Government Releases Details on Investment Tax Credit for Projects in Low-Income Communities

The U.S. Treasury Department, the U.S. Department of Energy and the Internal Revenue Service on Feb. 13 released details on a program included in the Inflation Reduction Act that offers a boost of up to 20 percentage points to the investment tax credit for solar and wind energy projects in low-income communities.

The notice released by the federal agencies outlines the program goals, including increasing clean energy facilities in low-income communities, encouraging new market participants, and benefitting individuals and communities that have experienced adverse environmental impacts or lacked economic opportunities.  

The program will allocate 1.8 gigawatts of capacity available in 2023 across four categories for solar and wind projects with maximum output of less than five megawatts.

The notice announces allocations for 2023: 700 MW for facilities located in low-income communities; 200 MW for facilities located on Tribal land; 200 MW for facilities serving federally-subsidized residential buildings, including housing supported by the Low-Income Housing Tax Credit and Section 8 of the Housing Act; and 700 MW for facilities where at least 50 percent of the financial benefits of the electricity produced go to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.

The application process for the Low-Income Communities Bonus Credit program will open in 2023 in two phases.

Applications for facilities that are part of low-income residential buildings and those that benefit low-income households will be accepted first, with applications for other projects to follow. The guidance maintains Treasury and IRS discretion to reallocate excess capacity to oversubscribed categories, and any unallocated 2023 capacity will rollover to the following calendar year.

Future guidance will provide additional information about the application process and eligibility.

Qualifying Advanced Energy Project Credit

A second notice released by the agencies establishes the expanded Qualifying Advanced Energy Project Credit program under Section 48C of the Internal Revenue Code. This program renews and expands an investment tax credit initially included in the American Recovery and Reinvestment Act of 2009.

The program provides incentives for clean energy property manufacturing and recycling, industrial decarbonization, and critical materials processing, refining, and recycling. The notice provides a broad range of examples of projects eligible to apply for an investment tax credit of up to 30 percent, including manufacturing of fuel cells and components for geothermal electricity and hydropower, equipment for carbon capture, and critical minerals processing facilities.

The Inflation Reduction Act provided $10 billion in new funding for the Qualifying Advanced Energy Project Credit program. In the Inflation Reduction Act, Congress required that at least $4 billion be reserved for projects in communities with closed coal mines or retired coal-fired power plants.

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

The application process for the Qualifying Advanced Energy Project Credit program will begin on May 31, 2023.

The Treasury Department and IRS will administer the programs, working in close collaboration with the Department of Energy.