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The race is on for Section 48C advanced energy tax credits

Jul 03, 2023

Competition is expected to be intense for $10 billion in newly allocated investment tax credits (ITCs) for solar, wind and other clean energy projects up to five megawatts, under Section 48C of the IRS Code.

The expanded credit, also known as the Qualifying Advanced Energy Project Credit program, was made available in the 2022 Inflation Reduction Act. These incentives aim to strengthen the commitment to clean energy manufacturing across the U.S.

The program requires that at least $4 billion be reserved for projects in communities with closed coal mines or retired coal power plants.

The initial funding round will include $4 billion, with about $1.6 billion reserved for energy projects sited in these designated coal communities.

What is the maximum credit?

Manufacturing companies can seek a 6% credit of the total amount invested in new or upgraded facilities that build or recycle renewable energy components. It can increase to 30% by meeting the prevailing wage and apprenticeship requirements. If further conditions are met, such as being located in an “energy community” and eligibility for an affordable housing bonus, the ITC can rise to 70%.

These projects can include efforts to build, expand or re-equip manufacturing facilities under three broad initiatives:

  • Reduction of greenhouse gas emissions by 20%: These may include industrial processes that enhance energy efficiency and waste reduction; heating systems involving low- or zero-carbon processes; or other systems dedicated to carbon capture, transport or storage.

  • Projects that establish, expand or re-equip the ability to process, refine or recycle “critical materials”: Critical materials are listed by the U.S. Geological Survey and the U.S. Department of Energy as of May 31, 2023. These include minerals such as aluminum, graphite, lithium, nickel and zinc.

  • Projects to produce and recycle energy from renewable sources: These include projects that reduce greenhouse gas emissions through the establishment, expansion or re-equipping of the manufacture of clean vehicles; production or recycling of renewable resources; or the production of carbon capture equipment. It also covers infrastructure related to electric grid modernization.

The deadline is looming: Here’s how to apply

The credit is a competitive program, which means manufacturers must apply to receive an allocation. The Section 48C credit is not available for an investment if a credit is allowed for such investment
under Sections 48, 48A, 48B, 48E, 45Q or 45V.

The initial application process runs from May 31 through July 31, 2023, with manufacturers submitting concept papers to the Department of Energy (DOE).

After reviewing the concept paper, the DOE will either encourage (or discourage) the applicant to complete a full submission. For those who meet all eligibility requirements, the DOE will conduct a technical review and provide recommendations and rankings to the IRS, which makes the final decisions on the allocations.

Once a credit allocation is awarded, manufacturers have two years to place the project into service.

The last time this program was offered, in 2009, the IRS said it received more than $7.5 billion in qualified applications for its $2.3 billion allocation and ultimately was only able to fund less than one-third of otherwise eligible projects.

While the current $10 billion allocation is much larger, the stakes are also higher as the scope of the credit project costs have risen.

How Wipfli can help

Our team of energy and tax professionals can work with you in a timely and thorough manner to assess your eligibility for Section 48C credit and help you optimize your application. You don’t want to leave anything to chance or risk missing any details that could cost you the opportunity to participate in incentive program. Contact us to get started or learn more about the energy services we offer.

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Doug Kolker, CPA
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