As year’s end approaches and biogas developers turn from Section 48 investment tax credits (“ITCs”) under the Inflation Reduction Act of 2022 (the “Act”), which required projects to begin construction before December 31, 2024, for eligibility, to Section 48E ITCs, it is critical to understand the differences between how each Section addresses biogas projects. Under Section 48, the Act extended and expanded existing ITCs, adding “qualified biogas property” as property eligible for credits. However, projects that begin construction on or after January 1, 2025, will be subject to the technology-neutral Section 48E clean electricity ITCs, which may leave some biogas property ineligible for credits.
Unlike Section 48, which focuses on the specific qualified technologies used in converting biomass to methane, Section 48E’s clean electricity ITCs are focused on “qualified facilities” that produce electricity and have a greenhouse gas (“GHG”) emissions rate of zero or less. This emissions rate measures the amount of GHGs released into the atmosphere by a facility in the production of electricity. Separate rules will apply to different types of electricity-generating facilities. The electricity-generation requirement will have the effect of precluding biogas property that converts biomass into refined renewable natural gas for use in the transportation market or any other use outside electricity generation.
For qualified facilities constructed after December 31, 2024, Section 48E directs the clean electricity ITCs be equal to the “applicable percentage” of the “qualified investment.” This applicable percentage includes a base rate of 6% and can increase to 30% or more if certain conditions are satisfied, including prevailing wage and apprenticeship requirements, construction of the project in an energy community, and use of domestic content for materials.
Finally, it is important to understand the potential for recapture of the clean electricity ITCs. Section 48E allows for recapture of previously granted credits if the qualified facility has a GHG emissions rate over 10 grams of CO2 per kWh during the 5-year period immediately following the date the facility is placed in service.
[View source.]
