Key Point Summary
- The Inflation Reduction Act (IRA) Section 48C provides $10 billion in funding for advanced energy projects, including solar, wind, electric vehicles, green infrastructure, critical materials, and carbon capture technologies.
- Upgrades in energy-intensive sectors like cement, iron, steel, aluminum, and chemical manufacturing to reduce greenhouse gas emissions are also eligible for funding.
- Round 1 funding of $4 billion has a deadline to submit Concept Papers to the Department of Energy by July 31, 2023, with Round 2 of funding for the remaining $6 billion anticipated in 2024.
- To be eligible for the credit, the Department of Energy must recommend the project through a competitive review process.
- The process involves submitting a Concept Paper and an application, with a DOE informational webinar scheduled for June 27, 2023.
- There are three categories of eligible projects: Clean Energy Manufacturing and Recycling, Greenhouse Gas Emissions Reduction, and Critical Materials.
- Each category has specific criteria for evaluation, including commercial viability, greenhouse gas emissions impacts, strengthening US supply chains, and workforce/community engagement.
- Energy Communities Census tracts will receive specific funds, with approximately $1.6 billion allocated in Round 1.
To follow developments: DOE informational webinar is scheduled for June 27, 2023.
Note: Information is summarized IRS documents that are linked from notices on May 31, 2023 and February 13, 2023. It is current as of June 20, 2023.
Section 48C: Advanced Energy Project Credit
Through the Inflation Reduction Act (IRA), $10 billion is allocated to investment tax credits under Section 48C for advanced energy projects. Each project is eligible for a 30% investment tax credit (subject to meeting certain prevailing wage and apprenticeship requirements) for project costs for tangible property, not including the building or its structural components.
Through subsequent guidance, most notably IRS Notice 2023-44 on May 31st, advanced energy projects fit into one of three categories:
- Clean Energy Manufacturing and Recycling Projects (9 Subcategories)
- Greenhouse Gas Emissions Projects
- Critical Materials Projects
To be eligible for tax credits, the project may not be placed in service prior to award allocation.
DOE will evaluate and recommend projects based on four (4) technical review criteria:
- Commercial viability
- Greenhouse gas emissions impacts
- Strengthening US supply chains and domestic manufacturing for a net-zero economy
- Workforce and community engagement
Program Timing and Process
48C will have at least two rounds of allocation, with Round 1 closing for Concept Papers on July 31, 2023. Round 2 has not yet been announced, but is anticipated to likely be after March 31, 2024, which is the deadline for awards of Round 1 allocations.
In Round 1, the IRS anticipates awarding up to $4 billion of 48C credits with approximately $1.6 billion being allocated to projects in Energy Communities Census tracts.
To apply for the credit is a multi-step process, with feedback from the Department of Energy (DOE) along the way.
Step 1: Concept Paper
By July 31st, interested applicants must submit a concept paper through the DOE exCHANGE Portal that outlines requested information on the proposed project. The DOE will perform a review of the concept paper and send the applicant a letter either encouraging or discouraging the submission of a 48C application.
Step 2: Application
Whether the DOE provides encouragement or discouragement for the concept paper, applicant may still complete the application, although projects that are discouraged from applying are less likely to be allocated funds. The application is a more detailed project plan that addresses feasibility and technical aspects of the project. The DOE will review each application and provide recommendations to the IRS regarding acceptance or rejection of each application. The IRS will approve projects for the tax credit and sends a letter of notification to the applicant.
The IRS will make all Round 1 allocation decisions by March 31, 2024.
Step 3 and Beyond
After receiving an allocation of the credit from the IRS, the approved application (taxpayer) has two (2) years to notify DOE that the certification requirements have been met by submitting this through the exCHANGE portal. The IRS issues a Certification Letter. Within two (2) years of receiving the Certification Letter, the taxpayer notifies DOE the project has been placed into service, and then can claim the tax credit on that year’s return.
Categories of Eligible Projects
There is a host of eligible projects in three categories (and their subcategories).
Clean Energy Manufacturing and Recycling Projects (9 Subcategories)
A qualifying advanced energy project in this category re-equips, expands or establishes an industrial or manufacturing facility for the production or recycling of specified advanced energy property:
- Property designed to be used to manufacture products that produce energy from the sun, wind, or geothermal deposits.
- Examples: Solar panels, wind turbines, offshore wind platforms, geothermal turbines and heat pumps, components for solar, wind, and geothermal equipment
- Fuel cells, microturbines or energy storage systems and components
- Examples: stationary batteries, stationary hydrogen fuel cells, hydrogen storage vessels, microturbines for combined heat and power systems, and components.
- Electric grid modernization equipment
- Examples: power flow, control, and conversion, such as transformers, power electronics, advanced meters, breakers, switchgears and more.
- Carbon Capture Equipment
- Equipment that is necessary to compress, treat, process, liquify, pump, or perform some other physical action to capture carbon oxide emissions.
