Update: On Friday February 16, the IRS published a correction to its previous notice of proposed rulemaking related to Section 48 qualifying energy property. The IRS had previously determined that “gas upgrading equipment” did not qualify as a part of “energy property” for a biogas facility for the purpose of calculating its eligible cost basis. This aspect of the proposed guidance posed challenges for certain biogas facilities, particularly landfill gas facilities, for whom upgrading equipment can represent a sizable portion of the project’s cost basis — from 10-15% to as much as 90%. IRS now proposes a correction, which would include gas upgrading equipment in the definition of energy property where it “is an integral part” of a facility, and “is necessary to concentrate the gas from qualified biogas property into the appropriate mixture for injection into a pipeline.” The proposed Section 48 guidance, including the correction, is not final. We expect the IRS to finalize this guidance by mid-2024.
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On Friday, November 17, the Treasury Department released draft guidance regarding the implementation of Section 48 Investment Tax Credits (ITCs). While ITCs have been around for many years for certain clean energy technologies, the Inflation Reduction Act (IRA) significantly expanded the kinds of clean energy projects able to take advantage of these tax credits.
Treasury’s guidance is 127 pages, and will take some days for the market to process fully, and initial analyses of the proposal by market leaders (such as Norton Rose Fulbright and Holland & Knight) offer some perspectives on key areas of uncertainty.
Overall, the guidance takes a meaningful step forward in providing market clarity for key industries ahead of year end. Comments on the notice of proposed rulemaking are due in January 2024.
Below, we highlight our five key takeaways from the release, affecting the offshore wind and biogas industries, stand-alone energy storage, and clarifying recapture for the prevailing wage and apprenticeship bonus.
The IRA is a complex and critically important piece of legislation, and the Treasury Department plays the essential role of providing industry with needed guidance to properly implement the law. Friday’s guidance is an important step in that direction, providing needed certainty to many industries. The guidance is not yet final and industry is encouraged to provide feedback to the IRS over the coming months. For more information on how to identify tax credits for purchase or how to list tax credits for sale, get in touch with us.
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