Summary

On April 29, 2024, pursuant to Notice 2024-36, the Department of Energy (DOE) and Internal Revenue Service (IRS) announced that they plan to open the second, and potentially final, round of Section 48C(e) Qualifying Advanced Energy Project (the “48C Program” or “48C”) applications for up to $6 billion in allocations. The 48C program functions like a competitive grant, where entities may submit applications to receive tax credit allocations for the following purposes:

• Clean Energy Manufacturing: Re-equip, expand, or establish an industrial or manufacturing facility for the production or recycling of clean energy equipment and vehicles
• Industrial and Manufacturing Facility Decarbonization: Re-equip an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent
• Processing, Refining, and Recycling Critical Minerals: Re-equip, expand, or establish an industrial facility for the processing, refining, or recycling of critical minerals.

The DOE’s 48C Updates landing page contains links to all program guidance documents, appendices, and other technical program guidance, such as the energy communities census tract interactive map. It can be accessed here: https://www.energy.gov/infrastructure/qualifying-advanced-energy-project-credit-48c-program.

A number of Wilson Sonsini clients were awarded 48C Program allocations in Round 1.

Key Takeaways

Key details regarding Round 2 48C Program design and eligibility:

• The 48C Program was originally authorized pursuant to the American Recovery and Reinvestment Act of 2009 (ARRA) and the Inflation Reduction Act of 2022 (IRA) appropriated $10 billion to the program. $4 billion was awarded to taxpayers in Round 1 earlier this year, with the remaining $6 billion available now in Round 2.
• The 48C Program provides up to a 30 percent investment tax credit for clean energy manufacturing facilities or other emissions reduction projects in the three categories mentioned above. Round 1 guidance, referenced herein, set forth further parameters on eligible projects within these three categories. As a general matter, the 48C Program can be viewed as a complementary program to the separate 45X advanced manufacturing production tax credit, as the 48C Program seeks to incentivize the domestic production of critical clean energy components that were not otherwise made expressly eligible under Section 45X.
• In general, Notice 2024-36 provides the applicable guidelines for Round 2 application procedures.
• Applicants must meet prevailing wage and apprenticeship requirements. Further, approximately 40 percent of the credits are reserved for projects located in “Energy Community Census Tracts.” Please note that “Energy Community Census Tracts” for the purposes of 48C are distinct from the Section 45 and 48 energy communities bonus credit criteria, although there are some overlapping features of both.
  • A 48C qualifying facility is deemed to be located in an Energy Community Census Tract at the time DOE provides its recommendation to the IRS.
  • A 48C qualifying facility is treated as located in an Energy Community Census Tract under the “Footprint Test” provided in Notice 2023-44.
• To be eligible to receive a 48C allocation, a taxpayer may not place the 48C facility into service prior to receiving an allocation letter from the IRS.
• Within two years of receiving an allocation letter, the taxpayer must notify DOE that the applicable facility has been placed in service, and that various certification requirements have been met.
• The selection criteria DOE will use include:
  • projects that have a reasonably likely expectation of commercial viability;
  • projects that provide for the greatest domestic job creation during the credit period;
  • projects that provide for the greatest net impact in avoiding or reducing air pollutants or GHG emissions;
  • projects that have the greatest potential for technological innovation and commercial deployment;
  • projects that have the lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or GHG emissions; and
  • projects that have the shortest projected time frame from certification to completion.
• Importantly, failure to receive an allocation in Round 1 does not preclude submitting an allocation for a Round 2 allocation.

Key details regarding Round 2 48C Program timeline and application mechanics:

• There are two phases to the application: Submission of an initial concept paper and a subsequent full application.
• The IRS and the DOE plan to open the portal that will accept concept papers by May 28, 2024; taxpayers will then have 30 days to submit their concept papers from this date.
• The DOE will review the concept papers and then issue a letter that encourages or discourages an applicant’s submission of a full application. From the date that the taxpayer receives such a letter, full applications must be submitted within 50 days.
• The DOE will review submitted applications for compliance with all eligibility and threshold requirements, and (assuming such requirements are met), conduct a full technical review of the application.
• The DOE will provide a recommendation to the IRS regarding the acceptance or rejection of each application and a ranking of all applications.
• The IRS plans to make Round 2 allocation decisions by January 15, 2025.
  • In the case of an application denial, a taxpayer may request a debriefing with the DOE regarding its review of the application. The denial letter will include applicable instructions for requesting the debriefing.
• The DOE is hosting an informational webinar on May 16, 2024.
  • Registration link can be accessed here.

