The IRS published Notice 2023-18 on February 13, 2023, providing initial guidance under Internal Revenue Code (IRC) Section 48C(e) to establish the program, application, and allocation process to receive qualifying advanced energy project tax credits.
As part of the Inflation Reduction Act, Congress allocated $10 billion to Section 48C to be awarded on a competitive basis. The goal of this new incentive is to expand US manufacturing and quality jobs for clean energy technologies, to reduce greenhouse gas emissions, and to secure domestic supply chains for critical materials.
Highlights
Notice 2023-18 states that the primary application round will open May 31, 2023, and only be open for a two-month period thereafter. Awarded credits will be calculated as either 6% or 30% of the eligible costs associated with the qualifying advanced energy project. This percentage will depend on whether the prevailing wage and apprenticeship requirements are met.
Such projects will generally involve the buildout or expansion of high-dollar manufacturing facilities. Due to the high cost of these capital projects, many individual credits will likely amount to tens of millions of dollars. This credit is available for direct pay and is transferable.
Qualifying Advanced Energy Projects
Qualifying projects include projects that reequip, expand, or establish an industrial or manufacturing facility for the production or recycling of:
- Property designed to produce renewable energy (solar, wind, etc.)
- Fuel cells, microturbines, or energy storage systems and components
- Electric grid modernization equipment or components (transformers, controls, advanced meters, etc.)
- Property designed to capture, remove, use, or sequester carbon monoxide emissions
- Equipment designed to refine, electrolyze, or blend any renewable or low-carbon and low-emission fuel, chemical, or product
- Property designed to produce energy conservation technologies (smart home devices, ultra-high-efficiency appliances, etc.)
- Electric or fuel cell vehicles, and their components, charging and refueling infrastructure
- Hybrid vehicles weighing over 14,000 pounds and related technologies, components, or materials for the vehicle
- Other greenhouse gas-reducing projects approved by the treasury secretary
This project could also be required to reequip one or both of the following:
- Industrial or manufacturing facility with equipment, such as low-carbon process heat systems, carbon capture or storage systems, waste, or energy reduction processes designed to reduce greenhouse gas emissions by at least 20%
- Industrial facility for the processing, refining, or recycling of critical material, as determined by the Energy Act of 2020, which lists over 50 minerals
Prevailing Wage Requirements
The credit rate will be 30% for companies that meet the prevailing wage and apprenticeship requirement, and 6% for those that don’t. Obtaining the 45X credit rate requires that the general contractor, as well as each of the subcontractors, pay prevailing wages to all mechanics and laborers working on the jobsite during the project.
Various approaches exist for determining if these requirements are met, as well as substantiating that such requirements are met.
Interplay Between Section 45X and Section 48C
For companies considering pursuing Section 48C advanced manufacturing production credit, an assessment should be done to determine if the products being produced at the facility will be eligible for the Section 45X credit, and if so, which incentive would be more beneficial.
The Section 45X credit is a lucrative credit taken on the production of certain eligible components, mainly related to clean energy generation and storage.
The Section 45X credit isn’t available for otherwise eligible products produced at a facility for which the Section 48C credit was granted. Similar anti-double dipping provisions exist related to various other incentives and should be evaluated for each project.
Application Process
Notice 2023-18 states that the primary application round will open May 31, 2023, and only be open for a two-month period thereafter. This process is likely to be highly competitive and complex.
Technical concept papers will need to be submitted to the Department of Energy (DOE) for review. The DOE will form a recommendation to either approve or deny the credit, as well as a ranking for those recommended for approval. These recommendations and rankings will then be submitted to the IRS, where a secondary application process will occur.
Companies planning to invest in a potentially qualifying facility should consult with advisors to assess the opportunity. This is a fully discretionary credit with highly selective criteria, so it is important to first assess the viability of the opportunity based on the project in question as well as the timeframe of the project.
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For more information on how this guidance could impact your business or if you have questions related to Tax Credits & Incentives, contact your Moss Adams professional.