Alert
06.20.23
On May 31, 2023, the U.S. Department of Treasury (Treasury) and the Internal Revenue Service (IRS) issued Notice 2023-44 (May 31 Notice) providing additional details for applicants seeking Qualifying Advanced Energy Project Credits (Advanced Energy Project Credits or Credits) under section 48C of the Internal Revenue Code (Code). In 2022, the Inflation Reduction Act (IRA) amended section 48C of the Code to establish the Qualifying Advanced Energy Project Program (Program) and provided $10 billion in Credits for qualifying advanced energy projects. The Program is meant to incentivize investment in clean-energy manufacturing and recycling projects, greenhouse gas (GHG) emission reduction projects and critical materials projects.
The May 31 Notice updates, modifies and supersedes the IRS’s initial February 13, 2023, Notice 2023-18 that provided initial guidance about the details of the Program established by the IRA. The May 31 Notice further defines what facilities may qualify for Credits, the process for submitting concept papers and applications and the selection criteria that the U.S. Department of Energy (DOE) will use to recommend applications to the IRS for the award of Credits.
Allocation of Credits
The Treasury and the IRS anticipate providing at least two Advanced Energy Project Credit allocation rounds under the Program, with the first round allocating approximately $4 billion of Credits.
Approximately $1.6 billion of Credits will be reserved for § 48C(e) Energy Communities Census Tracts. § 48C(e) Energy Community Census Tracts are Energy Communities that did not have a project that received a certification and allocation of credits under the § 48C(e) allocation program. While the IRA’s definition of Energy Communities is complex, they include locations with coal mine or coal generating plant closures, or areas that any time after 2009 have had high employment related to fossil fuels and now have unemployment at a rate equal to or higher than the national average for the prior year. The federal government’s website on Energy Communities contains a mapping tool to allow interested parties to identify areas that qualify as Energy Communities. The May 31 Notice also includes a new appendix that lists the § 48C(e) Energy Communities Census Tracts.
Project Requirements
The May 31 Notice provided additional information on what types of facilities may qualify for Credits. A facility will be considered eligible property that qualifies for the Program if it satisfies the following requirements:
Notably, facilities that qualify for the Advanced Energy Project Credit may not simultaneously benefit from the Advanced Manufacturing Production Credits under section 45X of the Code. Tangible property qualifies for the 45X Advanced Manufacturing Production Credits if it comprises an independent functioning production unit that produces one or more system components for: solar energy, wind energy, inverters, qualifying battery, and any certain critical materials. Not all projects may receive Credits, so those projects which do not receive Credits may still be eligible to benefit from section 45X of the Code.
For example, in 2024, Taxpayer owns and operates a manufacturing site that contains production Unit A, which manufactures photovoltaic wafers, and production Unit B, which manufactures photovoltaic cells. Both units are arranged in serial fashion and both function independently and produce eligible components. Taxpayer may claim Unit A as eligible property for the Advanced Energy Project Credit (assuming they are selected by the DOE and allocated credits by the IRS) but would be precluded from qualifying for the 45X Advanced Manufacturing Production Credit. However, Taxpayer’s Unit B is tangible property that comprises an independently functioning production unit that produces eligible components. Thus, Unit B is eligible to receive the 45X Advanced Manufacturing Production Credit because it is not eligible property that is part of a facility that received the Advanced Energy Project Credit.
Categories of Qualifying Projects
Projects may qualify for Advanced Energy Project Credits if they fall into the following categories:
Two-Stage Review Process
In Stage 1 of the review process, an applicant must first submit a concept paper to the DOE. Concept papers are not the application but must be submitted for an applicant to be eligible to apply. The DOE will carry out an initial review to determine that eligibility requirements have been met, the required information has been submitted, the proposed project is technically valid, and all other requirements are satisfied. The DOE will also conduct a technical review based on the four technical review criteria discussed below and may consider program policy factors to determine the final portfolio of recommendations. The DOE will then either encourage applicants to continue or discourage applicants from continuing the process. All applicants who submit concept papers may still go on to submit a full application, but a letter of discouragement indicates the DOE’s view that the project is unlikely to receive a recommendation that it be allocated Credits.
In Stage 2, applicants may then submit full applications. The DOE will carry out an initial review to determine that eligibility requirements have been met, the required information has been submitted, the proposed project is technically valid and all other requirements are satisfied. The qualifying advanced energy project category, the specified advanced energy property and the scope of the overall project described in the application must be consistent with the applicant’s concept paper submitted during Stage 1. The DOE will then perform a technical review based on the four criteria discussed below to develop scores for ranking applications, may conduct a due diligence review and may also consider program policy factors to determine a final set of recommendations. Finally, the DOE will transmit to the IRS its final recommendations for allocations.
Technical Review Criteria
For both the concept paper Stage 1 and the §48C(e) application Stage 2, the DOE will perform a technical review process based on four criteria:
The DOE’s technical review will be used to develop scores for ranking applications and determine the merits of each project. The IRS will allocate credits to projects based on the DOE’s ranking of applications. The IRS will assign allocations from the top of the DOE’s ranking downward until all available funds for the round are exhausted. The IRS will make all round 1 allocation decisions by March 31, 2024.
Priority Areas for Consideration
When the DOE evaluates the Strengthening U.S. Supply Chains and Domestic Manufacturing and Net-Zero Economy criterion, the DOE will take into consideration whether the project addresses the following energy supply chain and manufacturing priority areas:
The DOE identified these priority areas based on analytical criteria, including an assessment of current anticipated supply chain gaps in areas eligible under the Program.
* Note that the production of some of these products under the respective categories may be eligible for Advanced Manufacturing Project Credits, precluding a taxpayer from receiving Advanced Energy Project Credits.
Critical Placed in Service Dates
Next Steps
The following table provides the key dates concerning the Program:
Given that the deadline to submit concept papers to the DOE is July 31, potential applicants should consider beginning the process of submitting materials. Pillsbury has continued to provide legal support on IRA tax credits and has deep familiarity with various funding opportunities provided by the IRA and other recent legislation. Our team stands ready to support parties interested in applying for the Advanced Energy Project Credits.