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More Areas Qualify as Energy Communities
The Internal Revenue Service added 446 more US counties today to the list of counties where renewable energy projects qualify potentially for a 10% energy community bonus tax credit.
It also made qualification for offshore wind projects easier.
The 446 counties are in statistical areas that the IRS identifies as potential energy communities. Not all of the 446 qualify for the bonus credit currently. Locations must check two boxes to qualify.
The Treasury said 122 of the 446 qualify as energy communities for the period January 2023 through late May 2024 when the Internal Revenue Service is expected to update the qualification tables. Those 122 counties check both boxes currently.
The IRS made the announcement in Notice 2024-30. A table with the 446 new counties can be found here. The list of 122 that qualify currently can be found here.
More details about energy community bonus credits can be found here.
Eligible Projects
A project on which an investment tax credit will be claimed qualifies for an energy community bonus credit if it is in an energy community when the project is placed in service.
A project on which production tax credits will be claimed must be tested for qualification every year during the 10-year period such tax credits are claimed. It may fall in or out of qualification.
Qualification can be locked in by starting construction for tax purposes when the location qualifies. Construction cannot have started before 2023.
Three types of areas qualify potentially as energy communities. They are:
- brownfield sites,
- census tracts (and adjoining tracts) where a coal mine closed after 1999 or a coal-fired generating unit closed after 2009, or
- statistical areas that had at least 0.17% direct employment in oil, natural gas or coal at any time after 2009 and had a local unemployment rate the year before the qualification year at least as high as the national rate. For example, an area with higher local unemployment than the national rate in 2022 qualified potentially as an energy community in 2023.
The latest IRS announcement of additional potentially qualifying counties affects areas that are in category 3.
Additional Counties
The IRS increased the number of counties that qualify potentially as eligible statistical areas by adding two more categories of workers it considers directly employed in oil, natural gas or coal.
The additional workers are employees of local gas distribution companies and construction workers on oil and gas pipeline projects and related structures.
Every county has a local gas distribution company. Some project developers were frustrated that counties that had temporary spikes in employment after 2009 to build oil and gas pipelines were not counted earlier. CO2 pipelines are not covered.
The biggest additions to the list of potentially eligible counties are in six Midwestern states: Minnesota (57), Missouri (57), Illinois (28), North Dakota (23), Wisconsin (23) and Indiana (20).
Georgia (34) and California (22) also saw a lot of new counties made potentially eligible.
The local unemployment rate must be at least at high as the national rate to check the second box and capitalize on the potential eligibility.
Offshore Wind
The IRS said it will let owners of offshore wind projects claim an energy community bonus credit if part of the equipment belonging to the project on land is in a port.
This is an expansion of a bootstrap principle the IRS announced in April 2023 that let offshore wind projects qualify if the project substation closest to the point of interconnection on land is in an energy community.
To qualify by putting equipment in a port, both the equipment in the port and the port must check a number of boxes.
The equipment must be either SCADA equipment used for remote monitoring and control of the project or "power conditioning equipment" that conditions the electricity from the project for "transmission, distribution or use" before transmission to the grid.
An example of power conditioning equipment is a step-up transformer.
The SCADA equipment must be owned by the same "taxpayer" that owns the project. Presumably the same is true of the power conditioning equipment, although the notice is silent.
The port must be used full or part-time to "facilitate maritime operations necessary for the installation or operation and maintenance" of the wind project.
It must have a "significant long-term relationship" with the project, meaning the taxpayer that owns the project must own or lease at least part of the port. Any lease must have a term of at least 10 years.
The project must have employees or independent contractors based in the port who perform functions that are "essential to [project] operations." They must collectively perform all of the following functions: "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."
