How US manufacturing clients qualify for advanced energy project credits
The secret to a winning 48C application
Barry Devine
by Barrry Devine
The Qualifying Advanced Energy Project Credit (48C) provides manufacturers with billions of dollars in tax credits for making investments in advanced energy projects, as defined in 26 USC § 48C(c)(1). Most renewable energy tax credits are based on the capital cost or the production output of a renewable energy asset, but the 48C program is a ‘facility’ credit as defined under IRC §48C.
The Inflation Reduction Act of 2022 expanded this program with a USD 10 billion investment. An estimated USD 4 billion will be allocated in round one which had a submission deadline 31 July 2023. An estimated USD 6 billion will be available in the next round estimated to open spring if 2024. Now is the time to get your application in order because competition for credits is fierce and the window for applications is short when the 48C eXCHANGE portal opens. Be ready for round two!
The importance of the 48C program is to offer incentives to increase the installation of renewable energy assets and to reduce greenhouse gas admissions by offering a tax credit for facilities that qualify. It’s critical for manufacturers to understand whether their facilities are candidates for the credit, and how and when to apply. Who qualifies for 48C?
The 48C Tax Credit is a percentage of investment cost and is a 6% base credit or up to 30% when prevailing wage and apprenticeship requirements are met. A mandatory aspect of the program is that 40% of the recipients must be in a Designated Energy Community. (See link below.) The 48C Program cannot be taken with other specific programs and credits.
The rules for utilisation are defined in §6417 and §6418. Under these code sections, tax-exempt entities have a refundable tax credit option for cash payment and for-profit entities can either use the credit to offset tax liability or can sell the credit to an unrelated party for cash.
How to qualify
Manufacturers must be planning to expand or re-equip an industrial or a manufacturing facility in one of these three distinct categories below to qualify:
Clean Energy Manufacturing and Recycling: For a company that re-equips, expands, or establishes an industrial or a manufacturing facility to produce or recycle specified advanced energy property.
Greenhouse Gas Emission Reduction: For a company that re-equips an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20% through the installation of certain systems and processes.
Critical Materials (Refining, Processing, and Recycling: For a company that re-equips, expands, or establishes an industrial facility to process, refine or recycle critical materials.
The application process
As mentioned earlier, the 48C Program is a competitive application process in which the Department of Energy (DOE) reviews concept papers and provides recommendations to the IRS for awarding. For each project that a taxpayer pursues, it must complete a two-stage technical evaluation process:
Stage 1: Concept Paper for DOE Consideration
Stage 2: A §48C(e) application
All applicants must register an account in the 48C eXCHANGE portal and all applicants must submit the first stage concept paper to be eligible submit a formal application for the second stage. Thus, the concept is critical.
Eligible applications will be evaluated by The DOE against technical review criteria reflecting four major priorities:
Criterion 1: Commercial Viability
Criterion 2: Greenhouse Gas Emissions Impacts
Criterion 3: Strengthening U.S. Supply Chains and Domestic Manufacturing for a Net-Zero Economy
Criterion 4: Workforce and Community Engagement
The DOE will provide a recommendation and ranking for a project only if it determines that the application meets all requirements and supports program policy factors.
A winning concept
As stated above, the concept is critical to the process; however, just utilising the criteria above may not be adequate to receive consideration. Manufacturers and their advisors must show they understand both the technology and energy components of a project including outputs, performance, portfolio diversity, etc. – and that they’re making a positive impact in the community. Conclusion
Tax credits resulting from the Advanced Energy Projects Credits (48C) program can be substantial for manufacturers. It is highly recommended to partner with a specialist that knows how to tell the story and understands what aspects of a workforce community plan to highlight. Especially, for multi-national corporations, or foreign-owned US entities, the localised knowledge of these additional aspects could the critical component for a winning concept.
Additional resources:
Additional Guidance Notice 2023-44.
Initial Guidance Notice 2023-18.
Energy Community which lists the Section 48C(e) Energy Communities Census Tracts that taxpayers may rely on to substantiate a tax return position.
GGI SponsorTri-MeritChicago (IL), USAT: +1 847 637 5677 x126
Contact Barry
Barry Devine is a regional director at Tri-Merit. He holds a bachelor’s degree from Loyola University New Orleans in psychology and marketing and an MBA in operations management/project management from Regis University in Denver, CO. Currently, Barry is working to develop the Renewable Energy Tax Credit Services offering at Tri-Merit.
