Dive Brief:

• The Internal Revenue Service on Tuesday issued guidance that establishes which projects can qualify for the energy community bonus credit included in the Inflation Reduction Act.
• Energy communities under the IRA include brownfield sites, coal communities and areas with a specific mix of employment and local tax revenue related to fossil fuels.
• Renewable energy groups welcomed the release of the guidance, with Solar Energy Industries Association CEO Abigail Ross Hopper calling it “critical.”

Dive Insight:

Gregory Wetstone, CEO of the American Council on Renewable Energy, said the guidance is a “constructive response” to the large amount of capital expected to be raised in response to the federal incentives. Investors, renewable businesses and others “want to be sure they have a solid understanding” of the law and how to qualify for the incentives, he said.

In Notice 2023-29, the IRS says it is releasing the guidance ahead of proposed regulations that will determine what qualifies as an energy community. Until those the regulations are released, taxpayers can rely on the rules in the notice.

The guidance helps developers to identify metropolitan or non-metropolitan statistical areas that qualify as energy communities as a result of jobs and tax revenue, clarifies which census tracts are considered directly adjoining and says offshore wind projects can claim the credit when their interconnection facilities are in energy communities.

In conjunction with the IRS’s release of the guidance, the White House announced a mapping tool to help identify two types of potential energy communities: former coal communities and qualifying communities with employment or tax revenue related to fossil fuels. The map does not show brownfield sites.

Senate Finance Committee Chair Ron Wyden, D-Ore., author of the energy reforms in the IRA,  praised the guidance and called it a “big step forward on energy communities.”

Hopper said in a release from SEIA that the group is pleased to see that the Treasury Department adopted many of its recommendations, “including clear references to government data for qualifying areas, a 50% rule for projects to be located in an energy community and a common sense rule for adjoining census tracts.”

“The solar and storage industry has been eagerly awaiting this guidance, and soon we’re going to start seeing projects move forward in these underserved communities,” she said. Hopper added that the renewable energy industry is awaiting guidance on domestic content, transferability, and the manufacturing and production tax credits.

Advanced Energy United Managing Director Harry Godfrey said in an email that the group, which advocates for transmission buildout, found it “particularly encouraging” for offshore wind projects to have access to the tax bonus through interconnection facilities.

“We are hopeful this will both spur more OSW development and ensure the benefits of that build-out, and the associated transmission, flow to communities in transition,” Godfrey said.