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Frequently Asked Questions


Q: Why Renewable Energy?

A: Renewable energy offers economic, social, and environmental benefits that fossil fuels and nuclear generation do not. Renewable energy draws on resources that are available everywhere, creating opportunity for local, regional, and domestic ownership of electricity generation, as well as job creation in research and development, manufacturing, installation, management, and maintenance. Renewable energy does not involve any toxic byproducts or harmful extraction practices, and is therefore a better option for both our natural and built environments. Additionally, many experts in the energy industry expect the cost of electricity to go up over time, making renewable energy a valuable investment.


Q: What does AIRE do?

A: AIRE helps nonprofit and community-based organizations increase their energy independence by developing and owning renewable energy solar projects. AIRE facilitates the development of partnerships between community organizations and individuals who are willing to make an investment in community sustainability. We call these people “empathetic investors.” AIRE helps empathetic investors use tax credits and other incentives available for renewable energy. Empathetic investors are able to donate the systems to a nonprofit community partner after they make their money back.


Q: What is an “empathetic investor”?

A: An empathetic investor is a term we use to describe someone that has interest in making an ethical impact by means of his or her financial capabilities. This is not the same as a philanthropist, who gives money away to charity. Empathetic investors are people that would like to see their money go towards projects that can be self-sustaining and generate a Return on Investment (ROI), white creating positive social change. In our case, empathetic investors are also ideally “tax-equity investors,” meaning they have a large tax appetite (taxable income), as well as passive income (i.e. rental properties, partnerships). These qualities allow them to fully benefit from tax credits and financial incentives available for renewable energy.


Q: How do I identify empathetic investors?

A: An AIRE Feasibility Study is designed to identify prospective empathetic investors and calculate what their potential rate of return could be on a given project. However, prior to a Feasibility Study, organizations should explore whether or not there are individuals within your community, such as congregation members, nonprofit donors, local business leaders, or other financially well-to-do people that may consider making an empathetic investment in renewable energy. AIRE recognizes that empathetic investors may not be available in all communities, and is working to develop a strategy that may result in outside empathetic investors providing capital for projects in other communities.


Q: What does a Feasibility Study consist of?

A: A Feasibility Study gives prospective project organizers an idea of the costs that will be involved in developing the proposed project, the legal and regulatory requirements, and some of the anticipated benefits from the project. The first step in the process of a Feasibility Study is identifying an installer to complete a solar site assessment, which will determine the viability of the site for solar power. This information will be factored into a Pro Forma spreadsheet, which gives prospective investors a snapshot of what their potential Return on Investment (ROI) could be. The most important factor in determining the ROI for a project are the financial profiles and tax appetites of the individual investors. To get an accurate sense of the ROI, AIRE distributes an anonymous survey that collects the necessary information to determine the ability of the investors to utilize tax credits and financial incentives, which can potentially offset the cost of the system.


Q: What are these tax credits and financial incentives?

A: Potential tax and financial incentives include a Federal Investment Tax Credit (ITC) which recovers 30% of the total cost of the system (in year 1 when the Federal 1603 grant is taken), and a state renewable energy tax credit, which offsets 35% of the total cost of the system over five years. The other major revenue source for the LLC is accelerated depreciation, as established by the Modified Accelerated Cost Recovery System (MACRS) of the Internal Revenue Service (IRS). It is a programmed annual deduction that comes over the course of six years, and can offset up to 40% of the total cost of the system. The Federal and State tax credits are direct deductions from total taxable income, while MACRS depreciation is only applicable to investors’ passive income. The final major income stream also comes in the form of a tax deduction; a charitable donation worth the appraised value of the system after six years.


Q: What is passive income?

A: As defined in IRS Publication 925 (available here) there are two types of passive income. First is income that is derived from trade or business activities in which you “do not materially participate”. The second is income derived from real estate properties, even if you do materially participate, unless you are a real estate professional. “Material participation” is thoroughly defined in the “Passive Activity Limits” section of IRS publication 925, pages 4-5.


Q: How important is passive income?

