Treasury Updates its Energy Community Guidance

As background, the energy community bonus credit is an up to 10% bonus to investment tax credits and production tax credits available for certain energy and storage projects (the “Energy Community Bonus”). On April 4, 2023, U.S. Department of the Treasury and the IRS issued the first Energy Community Notice, Notice 2023-29, and on June 15, 2023, issued two more notices, Notice 2023-45 and Notice 2023-47. Our prior coverage of the Energy Community Bonus can be found [here and here.]

Expansion of Nameplate Capacity Attribution Rule

The Notice introduces two new methods for offshore wind farms to fulfill the “Nameplate Capacity Test” potentially making it easier for certain offshore wind projects to be eligible for the Energy Community Bonus. Under the Nameplate Capacity Test, a project will be deemed to be located within an Energy Community if over 50% of its nameplate capacity resides in such an area. Prior guidance provided that if an offshore project has nameplate capacity but none of the energy-generating units are in a census tract, MSA, or non-MSA, then the Nameplate Capacity Test is applied by attributing all of the nameplate capacity to the land-based power conditioning equipment that conditions energy generated for transmission, distribution, or use and that is closest to the point of interconnection.

Now, under the Notice, if an offshore wind project has a nameplate capacity, then all of the nameplate capacity may be attributed to: (i) any land-based power conditioning equipment that conditions energy generated for transmission, distribution, or use before the energy is transmitted to the point of interconnection (or in the case of multiple points of interconnection, any land-based power conditioning equipment that conditions energy generated for transmission, distribution, or use before the energy is transmitted to one of the multiple points of interconnection); or (ii) any supervisory control and data acquisition (“SCADA”) equipment located in an “EC Project Port.”³

Updates to Fossil Fuel Employment Rate Determination

The Notice adds two additional NAICS industry codes for “Natural Gas Distribution” and “Oil and Gas Pipeline and Related Structures Construction” for purposes of determining whether MSAs or non-MSAs meet the minimum fossil fuel employment threshold.

By adding these NAICS codes, the range of industries considered in determining the “Fossil Fuel Employment Requirement” expands. The Notice also includes two appendices — one that includes an additional list of MSAs and non-MSAs that meet the “Fossil Fuel Employment Requirement” based on these new codes and one that includes new MSAs and non-MSAs as Energy Communities by meeting the Statistical Area Category test.⁴ This results in over 120 new MSAs and non-MSAs qualifying as Energy Communities. Together with Appendix 2 to Notice 2024-47, a full list of MSAs and non-MSAs satisfying the Statistical Area Category test is provided.⁵

Brownfield FAQs

The IRS added 5 new FAQs relating to brownfield site status clarifying that brownfield sites do not include sites which are subject to a Superfund removal action, properties on the National Priorities List (Superfund), landfills with a closure notification under subtitle C of the Solid Waste Disposal Act, or landfills that are undertaking a Resource Conservation and Recovery Act Corrective Action. However, mine-scarred land may qualify as a brownfield site in certain circumstances.

¹ “Energy Communities” generally include (i) a “brownfield site,” (ii) metropolitan statistical areas (“MSAs”) and non-MSAs that satisfy the “Fossil Fuel Employment Requirement” or “Fossil Fuel Tax Revenue Requirement” as well as the “Unemployment Requirement” (the “Statistical Area Category”), and (iii) a census tract or adjacent census tract with a coal mine closure after December 31, 1999, or coal-fired electric generating unit retirement after December 31, 2009 (the “Coal Closure Category”).

² Based on the 2017 North American Industry Classification System (“NAICS”).

³ For this purpose, an “EC Project Port” is a port used to facilitate maritime operations necessary for the installation or operation and maintenance of an offshore wind project, with a significant long-term relationship with the energy project at which project staff is based and performs essential functions for the project’s operations. A significant long-term relationship is established only if the taxpayer that owns the offshore wind project owns (in whole or in part) or leases (in whole or in part under a lease agreement with a term of at least 10 years), the port in which the SCADA equipment is located. The staff will be treated as performing essential functions only if they collectively perform all of the following tasks: management of marine operations, inventory and handling of spare parts and consumables, and berthing and dispatch of operation and maintenance vessels and associated crews and technicians.

⁴ Appendix 1 provides additional MSAs and non-MSAs that meet the fossil fuel employment threshold. Appendix 2 provides additional MSAs and non-MSAs that qualify as Energy Communities in 2023 by meeting the fossil fuel employment threshold and the unemployment rate requirement for calendar year 2022.

⁵ These lists will be effective until the next release of unemployment data for the 2023 calendar year, expected in April or May of 2024.