On March 22, 2024, the IRS released new guidance1 regarding the "energy community adder." The energy community adder increases the amount/rate one can receive under the investment tax credit and production tax credit for certain projects arising in the renewable energy industry (depending on the nature of the project and the timing of placement in service). The so-called "EC adder" is new to the Code via the Inflation Reduction Act of 2022 and to date, lacks regulations regarding the same, but this latest Notice 2024-30 constitutes the second IRS notice on the matter.2 Notice 2024-30 expands the scope of facilities that may qualify for the energy community adder.
As a reminder, the IRA identifies three location-based categories of energy communities, described in Notice 2023-29 as the Brownfield Category, the Statistical Area Category, and the Coal Closure Category. The Statistical Area Category includes both metropolitan and non-metropolitan statistical areas that (1) have (or had at any time after December 31, 2009) 0.17% or greater direct employment ("Fossil Fuel Employment") or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas (using 2017 NAICS industry codes listed in Notice 2023-29); and (2) has an unemployment rate at or above the national average unemployment rate for the previous year. An EC Project will be considered located in or placed in service in an energy community based either on its footprint or pursuant to the "Nameplate Capacity Test," under which the EC Project will be placed in an energy community if 50% or more of the EC Project's nameplate capacity is in such statistical area. The Statistical Area Categories can easily be searched using the government's online tool, although notably, the map does not appear to have been updated yet to account for the additional NAICS codes added via Notice 2024-30 so be sure to cross-check any findings on the map against the IRS Notices themselves.3
Notice 2024-30 makes two substantive modifications to the prior notice: (1) it modifies the "Nameplate Capacity Test" with respect to offshore wind facilities, and (2) it adds two NAICS codes to consider for purposes of calculating the Fossil Fuel Employment threshold. In the former case, the new definition expands the criteria under which a facility with solely offshore energy generation units (i.e., no units in a statistical area) can satisfy the Nameplate Capacity Test via attribution. Previously, all nameplate capacity had to be attributed to the land-based power conditioning equipment closest to the interconnection point. The latest notice expands that definition to cover the location of any land-based power conditioning equipment, not necessarily the one closest to the point of interconnection (while acknowledging that multiple points of interconnection may also exist), and provides a new alternate test based on the location of the facility's "supervisory control and data acquisition (SCADA) equipment" located in an "EC Project Port."
The latest guidance brings both certainty and opportunity for offshore renewable energy developers looking to get more out of their investment tax credits or production tax credits, while the NAICS Code expansion should have the effect of opening up new areas to energy community status.
Footnotes
2. Notice 2023-29 describes certain rules that the Department of the Treasury and the Internal Revenue Service intend to include in forthcoming proposed regulations for determining what constitutes an energy community and for determining whether a qualified facility, an energy project, or energy storage technology is located in an energy community.
3. Energy Community Tax Credit Bonus – Energy Communities
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