Key Takeaways:

• The Inflation Reduction Act (“IRA”) renewed tax credits under Section 48C of the Internal Revenue Code for qualifying advanced energy projects. The goal of the program is to expand U.S. manufacturing capacity and jobs for clean energy technologies (including production, recycling and refining), to reduce greenhouse gas emissions, and to boost domestic supply chains for critical materials (including specified critical minerals) needed for clean energy technology production.
• Entities granted certification by the Internal Revenue Service (“IRS”) under 48C(e) will be eligible for tax credits equal to up to 30% of qualified investments in qualifying projects. The IRA allocated $10 billion in credits to the 48C(e) program, with $4 billion set aside for projects in certain “energy communities.”
• The Treasury Department and the IRS anticipate providing at least two allocation rounds under the § 48C(e) program. The application period for the first round begins on May 31, 2023, with concept papers describing the projects due by July 31, 2023, to the Department of Energy (“DOE”).
• DOE will rank projects based on commercial viability, net impact on reducing or avoiding greenhouse gases, community benefits, and whether a proposed project addresses gaps, vulnerabilities, or risks in the domestic production of clean energy products, among other factors. The IRS plans to defer to DOE in selecting applicants for the credit.
• The IRS and DOE plan to issue additional guidance on this credit by May 31, 2023.

On February 13, 2023, the Treasury Department and the IRS provided initial guidance regarding the § 48C credit renewed by the IRA. Under § 48C, the IRS may allocate credits for qualified investments in an eligible qualifying advanced energy projects, including clean energy property manufacturing and recycling, industrial decarbonization, and critical materials processing, refining and recycling. The following types of projects may fall within the scope of the credit:

• Manufacturers of:
  • property designed to be used to produce energy from the sun, water, wind, geothermal deposits or other renewable resources;
  • fuel cells, microturbines, or energy storage systems and components;
  • electric grid modernization equipment or components;
  • property designed to capture, remove, use, or sequester carbon oxide emissions;
  • equipment designed to refine, electrolyze, or blend any fuel, chemical, or product which is either renewable, or low-carbon and low-emission;
  • property designed to produce energy conservation technologies (including residential, commercial, and industrial applications);
  • light-, medium-, or heavy-duty electric or fuel cell vehicles, as well as technologies, components, or materials for such vehicles, and associated charging or refueling infrastructure;
  • hybrid vehicles with a gross vehicle weight rating of not less than 14,000 pounds, as well as technologies, components, or materials for such vehicles; or
  • other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the Secretary; 
• Industrial or manufacturing facilities installing equipment designed to reduce greenhouse gas emissions by at least 20 percent through the installation of:
  • low- or zero-carbon process heat systems;
  • carbon capture, transport, utilization and storage systems;
  • energy efficiency and reduction in waste from industrial processes, or 
  • any other industrial technology designed to reduce greenhouse gas emissions, as determined by the Secretary;
• Industrials facilities that process, refine, or recycle specified critical materials.

Notice 2023-18 sets out the basic framework of procedures and requirements for the § 48C(e) program to allocate $10 billion in credits ($4 billion of which may only be allocated to projects located in certain energy communities census tracts). This notice also provides the general rules for determining eligibility for the § 48C(e) credit, definitions of qualifying advanced energy projects, further guidance on prevailing wage and apprenticeship requirements, and the procedures for allocating the credits.

The Treasury Department and the IRS anticipate providing at least two allocation rounds under the § 48C(e) program. In particular, the Treasury Department and the IRS anticipate allocating $4 billion of § 48C credits in the first allocation round, with approximately $1.6 billion of these credits to be allocated to projects located in certain energy communities. The Treasury Department and the IRS will allocate the remaining credits in future allocation rounds. DOE plays a central role in administering the tax credits.

The application period begins on May 31, 2023. Applicants must submit their application materials through the electronic DOE eXCHANGE portal. A taxpayer must submit for each project for which it seeks a § 48C allocation for the first round (1) by July 31, 2023, a concept paper for DOE consideration and (2) by a date specified in forthcoming additional § 48C(e) program guidance, the § 48C(e) application. DOE plans to issue this additional guidance by May 31, 2023. If an application for DOE recommendation does not (1) propose an eligible project or (2) include all of the information required in this notice and the additional § 48C(e) program guidance, DOE may decline to consider the application, or DOE may request an applicant resubmit its application with the missing information.

Based on the concept papers, DOE will issue letters to each applicant encouraging or discouraging them from submitting a full § 48C(e) application. After reviewing the full application, DOE plans to rank the applicant projects in order of preference. The IRS plans to accept applications based on the DOE ranking until the initial pool of money is exhausted. DOE will provide a recommendation and ranking only if it determines that the project has a reasonable expectation of commercial viability and merits a recommendation based on the criteria provided in the forthcoming additional § 48C(e) program guidance. According to the current guidance, DOE plans to weigh as factors net impact on reducing or avoiding greenhouse gases, community benefits, and whether a proposed project addresses gaps, vulnerabilities, or risks in the domestic production of clean energy products. The guidance suggests that DOE may look disfavorably on foreign ownership or interests of an applicant, including plans to export critical minerals.

Once an application is accepted, the applicant has two years to demonstrate that all federal, state, and local permits have been issued and that environmental reviews have been completed. The IRS will then issue a certification letter. Once a certification letter is issued, the applicant must place the project in service within two years of the letter issuance date.

According to the IRA and this guidance, a § 48C credit is not allowed for any qualified investment for which a credit is allowed under §§ 48, 48A, 48B, 48E, 45Q, or 45V. In addition, § 45X prevents an entity from receiving both the advanced manufacturing production credit under § 45X and the § 48C credit for the same investment. The IRS plans to discuss this issue further in forthcoming guidance on § 45X.

The planned additional guidance will provide more details regarding information applicants will be required to submit to request a credit allocation. More information may be found on the Inflation Reduction Act of 2022 page on IRS.gov.