Ed. note: This blog was originally written for us by our new research intern Tristin Young
In August of 2022, the Inflation Reduction Act expanded Section 48C of the Internal Revenue Code, providing an additional $10 billion in funding for qualifying advanced energy projects. Simpson Thatcher published a practical examination of the new law that can help businesses learn how to qualify for and maximize these credits. Simpson Thatcher lists four categories of incentives offered by the IRA and 48C for advanced energy projects. This excerpt discusses the incentives available for renewables:
“The IRA makes available various incentives for projects relying on renewable equipment: The new law includes investment and production tax credits for wind and solar projects, as well as a production tax credit for certain equipment components thereof – eg solar photovoltaic cells or modules, or wind turbine blades, nacelles, and towers – all of which, when combined with state renewable generation mandates, are expected to spur generation activity and correlated demand for renewable equipment and its components. In addition, the repowering or retrofitting rules allow producers to benefit from certain tax credits in connection with the replacement of old equipment on existing projects, subject to a ratio of 80% of total project value.”
Incentives are also available for projects relating to energy storage, EVs, and recycling projects involving domestic content. Projects seeking to qualify for the credit must meet certain labor and sourcing requirements to qualify for the credit’s full value.
As legislation in the US and other jurisdictions creates incentives for clean energy development, we appear to be moving into a period of high demand for critical materials in the energy sector. These incentives will likely lead to higher demand for recycled critical material which will make domestic recycling projects more attractive. Section 48c appears to anticipate this and for certain recycling projects, these tax credits can cover over 30% of the costs of a project and are a powerful tool for investors and companies that can take advantage of them.
If you aren’t already, subscribe to our complimentary ESG blog here: https://practicalesg.com/subscribe/ for daily updates delivered right to you.