How to Finance Microgrids with Opportunity Zones

May 26, 2020
Federal opportunity zones, whose final regulations were released in December, offer a way to finance microgrids in the United States. The zones allow companies that invest to defer capital gains taxes.

To finance microgrids in the COVID-19 era, industry members have to grapple with how the work environment has been transformed, how the industry has changed and other challenges.

“How we finance microgrids can position us for success to overcome future challenges,” says Tom Hawes, director of business development, non-wires alternatives, S&C Electric, who will speak June 3 at the free Microgrid Knowledge Virtual Conference. “We need to finance microgrids in a manner that makes sense to clients and has a positive impact on society and the environment.”

In the United States, federal opportunity zones offer an option. The final regulations for the opportunity zones were released in December.

The federal government created opportunity zones to promote economic development in low-income communities. The zones allow companies that invest to defer capital gains taxes.

Under the program, businesses invest in zones that have low-income census tracts. The tracts are determined based on statistics from the U.S. Census.

Eligible opportunity zones

Eligible tracts for the zones are identified based on economic indicators of family income and poverty. States are only able to establish zones in 25% of their low-income communities.

However, Puerto Rico is exempt from this rule and offers opportunities for microgrid companies. Instead of the 25% rule, 835 of Puerto Rico’s 945 low-income tracts qualify as opportunity zones.

Qualifying businesses can come from a range of industries, from bakeries to hotels to real estate companies. That’s one big advantage of the program.

Those who invest in opportunity zones can defer capital gains until the end of 2026. In addition, 10% of gains will be excluded if the investment is held for a certain amount of time.

To qualify for the Opportunity Zones program, investors must establish a Qualified Opportunity Zone Fund that holds Qualified Opportunity Zone property. This is a special partnership created for qualifying projects. The federal government has established some basic requirements about qualified funds.

It’s easy for microgrids to qualify. New, tangible property — including equipment such as generating assets and personal property — is required.

With the COVID-19 crisis, there may be more taxpayers looking for tax shelters due to transactions they have made recently. Under the program, taxpayers have 180 days to invest a gain from an outside transaction into an opportunity zone fund. This opens a door for microgrids.

Learn more at microgrid virtual conference

Learn more about opportunity zones and other ways to finance microgrids by replaying the session, “How to Finance a Microgrid Project in a Post Covid-19 Economy,” from the Microgrid Knowledge Virtual Conference.

About the Author

Lisa Cohn | Contributing Editor

I focus on the West Coast and Midwest. Email me at [email protected]

I’ve been writing about energy for more than 20 years, and my stories have appeared in EnergyBiz, SNL Financial, Mother Earth News, Natural Home Magazine, Horizon Air Magazine, Oregon Business, Open Spaces, the Portland Tribune, The Oregonian, Renewable Energy World, Windpower Monthly and other publications. I’m also a former stringer for the Platts/McGraw-Hill energy publications. I began my career covering energy and environment for The Cape Cod Times, where Elisa Wood also was a reporter. I’ve received numerous writing awards from national, regional and local organizations, including Pacific Northwest Writers Association, Willamette Writers, Associated Oregon Industries, and the Voice of Youth Advocates. I first became interested in energy as a student at Wesleyan University, Middletown, Connecticut, where I helped design and build a solar house.

Twitter: @LisaECohn

Linkedin: LisaEllenCohn

Facebook: Energy Efficiency Markets

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