On August 25, 2022, Husch Blackwell’s Energy team kicked off the first of a series of webinars focusing on the Inflation Reduction Act of 2022. Attendees were able to submit their most-pressing questions related to changes in investment and production tax credits. We have summarized the Q/A on this timely topic.

Will the government issue a map to satisfy the census tract conditions under “Energy Communities”?

The Treasury Department has not provided any guidance yet, including whether it intends to issue such a map. However, depending on the property type at issue, there may be some helpful resources, discussed below. As noted in the presentation, there are three property types that qualify as an Energy Community.

First, there are “brownfield sites.” The EPA does not keep a list of every brownfield site in the U.S.; however, it maintains a Cleanups in My Community (CIMC) platform to track past and ongoing cleanups funded by the Brownfields program. Additionally, state and county-level agencies typically spearhead the Brownfield remediation process, so a nationwide map may not be likely.

Second, there are specific areas that will be determined by the Secretary of Treasury. Such areas are metropolitan or non-metropolitan statistical area which has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas and has an unemployment rate at or above the national average. The Census Bureau provides county business patterns on an annual basis, which provides employment data that may be helpful. Additionally, the Bureau of Labor Statistics identifies metropolitan and nonmetropolitan statistical areas.

Third, there are census tracts in which (i) after December 31, 1999, a coal mine has closed, or (ii) after December 31, 2009, a coal-fired electric generating unit has been retired. The Census Bureau or local participants update census tracts. The Department of Labor maintains a Mine Data Retrieval System that can be used to identify abandoned mines. The Energy Information Administration provides annual reports that provide information with respect to retired and canceled generators according to the generator type.

Shall we expect guidance as to how the Manufacture percentage can be met in more detail to satisfy the Domestic Content?

The Treasury Department has not provided any guidance yet. However, due to taxpayers’ need for information to comply with the law, it is likely that the Treasury Department will provide such guidance.

For projects placed in Service in early 2022, can they retroactively benefit the full PTC amount, instead of the 80% under the previous rule? Or shall we expect an IRA notice to confirm that?

The phase-out provision applies to wind facilities placed in service prior to January 1, 2023. Thus, the reduced credit will not apply to projects placed in service in 2022.

Criteria for deemed desirable area location of the project?

The Treasury Department has not provided any guidance yet, including whether it intends to issue such a map that identifies specific locations that will qualify. However, depending on the property type at issue, there may be some helpful resources, discussed below. As noted in the presentation, there are three property types that qualify as an Energy Community.

First, there are “brownfield sites.” The EPA does not keep a list of every brownfield site in the U.S.; however, it maintains a Cleanups in My Community (CIMC) platform to track past and ongoing cleanups funded by the Brownfields program. Additionally, state and county-level agencies typically spearhead the Brownfield remediation process, so a nationwide map may not be likely.

Second, there are specific areas that will be determined by the Secretary of Treasury. Such areas are metropolitan or non-metropolitan statistical area which has (or, at any time during the period beginning after December 31, 2009, had) 0.17% or greater direct employment or 25% or greater local tax revenues related to the extraction, processing, transport, or storage of coal, oil, or natural gas and has an unemployment rate at or above the national average. The Census Bureau provides county business patterns on an annual basis, which provides employment data that may be helpful. Additionally, the Bureau of Labor Statistics identifies metropolitan and nonmetropolitan statistical areas.

Third, there are census tracts in which (i) after December 31, 1999, a coal mine has closed, or (ii) after December 31, 2009, a coal-fired electric generating unit has been retired. The Census Bureau or local participants update census tracts. The Department of Labor maintains a Mine Data Retrieval System that can be used to identify abandoned mines. The Energy Information Administration provides annual reports that provide information with respect to retired and canceled generators according to the generator type.

Can you provide examples of when transferability of the ITC would be beneficial to a small to medium-scale solar developer?

It will depend on the pricing of the credit and the cost of entering into alternative tax equity financing.

So if you are subcontracting the construction and or maintenance, does the utility have to monitor the wages of the contractor to obtain the credit?

Yes.

Are the credits an either/or PTC vs ITC. Could you take the full PTC, but then also qualify for the Indian Lands adder for ITC?

You must elect one credit for a given project.

I’ve seen some people say the PTC is 2.75c/KWh in 2022, which is 0.55 (rounded) times 5.

According to IRS Notice 2020-21 I.R.B. 1095, the inflation adjustment factor is 1.7593. With a base rate of 0.3 cents, the adjusted base rate is 0.52779 cents. Under the Inflation Reduction Act, with respect to the inflation adjustment of the 0.3 cents base rate, the rounding is to the nearest 0.05, as provided under section 45(b)(2). Thus, effective for facilities placed in service after December 31, 2021, the adjusted base rate is 0.55 cents, and with the 5x multiplier, the PTC is 2.75 cents per kilowatt hour.

I’ve also seen the IRA language saying rounding is to 0.05 for inflation adjustment to the Base Rate

Yes, this is correct, under section 45(b)(2).

How much do you think “Transfer of Eligible Credits” will do to grow the overall supply of Tax Equity?

It is impossible to predict the impact of transferability on the overall supply of tax equity. When the safe harbor leasing provisions were enacted in 1981, it broadened the market tremendously.

Does a project have to be located in energy communities that are also low-income communities as well? Or are these 2 separate requirements?

Projects do not need to be in locations that are both energy communities and low-income communities. They are two separate adders.

Does the act address minority-owned businesses?

No.

If one company builds separate wind projects to power a hydrogen plant that fuels an energy storage technology like CAES, and all components are a separate LLC, does that meet the definition of a “non-related” entity to qualify for the PTCs and ITC?

There is generally a requirement for a sale of electricity to an unrelated party for the PTC. Thus, it is likely that the proposal would present issues that would have to be worked around.

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