- Examples: solvents, membranes, chemical processing equipment, compressors, monitoring equipment, injection equipment, and more.
- Renewable, Low-Emission Fuel, Chemical or Product
- Examples: clean hydrogen, low-emission ammonia, renewable biofuels, basic organic chemicals, polymers and resins.
- Energy Conservation Technologies (including residential, commercial and industrial applications)
- Technologies that are eligible for residential or commercial efficiency improvements for purposes of the 25C tax credit or the 179D tax deduction, as well as equipment with direct net energy use reduction, such as ultra-efficient heat pumps, insulation, ultra-efficient hot water systems, sensors, and controls
- Electric Vehicles, Fuel Cell Vehicles, Components and Infrastructure
- Examples: Electric cars, trucks and buses, electric vehicle supply equipment, charging equipment, hydrogen refueling stations equipment, components of these systems
- Hybrid Vehicles over 14,000 lbs
- Examples: equipment and components for hybrid vehicles over 14,000 lbs
Greenhouse Gas Emissions (GHS) Reduction Projects (5 Subcategories)
A qualifying advanced energy project in this category re-equips an industrial or manufacturing facility, including in energy-intensive manufacturing sections, such as cement, iron, steel, aluminum, chemicals and other sectors, with equipment to reduce greenhouse gas emissions by at least 20 percent through installation of one or more the following:
- Low-or zero-carbon process heat systems
- Examples: installation combined heat and power, thermal storage technologies, other heating systems based on electricity, clean hydrogen, biomass or waste heat recovery
- Carbon capture, transport, utilization and storage systems
- Examples: equipment necessary to compress, treat, process, liquify, pump or perform some other physical action that capture carbon oxides, along with the specialized equipment needed for transport and storage of carbon oxides.
- Energy efficiency and reduction in waste from industrial processes
- Examples: technologies that reduce direct fuel use, electricity use, or waste in industrial applications, such as heat pumps, combined heat and power systems, insulation, sensors, controls and smart energy management
- Any other industrial technology designed to reduce GHG emissions, as determined by the Secretary of Energy
Critical Materials
A qualifying advanced energy project in this category re-equips, expands or establishes an industrial facility for the processing, refining, or recycling of critical materials as defined by the Energy Act of 2020. For Round 1, critical materials consist of:
- 2022 Final List of Critical Materials
- Any additional critical materials as determined by the Secretary of Energy published no later than July 31, 2023, available at: https://www.energy.gov/criticalmaterials
DOE Review Criteria
Each of the three project categories (with subcategories) has Concept Paper and Application requirements that are divided into four review criteria.
- Commercial viability
- Identifying projects with the lowest levelized cost, shortest time frame for completion, lowest risk, and highest impact
- Greenhouse gas emissions impacts
- Identifying projects with the greatest net impacts in avoiding or reducing anthropogenic emissions of GHG
- Strengthening US supply chains and domestic manufacturing for a net-zero economy
- Identifying projects with the greatest impact on domestic job creation and potential for technological innovation and commercial deployment
- Workforce and community engagement
- Identifying projects with the workforce and community support that will lead to domestic job creation, reduce barriers that may otherwise increase project completion time, and have an impact on avoiding or reducing local pollution, including non-greenhouse gas air pollution.
Energy Communities Census Tracts
DOE will allocate specific funds (at least approximately $1.6 billion of the $4 billion in funds in Round 1) to Energy Communities as published on by the IRS Energy Community Census Tract List.
Conclusion
The Inflation Reduction Act’s Section 48C $10 billion tax credit presents a significant opportunity for businesses to advance sustainable practices and contribute to the transition towards a net-zero economy. With the first round of funding closing on July 31, 2023, interested applicants must submit a Concept Paper outlining their proposed project. By aligning projects with the criteria outlined by the DOE, businesses can benefit from the investment tax credits up to 30%.
A Final Thought: Pick the low hanging fruit…and plant the seeds.
After your company saves a few million dollars on a project that your ESG or shareholder goals required through this tax credit, invest some of that savings into a life creating project. I often say that the Inflation Reduction Act creates an abundance of low hanging fruit – tax incentives that fund projects that need to happen anyway that have great ROI – and we should pick the fruit.
After you pick the fruit, plant the seeds by investing in a project to create life on your property and business. What land or water do you steward, and how can you create life through your next decision?
About the Author
Caleb Quaid is the founder of Regenerative Shift, a Tampa-based environmental consulting firm, working with businesses and communities on regenerative environmental initiatives and sustainability programs. Regenerative Shift focuses on life-creating and cost-saving holistic programs, including regenerative land and water projects and Inflation Reduction Act (IRA) consulting. As a public speaker, Caleb provides motivating insight into practical life-creating environmental practices and shows the business case for going green with tax incentives under the IRA and other legislation.
Now what?
The Inflation Reduction Act can be a lot to navigate, and new guidance is issued every week. If you’d like to discuss how your business can benefit, Regenerative Shift is here to help! Contact us today to set up a free consultation!
