The Inflation Reduction Act (the “IRA”) provides funding for several tax credit incentives related to significant investments in energy projects. One of these credits is the section 48C investment tax credit (“48C Credit”), which was originally offered through the American Recovery and Reinvestment Act of 2009. The IRA includes a $10 billion allocation to the 48C Credit and also broadens the scope of eligible property a company can invest in to be eligible for the credit. If selected, the 48C Credit provides a credit equal to 30% of the project’s capital investment that is deemed to be “eligible energy property.”
The 48C Credit is a competitive credit, meaning that in order to be eligible, taxpayers must submit a two-part application consisting of a concept paper and full application, each describing the proposed project and investment. The criteria for eligible projects details three general eligibility categories: (1) clean energy manufacturing and recycling (e.g., investment in a manufacturing facility that produces components or products that will produce energy from the sun, water, wind or geothermal deposits) (2) greenhouse gas emission reduction (e.g., investment in energy conservation technology or other technology to reduce the greenhouse gas emissions from a manufacturing or industrial facility), or (3) critical material projects (e.g., investment in projects that produce or recycle certain critical minerals used in the renewable energy industry).
The IRS provided guidance through IRS Notice 2023-18 and Notice 2023-44 on the application process. Taxpayers interested in the 48C Credit are required to first submit a “concept paper” to a portal created by the Department of Energy. The Department of Energy then intends to review submitted concept papers and then will issue a letter to the interested party either encouraging or discouraging the party to submit a full application.
The Department of Energy Portal began accepting concept papers on June 30, 2023 and closed its acceptance window for submissions on July 31, 2023. Letters of encouragement or discouragement are expected to be transmitted in the fall of 2023.
If you are interested in the 48C Credit but missed the July 31 deadline to submit a concept paper, the IRS anticipates opening at least one more allocation round. The first round is expected to result in allocations of $4 billion of the $10 billion total tax credit allocation. Round 1 allocation decisions are expected to be made by March 31, 2024. While the IRS has not released definitive guidance as to when the second round for concept paper submissions will open, it is likely it won’t be until late Spring or early Summer of 2024, after the round 1 allocations have been made.