Treasury Issues Proposed Regulations on Clean Electricity Low-Income Communities Bonus

On August 30, 2024, the Department of Treasury (the “Treasury”) and the Internal Revenue Service (the “IRS”) issued proposed regulations (the “Proposed Regulations”)¹ providing additional guidance to taxpayers on the “Low-Income Communities Bonus” (“LICB”)² available under section 48E(h) of the Internal Revenue Code of 1986, as amended. Our coverage of the final regulations on the LICB under section 48(e) can be found here.

Similar to the LICB available under section 48(e), to be eligible for the LICB under section 48E, a facility (i) must be a non-combustion and non-gasification facility with a greenhouse gas emissions rate of zero or less, (ii) must have a maximum net output of less than 5 MW in alternating current, and (iii) must be located in one the following qualifying areas: (a) a “low-income community”; (b) Indian land; (c) a “low-income residential building project”; or (d) a “qualified low-income economic benefit project.”³ Notably, under section 48E, in addition to wind and solar projects, other clean energy technologies (such as hydropower and geothermal), may be eligible for the LICB.

The Proposed Regulations provide that the nameplate capacity for purposes of the less than 5 MW requirement described above is the maximum electrical generating output in MW that the applicable facility is capable of producing on a steady state basis and during continuous operation under standard conditions, as measured by the manufacturer. They also outline definitions for “financial benefit” to clarify qualification under the low-income residential building projects and economic benefit projects.⁴

The total annual capacity limitation to be allocated under the section 48E LICB program is 1.8 GW of direct current capacity per calendar year, starting on January 1, 2025. The Proposed Regulations provide that allocations of this capacity limitation will be divided among the four facility categories based on the anticipated number of applications for each category and the amount of capacity limitation that needs to be reserved for each category to encourage market participation.

Proposed Regulations also specify that applicable facilities to be eligible for the LICB must be placed in service after being awarded an allocation of capacity limitation. If a facility is placed in service after the application is submitted, but prior to the allocation of capacity limitation, and the facility is awarded an allocation, the allocation will be rescinded.

Applications for a capacity limitation allocation will be evaluated according to the procedures published in the Internal Revenue Bulletin which is expected to be similar to those for the section 48(e) LICB program that was established for projects beginning construction before December 31, 2024. Applicants may not administratively appeal decisions regarding capacity limitation allocations.

¹ Proposed Regulations  REG–108920–24 (available here).

Written or electronic comments must be received by October 3, 2024. A Tribal consultation is scheduled for September 27, 2024, and a public hearing is scheduled for October 17, 2024.

² On September 4, 2024, the Treasury released a report, available here, with the analysis of the first year of the LICB program. In the report, it provided that the LICB program received over 54,000 applications and approved more than 49,000. These approved projects are expected to generate nearly 1.5 GW of energy and attract approximately $3.5 billion in public and private investment into communities. Based on the report, the program has already supported over 48,000 residential energy facilities, nearly 100 projects on Indian lands, over 800 installations on affordable housing developments, and more than 300 community solar facilities benefiting low-income households.

³ Qualifying projects within categories (a) and (b) will receive a 10% bonus credit, and qualifying projects within categories (c) and (d) will receive a 20% bonus credit. 

⁴ For low-income residential building projects, the financial benefits of electricity produced must be equitably allocated among residents of qualifying affordable housing and at least 50% of the electricity’s financial value must benefit low-income occupants.  A qualified low-income economic benefit project must meet three criteria: (i) it must serve multiple qualifying low-income households, (ii) at least 50% of the facility’s total output in kilowatts (kW) must be allocated to these households, and (iii) each qualifying household must receive a bill credit discount rate of at least 30%.

With respect to a facility in a qualified low-income economic benefit project, at least 50% of the financial benefits of the electricity produced by the facility must be provided to households with income of less than (i) 200% of the poverty line applicable to a family of the size involved, or (ii) 80% of area median gross income.

“Financial value” is defined as the greater of 25% of the gross financial value or the net financial value of the electricity produced, accounting for operational costs of common areas. 

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.