Key details regarding Round 1:

• Notice 2023-18 and Notice 2023-44 set forth the application and selection procedures for the 48C Program. Round 2 will follow the same procedures set forth in these Notices with respect to Round 2 applications generally.
• On March 29, 2024, the DOE announced the winners of the first round of the program, selecting various projects for $4 billion in allocations. Those successful applicants broke down along the following lines, with approximately two-thirds of allocations going to clean energy manufacturing and recycling projects:
  • Clean energy manufacturing and recycling ($2.7 billion)
    • In this category, recipients included manufacturers of electrolyzers, fuel cells grid components such as transformers, electric vehicle battery components and power electronics, solar PV and wind components, and more.
  • Critical minerals recycling, processing, and refining ($800 million)
    • In this category, recipients included electrical steel applications, lithium-ion battery recycling, and rare earth projects.
  • Industrial decarbonization ($500 million)
    • In this category, recipients included decarbonization measures in chemicals, food and beverage, pulp and paper, biofuels, glass, ceramics, iron and steel, automotive manufacturing, and building materials. Low-carbon fuels and feedstocks were represented as solutions for decarbonizations across the selected projects.
• The DOE reported that it received approximately $42 billion in applications for a $4 billion program allocation.

Recommendations for submitting a 48C application:

• Over $2 billion of the Round 2 allocations will go to projects located in Energy Community Census Tracts per the statutory requirements of the IRA. Accordingly, projects that are located in such Energy Community Census Tracts may be relatively more competitive.
• Projects that have identified specific project sites are likely to be more competitive; of the publicly disclosed projects from Round 1, the significant majority had specific site selections identified. Additionally, because the full application requests key project contracts, such as EPC agreements, coupled with the fact that the projects must be placed in service within two years of receiving an allocation award, successful projects will be relatively advanced in their development.
• It is critical to demonstrate local community and workforce engagement through meaningful and legally-enforceable agreements, such as Community Benefits Agreements.
• The largest publicly disclosed Round 1 award was approximately $280 million, and the smallest was approximately $1.3 million. Of the 35 publicly disclosed Round 1 recipients, three received more than $200 million in 48C allocations, while the majority ranged from approximately $10 million - $100 million. Accordingly, applicants should keep in mind the overall eligible costs for their projects, recognizing that, based on Round 1 results, obtaining over $200 million is an achievable but overall a less likely outcome.

How Wilson Sonsini Can Assist

• Conduct a full review of program requirements and provide strategic counsel regarding permissible and impermissible combining of 48C with other federal tax credits and/or federal grant or loan funds, program eligibility, prevailing wage and apprenticeship compliance, Energy Community Census Tract verification, attestations, and more.
• Provide a dedicated team of project finance, development, ESG, federal grant, and tax counsel to support your full application. For example, we can assist with identifying and disclosing legal risks as part of a risk management plan, draft and advise on Community Benefits Agreements, offtake agreements, and any other project contracts integral to the full application submission; provide tax counsel with respect to costs that are eligible for inclusion as a qualified investment under Section 48(e); provide counsel with respect to disclosure of Renewable Energy Credits (RECs) as a component of Scope 2 emissions (as applicable); and advise with respect to confidentiality matters and assertion of Freedom of Information Act (FOIA) exemptions for sensitive commercial information submitted with application, etc.
• Assist with developing a project narrative that effectively conveys that all eligibility and legal criteria are satisfied; provide multiple in-depth reviews of application materials.
• Provide strategic and transactional counsel with respect to monetizing 48C credit allocations via transferability, direct pay (as applicable), or other monetization strategies.