The Qualifying Advanced Energy Project Credit (48C) was created by the American Recovery and Reinvestment Act of 2009 to focus on green energy manufacturing and has been brought back with the Inflation Reduction Act (IRA). Under the IRA, the program was allocated $10B to invest in green energy manufacturing projects. Round 1 ended its application period in December 2023, and $4B in allocation awards were provided to recipients in April 2024. The Round 2 application period will open at the end of May 2024 with $6B available to allocate in a competitive application process.
APPLICABLE PROJECT CATEGORIES
The eligible projects are as following, taken from the Internal Revenue Code:
- A project that re-equips, expands, or establishes an industrial or manufacturing facility for the production or recycling of a range of clean energy equipment and vehicles;
- A project that re-equips an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent; or
- A project that re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of critical materials.
APPLICATION PROCESS
The application process has two main steps.
- Concept Paper – The Concept Paper is a summary of the project that will follow a template questionnaire compared to a narrative in Round 1. The Concept Paper is a pitch that the company is making to the Department of Energy (“DoE”) about the impact of the project in terms of technological innovation, jobs, capital investment, community impact, supply chain strength, and viability. Following review, the DoE will provide an encouragement or discouragement letter to submit an application. Regardless of response from the DoE, applicants can still submit an application. In Round 1 of applications, that were due in December 2023, a surprisingly large number of Concept Papers received discouragement letters, so this step is definitely not a formality.
- Application – The Application is a maximum of thirty (30) pages with unlimited pages of exhibits. The Application is more comprehensive and technical but follows the same general structure. Following submission, the Internal Revenue Service and DoE will review all applications and make allocation decisions.
As part of the Concept Paper and Application, there are some additional components such as a data sheet and a workforce and community engagement document.
CREDIT AMOUNT
The credit is a base amount of 6% of eligible property, which can go up to 30% if prevailing wage and apprenticeship requirements are met. Though more technical, generally eligible property includes non-building and non-land investment, primarily machinery and equipment that is part of the production process. The proportion of an investment that is eligible property depends on whether it is a retooling or upgrading of an existing facility versus building a new facility, but tends to be around 50% of the total project cost.
RECEIPT OF CREDIT
To be eligible from a timing perspective, the project will not be eligible if placed in service prior to January 15, 2025, or the date upon which allocations are awarded.
For projects that may not have yet broken ground, if the project is awarded an allocation, the company must certify the project within two years of the allocation letter. To receive certification, a project must receive all necessary permits. Following certification, the company will have two years to place the project in service.
Once the project is placed in service, the credit will be distributed in that tax year as a lump sum that is freely transferrable or salable. This market is expected to be fairly well developed.
KEY DATES
Concept Paper:
- 48C Submission Portal opens May 22, 2024
- Concept Papers due June 21, 2024 by 5:00 pm
- Receive encouragement/discouragement letter probably by September 2024
Application:
- Due fifty (50) days following receipt of encouragement/discouragement letter
- Allocation decisions by January 15, 2025
