Tax Equity News

Advanced Manufacturing Credit Guidance: What Goes Around Comes Around Again

Posted in Blog article Renewable energy

The U.S. Department of the Treasury expanded the Qualifying Advanced Energy Project Tax Credit Program (section 48C[1]) on April 29, 2024, to provide a second round of tax allocations for domestic clean energy manufacturing, industry, and supply chain revitalization projects (“Round 2”). On top of the initial $4 billion allocated in the initial round of funding last year (“Round 1”), this new allocation increases the pot of tax credits available to $6 billion; $2.5 billion of which will be reserved specifically for “Energy Communities Census Tracts.”[2] Energy Communities Census Tracts are census tracts in which a coal mine has closed after December 31, 1999, or a coal-fired electric generating unit has been retired after December 31, 2009, or census tracts directly adjoining tracts with such a qualifying coal closure.[3] 

The Round 2 48C Portal will be open to accept concept paper submissions no later than May 28, 2024, and taxpayers will have 30 calendar days to submit applications from the time the portal opens.[4]

The original section 48C manufacturing credit allocation program, implemented during the Obama administration, sought to foster job creation in clean energy manufacturing. The program was created as part of the American Recovery and Reinvestment Act of 2009. The original program provided a 30 percent investment tax credit for to 183 domestic clean energy manufacturing facilities. The Inflation Reduction Act of 2022 reinstated the credit to incentivize investments in qualifying “advanced energy projects” and capped the program at $10 billion.

Advanced energy projects in this category are defined broadly but can be summarized as manufacturing and recycling facilities (including re-equipment or expansions of existing facilities) which produce eligible property used in the production of renewable energy from the sun, wind, geothermal deposits and other renewable resources, or grid modernization equipment and components.[5]

The definition of "eligible property” is property designed to be used to produce energy from renewable sources, such as wind turbines, solar panels, heat pumps, batteries, and electric vehicle components; projects that would result in the processing, refining, or recycling of critical materials, including critical minerals essential to advancing U.S. energy security; and projects that would re-equip industrial or manufacturing facilities to cut their emissions by at least 20 percent. Appended to Notice 2024-36 is an extensive listing of examples of eligible equipment that will qualify under each energy property category.

Eligible property must be depreciable tangible property used as an integral part of the qualifying advanced energy project. Importantly, it does not include any buildings or structural components. Taxpayers cannot double up on certain other credit incentives available to energy projects. For example, no credit is allowed under section 45X for components manufactured at a facility for which the section 48C credit was claimed.

A defining feature of the 48C program is the inclusion of “recycling facilities” which are described as facilities that reclaim, recover or process waste material which such material itself is a useful product or can be used in the manufacture of a useful product.[6]

Another subset of advanced energy projects eligible for the section 48C credit are “Critical Material Projects”, defined as the establishment, re-equipment or establishment of industrial facilities for the purpose of refining, processing or recycling of critical minerals such as aluminum, cobalt, lithium, nickel, titanium (the list of critical minerals can be found here), and critical materials (the list of critical materials can be found here), but will include any non-fuel mineral, element, substance, or material the Secretary of Energy determines has a high risk of supply chain disruption and serves an essential function in one or more energy technologies). The qualification of these minerals and materials, many of which are vital components of renewable energy technology (such as steel and solar modules), are noteworthy both because recycling of such products will reduce dependency on mining; further, the recovery of such products in the United States may allow renewable energy projects that use the recycled products to qualify for the ten percent tax credit adder for domestic content.  The domestic content rules are discussed here.

The Inflation Reduction Act provided a total of f $4 billion dollars of section 48C credits to be set aside for investment manufacturing facilities in census tracts in which a coal mine closed after 1999 or a coal-fired electric generating plant closed after 2009.[7]  This allocation of credits has a set aside of $2.5 billion of the $4 billion total.

Notice 2024-36 provides that in order to benefit from the $2.5 billion set aside for Energy Communities Census Tracts in Round 2, a qualifying manufacturing plant must be located on a census tract which has or adjoins another census tract that has had a coal mine close since December 31, 1999, or a coal-fired electric generating unit retire after December 31, 2009. For purposes of Round 2, Appendices A, B, and C of Notice 2024-36 supersede Appendices A, B, and C of Notice 2023-44. The wording of the 48C guidance tracks the energy community bonus credit applicable to the investment tax credit and production tax credits.  

The initial energy community guidance in Notice 2023-29 provided detail on qualifying categories of energy communities created under the Inflation Reduction Act.  Under Notice 2023-29, in order to qualify as a coal mine closure, the mine in question must be in one of two reported statuses, either abandoned or abandoned and sealed. There are seven possible mine statuses a mine may be classified into by the Mine Safety and Health Administration, but only two count for purposes of a coal closure. It appears that Treasury has taken the same approach with respect to the section 48C credits regarding the statuses that qualify for closures. The Mine Safety and Health Administration remains the most reliable source for qualifying coal mine closures.  For purposes of identifying retired coal plants, a list of coal-fired generating units that were retired from 2015 through early 2024 is in the "Preliminary Monthly Electric Generator Inventory" published by the US Energy Information Administration (EIA). The EIA also has a spreadsheet that can be downloaded with links to the locations of retired generating units on a map. For 2014 through 2023 data, the relevant power plants are the ones listed by EIA as retired "conventional steam coal" or "coal integrated gasification combined cycle." For purposes of identifying coal plants that retired between 2010 and 2013, the EIA website has yearly data available here.

However, it is not necessary to scour the Mine Safety and Health Administration and EIA’s lists because the Energy Communities Census Tracts are listed in Appendix C to Notice 2024-36. Additionally, a map of  Energy Communities Census Tracts has been provided by the DOE and is available here.

A taxpayer seeking to claim the full credit must meet the prevailing wage and apprenticeship requirements, otherwise the eligibility is only one-fifth of the full credit amount.[8] The IRS published wage and apprenticeship guidance in December 2022, in Notice 2022-61. Analysis of such guidance can be found here. For purposes of the section 48C advanced energy credit program, the IRS relies on the 2022 guidance to provide the rules for wage and apprentice compliance.

Interest surrounding the Round 1 allocations was explosive. The IRS reports to have received nearly $42 billion worth of applications for the program, $11 billion for projects in energy communities alone.[9] With an expanded pot of allocations, Round 2 will also likely garner overwhelming interest.

Taxpayers may submit first concept papers to the IRS through the 48C Portal, after which the DOE will extend a letter encouraging or discouraging an application to DOE and the IRS. The IRS will make Round 2 allocation decisions no later than January 15, 2025.

Taxpayers should note that an approved facility receiving the section 48C allocation must be placed in service within two years of receiving its certification letter or forfeit the allocated tax credits.[10]

[1] All “section” or “§” references are to the Internal Revenue Code of 1986, as amended, unless otherwise indicated.

[2] Notice 2024-36, §1.03.

[3] Notice 2023-18,  § 5.06 (citing § 45(b)(11)(B)(iii)).

[4] Notice 2024-36, §3.03(1).

[5] § 48C(c)(1)(A).

[6] Recycling solar panel is an important policy initiative because it is projected that by 2050 that 78 million metric tons of solar panel waste will have accumulated, and that waste would have a potential recovery of $15 billion in valuable materials.

[8] See Notice 2023-18, § 4.01.

[9] U.S. Departments of the Treasury and Energy Release Additional Guidance on Inflation Reduction Act Programs to Incentivize Manufacturing and Clean Energy Investments in Hard-Hit Coal Communities | U.S. Department of the Treasury.

[10] Notice 2024-36, § 3.03(13).


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