Additional Resources
For more information and resources on IRA funding:
- IRA Taxpayer Resource Hub – IRS clearing house for all information that is IRA related. It includes tools, spreadsheets, financing assistance, and overall program impact information.
- IRA Calculator for Homeowners – For homeowners and renters, this website provides calculators, toolkits, and other information to help residents leverage the IRA to improve the energy performance and electrify their residence.
- IRA Low-Income Communities Mapping Tool – Enter your project’s address to see if the low-income benefit is applicable to your project.
- IRA Energy Communities Mapping Tool – Enter your project’s address to see if the energy communities benefit is applicable to your project.
For further inquiries and guidance, contact Kraus-Anderson’s National Director of K-12 Education, John Huenink, at john.huenink@krausanderson.com.
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