Inflation Reduction Act (IRA) Can Supercharge Hospital Renewable Energy Initiatives

Act delivers tax credits, direct payments and other incentives to nonprofit organizations investing in solar and other renewable energy sources

Most healthcare providers today face tough economic pressures, from higher staffing costs to reduced revenues and investment income. Organizations want to make the best use of every dollar. For our client, Valley Children’s Healthcare, that means reducing its energy costs even as it gains energy resiliency.

“Energy conversation needs to be happening at every hospital, by every CFO, by every CEO and every board. We all know these are really difficult times for hospitals and this energy work is one of the areas where we can positively impact our operating income and cash flows,” according to Michele Waldron, Valley Children’s senior vice president and chief financial officer. “As a non-profit hospital, it’s very important for us to be cost effective and optimize the use of our capital and operating dollars. The Inflation Reduction Act has become a very important component to that.”

The Inflation Reduction Act (IRA), passed in August 2022, established $369 billion for climate change programs and incentives. It also has a key provision: extending tax credits and direct payments for renewable energy projects to nonprofit organizations. Before this Act, such incentives were not generally available to nonprofit organizations. The tax credits can cover up to 50% of the cost of a project and more, depending on how projects are structured and their materials sourced. In addition, the Act enables hospitals to monetize certain solar installations. In short, the IRA opens new avenues for many hospital systems to fund renewable energy projects that will help them improve their economic condition while also delivering energy resiliency and mitigating the effects of climate change.

“This is about a $30 million investment by Valley Children’s, but because of the Inflation Reduction Act, we will get nearly 50% of the monies back that we can invest in other projects, benefiting our patients and ongoing growth,” Waldron explained.

Mazzetti’s microgrid design for Valley Children’s uses a set of technologies that will be the most cost effective for the hospital campus in the long run. The organization chose to retain title to the environmental assets vs. selling the rights to another entity as carbon credits. Yet this project is still more cost effective than if Valley Children’s were buying power from the utility and buying diesel fuel.

But the IRA was the game changer. The project had been financially viable before the act passed, but when we calculated the impact of the IRA, it added significantly to the financial savings that Valley Children’s will reap.

When Valley Children’s project is complete, the organization will be sheltering itself against inevitable market fluctuations and essentially hedging its financial risk over the long term. Valley Children’s will be able to put its energy savings and costs avoided toward the care of the children in its community. That’s another way this project will be a huge financial success for the organization. It’s also a factor other healthcare providers should be calculating as they consider energy costs, the IRA incentives and their own care missions.

“This is one of the few areas that we can lean into as hospitals that can have a positive impact during some very difficult times for us,” said Waldron. “And now is the time to have this conversation when we have the resources from the federal government available to us to do these projects.”