IRS Issues More Guidance for Section 48C Advanced Energy Project Tax Credit Allocation Program

The Inflation Reduction Act of 2022 (IRA) extended and modified a federal investment tax credit for advanced energy manufacturing projects under Section 48C of the Code. Section 48C provides incentives for clean energy manufacturing and recycling, industrial decarbonization, and critical materials processing, refining and recycling.

A broad variety of projects can apply for an investment tax credit of up to 30%, ranging from manufacturing of fuel cells and components for geothermal electricity and hydropower, to producing carbon capture equipment or installing it at an industrial facility, to critical minerals processing. The Section 48C tax credit is based on an application and award process that allocates tax credits to successful applicants for their qualifying projects.

The IRA provided $10 billion in new funding for the Qualifying Advanced Energy Project Credit program. Congress required that at least $4 billion be reserved for projects in communities with closed coal mines or retired coal-fired power plants. The initial funding round will include $4 billion, with about $1.6 billion reserved for projects in these designated coal communities.

On May 31, 2023, the IRS released Notice 2023-44, which provides additional information about the application process and technical guidance for the 48C program.

Application Process

To apply, taxpayers submit concept papers describing their proposed projects. Taxpayers whose concept papers receive favorable reviews will be encouraged to submit full applications. Concept paper submissions will be accepted June 30 – July 1, 2023.

Selection Criteria

The Department of the Treasury will consider only those projects with a reasonable expectation of commercial viability. Further, § 48C(d)(3)(B) provides that, in determining which qualifying advanced energy projects to certify under this section, the Secretary should consider projects that:

1. will provide the greatest domestic job creation (both direct and indirect) during the credit period;
2. will provide the greatest net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases;
3. have the greatest potential for technological innovation and commercial deployment;
4. have the lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emission (based on costs of the full supply chain); and
5. have the shortest project time from certification to completion.

The Department of Energy will implement a “technical review” and evaluate whether a project merits a DOE recommendation based on the following four technical review criteria, as described further in Appendix B:

1. commercial viability;
2. greenhouse gas emissions impact;
3. strengthening U.S. supply chains and domestic manufacturing for a net-zero-13- economy; and
4. workforce and community engagement.

Construction Period

Any project awarded a Section 48C tax credit for advanced energy projects will have a two-year window to complete construction of the facility and place it in service. Failure to meet this two-year construction deadline will result in a forfeiture of the tax credit allocation under Section 48C.