Helping Manufacturing Clients Qualify for Advanced Energy Project Credits
The Advanced Energy Project Credit provides qualifying 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. The definition of the term “facility” is provided in the IRS guidance for purposes of §48C (and §45X.)
An estimated $6 billion will be available to qualifying manufacturers in the next round of tax credits for projects next spring. Now is the time to get your application in order because competition for credits is expected to be fierce and the window applications is short when the 48C eXCHANGE portal opens. Don’t wait until the last minute!
The 48C program aims 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 credit — along with 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.
It’s important to note the 48C Program cannot be taken with other specific programs and credits. No credit is allowed under Section 48C for any investment for which a credit is claimed under Sections 48 (energy credit), 48A (advanced coal), 48B (gasification), 48E (clean electricity), 45Q (carbon oxide sequestration) or 45V (clean hydrogen production).
Taxpayers will also not be allowed to claim a credit under Section 45X for components manufactured at a facility for which the Section 48C credit was claimed.
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 utilizing 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, and so on — and that they’re making a positive impact in the community.
Tax credits resulting from the Advanced Energy Projects Credits (48C) program can be substantial for manufacturers. Just don’t underestimate the time commitment and complexity involved in the application process. And always have a skilled provider on your side.