Article Summary –
The IRS has issued further guidance on the energy communities provision of the Inflation Reduction Act on March 22, 2024, detailing how offshore wind projects can qualify for the EC bonus credit and how industries are included for the fossil fuel employment rate calculation in the Statistical Area Category. The guidance clarifies that projects with offshore energy generating units can attribute their nameplate capacity to any land-based power conditioning equipment within an energy community, allowing the entire offshore wind project to claim the bonus credit. It also broadens the industries considered for the fossil fuel employment rate determination, which could result in a significant expansion of areas eligible for the energy communities bonus credit.
IRS Issues New Guidelines on Energy Communities Provisions
The IRS has issued an update to Notice 2024-30 regarding the energy communities provisions of the Inflation Reduction Act. The guidance focuses on two aspects: qualifying for offshore wind projects’ EC bonus credit and expanding the industries included in the fossil fuel employment rate calculation in the Statistical Area Category.
Nameplate Capacity Attribution Rule Revisions
The energy communities bonus credit in the IRA aims to promote renewable energy projects in economically disadvantaged areas. The IRS Notice 2023-29 introduced the Nameplate Capacity Attribution Rule. This new rule stated that offshore energy projects could attribute their entire capacity to any land-based power conditioning equipment, thus allowing them to claim the bonus credit. However, the rule didn’t consider the economic benefits brought by offshore wind projects through port expansion or redevelopment.
The new IRS guidance broadens the Nameplate Capacity Attribution Rule to specific offshore wind ports. To qualify, a port must be used for installation, operation, or maintenance of the offshore project and have a “significant long-term relationship” with the project. Staff employed at these ports must perform functions essential to the project’s operations.
Yet, IRS’s guidance appears to exclude pre-assembly ports used only for staging offshore wind components during the construction phase, despite industry calls for their inclusion. Additionally, the guidance expands the Nameplate Capacity Attribution Rule for offshore wind projects with multiple points of interconnection, increasing their chances to qualify for the bonus credit.
Fossil Fuel Employment Rate Determination Expansion
Notice 2024-30 also enhances the energy communities bonus credit accessibility by extending the determination of metropolitan statistical areas (MSAs) and non-metropolitan statistical areas (non-MSAs) that qualify for the Statistical Area Category. The Notice includes two additional NAICS codes to the list of covered industries, expanding the list of MSAs and non-MSAs designated as energy communities. Developers should consult the Appendix 1 and Appendix 2 listed in the Notice to determine if their project is in an energy community.
This new IRS guidance is a crucial step towards equal treatment of offshore wind projects under the IRA. It also expands the geographic reach of the energy communities provision by including certain fossil fuel operations as eligibility triggers. Although the IRS hasn’t fully embraced the range of onshore facilities that could be eligible for the bonus credit, the new guidance should significantly increase the number of qualifying projects. Developers should remain vigilant of potential improvements and opportunities to provide feedback on the IRS’s forthcoming proposed regulations.
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