Low-income communities bonus credit program

The application window for low income community bonus credits begins today

On October 19, the Department of Energy’s Office of Economic Diversity opened a new portal for applications for the low-income communities bonus tax credit. The tax credit provides a 10-20% boost to the value of the Investment Tax Credit (ITC) for wind and solar projects under 5 MWac, which are located in low-income communities, on Indigenous American land, as part of affordable housing developments, and benefitting low-income households.

DOE will give awards to four categories of projects, totaling as much as 1.8 GW. DOE must award grants for projects meeting their criteria which are:

1. Located in a low income community (up to 700 MWac)
2. Located on Indian land (up to 200 MWac)
3. Part of a qualified low-income residential building project (up to 200 MWac)
4. Part of a qualified low-income economic benefit project (up to 700 MWac)

The low-income communities bonus tax credit is a valuable bonus adder for projects serving disadvantaged communities and backed by new market participants. Typical ITC projects (that meet prevailing wage requirements) can access a 30% tax credit—the low-income communities bonus could boost that credit value up to 50%. Projects meeting DOE’s criteria for award should submit their applications here. Applications submitted in the first 30 days will be treated as submitted at the same time and date, after which point applications will be considered on a rolling basis. 

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Allocation timing

DOE outlined a swift timeline for processing applications during a recent webinar. Projects meeting the application criteria could be notified that they have received an award as soon as November 20 (the day after the 30-day window expires), when DOE intends to publish a dashboard summarizing the total capacity of awards granted and remaining for each program criteria. If DOE has more applications for awards then there is capacity available DOE will conduct lotteries to determine which projects receive the awards. DOE notes that an official allocation letter, which would come from the IRS, is expected to be processed as quickly as possible before the end of this year.

Low-income communities bonus tax credit and transferability

Unlike the low-income communities bonus tax credit, most clean energy tax credits do not require developers to obtain pre-approval, and as such, developers may take a different approach to marketing this bonus credit if they intend to monetize their credits through transferability. According to the IRS’s June guidance, tax credit bonus adders cannot be sold separately from the underlying tax credit (or sliced horizontally, versus vertically), adding another layer of complexity and diligence for a prospective credit buyer.

Projects who intend to apply through DOE’s portal should get in touch with us today if you wish to learn more about how to monetize credits through transferability.