A: Passive income allows investors to benefit from accelerated depreciation, an additional write-off on their Federal taxes, up to 40% of the total system cost over six years. Investors can still potentially make all of their money back without having passive income, depending on a number of other variables. A Feasibility Study provides the information needed to determine what each potential investor’s Return on Investment could be, whether or not they have passive income. While having passive income can allow an investor to potentially earn a profit on donation of their renewable energy system, it’s important to remember that the purpose of these projects is not necessarily to make people lots of money; it’s to take moral leadership for a more sustainable future.


Q: What if I cannot find investors?

A: AIRE is currently exploring options to assist communities in which there are no viable tax equity investors. Please stay in touch with us as this is a central part our core mission.


Q: How does AIRE make money?

A: As a non-profit, AIRE works diligently to secure financial support from charitable foundations. AIRE must raise additional funds to sustain its mission, thus we charge fees at two intervals along the Project Development process. First is the Feasibility Study, which costs $2000. If the potential clients decide to move forward, AIRE charges 5-10% of the total cost of the system to arrange the necessary legal structures needed for tax-equity investment. (Note that some of these fees are to cover AIRE’s legal and professional services that are used in the project.) While AIRE is grant funded, our goal is to become a self-sustaining social enterprise that offers affordable and effective services to communities that seek to secure renewable energy systems.


Q: Who pays for these services?


A: The Feasibility Study is paid for by the community organization that is interested in being the beneficiary of the project, i.e. a church or nonprofit. The Project Development fee is paid by the LLC (project investors). A portion of the latter is considered a part of the total capital cost of the project, meaning that it is included in the dollar figure upon which the incentives are calculated.


Q: What is the Project Development process?

A: Project investors are ideally mobilized within a community organization, such as members of a church congregation. If this is not possible there are other scenarios in which AIRE can attract outside empathetic investors to provide the necessary capital. Debt can also be used to leverage investment, and can substantially increase an investor’s Return on Investment (ROI). AIRE conducts a Feasibility Study to determine whether a pool of prospective investors has the tax liability and financial profile to benefit from the available credits and incentives. If the Feasibility Study is received favorably, the next step is the creation of necessary legal structures (done by AIRE’s law firm).


Q: How does the community organization benefit from this? Doesn’t it just benefit the investors?

A: First and foremost, they receive a renewable energy system for free or at fair market value after six years. Their system will continue to produce clean energy, and a source of revenue, for at least another 15 years (under warranty). They also benefit from the non-monetary benefits of having a renewable energy system on their property, such as educating others and raising awareness about important issues related to energy. During the six years that the LLC owns the system the community organization also potentially receives a monthly check for leasing the space where the renewable energy system is situated.


Q: What other alternatives are there?

A: None quite like what AIRE has to offer. There is no other organization (that we’re aware of) that provides nonprofits and community groups the opportunity to benefit from the spectrum of tax credits and financial incentives that comprise our Project Development process.


Q: How will I know if I get my money back?

A: The Feasibility Study is designed to determine as closely as possible what the Return on Investment might be for each individual member of the LLC. Since much of the ROI will come in the form of tax credits, the return is calculated within “virtual checkbook” that factors in how much of your total taxable income that were able to keep as a result of the tax benefits.


Q: Does AIRE guarantee a financial return for investors?

A: AIRE offers a platform and strategy that allows for innovative social finance. The final outcome depends on many variables that are beyond our ability to predict, such as changes in one’s personal financial portfolio. The tax credits however, that are central to our business model, are in effect until the end of 2016. Any project that has begun construction by the end of 2016 will benefit fully from the tax credits, as they are currently defined. Nonetheless, outcomes calculated in our Feasibility Studies are our best estimates for what level of return people can expect by partaking in a community renewable energy project. We state our assumptions and limitations from the very beginning of the Project Development process, and are not liable for inaccuracies in actual Returns on Investment.


Q: What are the limitations of current public policy in regard to renewable energy?

A: Currently, the legal landscape only allows individuals with substantial tax appetite to benefit from incentives for renewable energy. AIRE would prefer to see a more equitable system for incentivizing renewable energy investment, such as a Feed in Tariff, which guarantees a premium price for renewably energy, incentivizing and array of other financing options. While we currently have limited emphasis on public policy advocacy, we intend to be active in the policy arena in the future.