Treasury Issues IRA Guidance on Section 48C Advanced Energy Project Credit
On February 13, 2023, the Department of Treasury (the “Treasury”), along with the Internal Revenue Service (the “Service”) and the Department of Energy (the “DOE”), issued Notice 2023-18 (the “Notice”), establishing a program under section 48C(e)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), to allocate $10 billion of tax credits for qualifying investments in eligible advanced energy projects (the “Advanced Energy Project Credit”).1 Our prior coverage of the IRA can be found here and here.
As background, under the Inflation Reduction Act of 2022 (the “IRA”), effective January 1, 2023, section 48C, which provided investment tax credits (“ITCs”) for projects that establish, equip or expand manufacturing or industrial facilities that produce specified renewable energy equipment (including wind, solar, and geothermal property, fuel cells, and carbon capture and sequestration property), was revised and expanded to include facilities that manufacture, among other items, energy storage systems and components, electric grid modernization equipment or components, electric and hybrid vehicles (and components thereof) and associated charging and refueling infrastructure, property used to produce energy conservation technologies, and equipment which re-equips a manufacturing facility with equipment designed to reduce greenhouse emissions by at least 20%.
The IRA increased the program allocation to $10 billion (of which no more than $6 billion may be allocated to qualified investments which are not located in a census tract or any directly adjoining tract in which a coal mine closed after December 31, 1999 or a coal-fired electric power plant was retired after December 31, 2009 (i.e., energy communities)). To be eligible for the Advanced Energy Project Credit, taxpayers must apply for certification and be granted an allocation of the credit.2
The Notice provides initial guidance on the Advanced Energy Project Credit program, but additional guidance and opening of the allocation rounds are anticipated to be forthcoming. Specifically, the Treasury and the Service intend to issue a supplemental notice by May 31, 2023, which is the date that the first allocation round (“Round 1”) of the Advanced Energy Project Credit will begin. For Round 1, the Treasury and the Service anticipate allocating $4 billion of tax credits (with approximately $1.6 billion being allocated to projects in energy communities). To be considered for Round 1, taxpayers must submit concept papers to the DOE by July 31, 2023.
The Notice clarifies that the Service will consider a project for the Advanced Energy Project Credit only if the DOE provides a recommendation and ranking for the project, which the DOE will do only if it determines that the project has a reasonable expectation of commercial viability. The Notice also provides examples of property and projects which may qualify for the Advanced Energy Project Credit, as well as examples of ineligible property. For example, with respect to wind, solar, or geothermal property, eligible property includes solar panels and their specialized support structures, wind turbines, towers and related equipment, and geothermal turbines and heat pumps, and ineligible property includes equipment for applications other than the conversion of energy from renewable resources for delivering electricity, building heat, or industrial process heat, such as a gas turbine generator set which burns natural gas or a building that houses a boiler to heat water with fossil fuel. If a qualifying project is certified for an allocation of Advanced Energy Project Credits, the taxpayer has two years to place the project in service and provide evidence that requirements of certification have been satisfied.
Included in the Notice is a list of information required in the Advanced Energy Project Credit application and criteria which will be used to evaluate whether a project is recommended by the DOE and certified by the Service. As set forth in Appendix B to the Notice, the DOE will review technical criteria, policy factors, and whether the project will positively impact domestic supply chains. What is clear from the Notice is that the DOE (and the Service) has the discretion to choose projects for an allocation of Advanced Energy Project Credits based on its view of whether and to what extent the project will meet the perceived policy goals of the credit and whether the project needs and would benefit from the allocation.
1 Also on February 13, 2023, the Treasury, the Service, and the DOE issued Notice 2023-17, establishing the Low-Income Community Bonus program under section 48(e).
2 In order to be eligible for a full 30% Advanced Energy Project Credit, a project must meet the “labor requirements” described here; otherwise, the available credit is limited to 6% of eligible basis. Pursuant to the Notice, the taxpayer must provide certification that it has satisfied the labor requirements.
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