Energy Tax Provisions in the Inflation Reduction Act of 2022 Audience Questions | Husch Blackwell LLP


On August 25, 2022, Husch Blackwell’s Energy team launched the first in a series of webinars focused on the Inflation Reduction Act of 2022. Participants were able to submit their most pressing questions about changes to investment and production tax credits. We have summarized the Q/A on this hot topic.

Will the government issue a map to meet census district requirements under ‘Energy Communities’?

The Treasury has not yet provided any guidance, including whether it intends to issue such a card. However, depending on the type of property in question, there may be some helpful resources which are explained below. As mentioned in the presentation, there are three types of properties that qualify as an energy community.

First, there are brownfield sites. The EPA does not list all brownfield sites in the US; However, it maintains a Cleanups in My Community (CIMC) platform to track past and ongoing cleanups funded by the Brownfields program. Additionally, state and county level agencies typically lead the brownfield remediation process, so a statewide map may not be likely.

Second, there are certain areas that are determined by the finance minister. Such areas are metropolitan or non-metropolitan statistical areas that have (or had at any time during the period beginning December 31, 2009) 0.17% or more direct employment or 25% or more local tax revenues related to extraction and processing . , transportation or storage of coal, oil or natural gas and has an unemployment rate at or above the national average. The Census Bureau provides county business samples on an annual basis that provide employment data that may be helpful. In addition, the Bureau of Labor Statistics identifies metropolitan and extra-urban statistical areas.

Third, there are census counties where (i) a coal mine closed after December 31, 1999, or (ii) a coal-fired power generation unit closed after December 31, 2009. The Census Bureau or local participants update census areas. The Department of Labor maintains a mine data retrieval system that can be used to identify abandoned mines. The Energy Information Administration provides annual reports that provide information related to decommissioned and terminated generators by generator type.

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Should we expect guidance on how to fulfill the crafting percentage in more detail to fulfill the domestic content?

The Treasury Department has not yet provided any guidance. However, due to taxpayers’ need for information to comply with the law, it is likely that the Treasury Department will provide such guidance.

Can projects that become operational in early 2022 retrospectively benefit from the full PTC amount instead of the 80% under the previous rule? Or should we expect a communication from the IRA to confirm this?

The phase-out regulation applies to wind turbines that were put into operation before January 1, 2023. Thus, the reduced credit does not apply to projects that will be commissioned in 2022.

Criteria for the desirable location of the project?

The Treasury has not yet provided guidance, including whether it intends to issue such a card identifying specific locations that qualify. However, depending on the type of property in question, there may be some helpful resources which are explained below. As mentioned in the presentation, there are three types of properties that qualify as an energy community.

First, there are brownfield sites. The EPA does not list all brownfield sites in the US; However, it maintains a Cleanups in My Community (CIMC) platform to track past and ongoing cleanups funded by the Brownfields program. Additionally, state and county level agencies typically lead the brownfield remediation process, so a statewide map may not be likely.

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Second, there are certain areas that are determined by the finance minister. Such areas are metropolitan or non-metropolitan statistical areas that have (or had at any time during the period beginning December 31, 2009) 0.17% or more direct employment or 25% or more local tax revenues related to extraction and processing . , transportation or storage of coal, oil or natural gas and has an unemployment rate at or above the national average. The Census Bureau provides county business samples on an annual basis that provide employment data that may be helpful. In addition, the Bureau of Labor Statistics identifies metropolitan and extra-urban statistical areas.

Third, there are census counties where (i) a coal mine closed after December 31, 1999, or (ii) a coal-fired power generation unit closed after December 31, 2009. The Census Bureau or local participants update census areas. The Department of Labor maintains a mine data retrieval system that can be used to identify abandoned mines. The Energy Information Administration provides annual reports containing information related to decommissioned and terminated generators by generator type.

Can you give examples of when the portability of the ITC would be beneficial for a small to medium sized solar developer?

This depends on the pricing of the loan and the cost of taking out alternative tax participation financing.

If you subcontract construction and/or maintenance, does the utility need to monitor the contractor’s wages to receive the loan?

Yes.

Are the credits an either/or PTC vs. ITC. Could you take the full PTC but then also qualify for the Indian Lands Adder for ITC?

You must choose a credit for a specific project.

I’ve seen some people say that the PTC in 2022 is 2.75 c/kWh, which is 0.55 (rounded) times 5.

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According to IRS Notice 2020-21 IRB 1095, the inflation adjustment factor is 1.7593. With a base rate of 0.3 cents, the adjusted base rate is 0.52779 cents. In accordance with the Inflation Mitigation Act, the 0.3 cents base rate adjustment for inflation will be rounded to the nearest 0.05 as provided in Section 45(b)(2). For systems that are put into operation after December 31, 2021, the adjusted base tariff is 0.55 cents and with the 5-fold multiplier the PTC is 2.75 cents per kilowatt hour.

I’ve also seen that the IRA language says rounding to 0.05 for the inflation adjustment is to the base rate

Yes, that is correct, pursuant to Section 45(b)(2).

How much do you think Transfer of Eligible Credits will do to increase the overall tax equity offering?

It is impossible to predict the impact of portability on the overall tax equity offering. When the Safe Harbor Lease Regulations were enacted in 1981, the market expanded enormously.

Does a project need to be based in energy communities that are also low-income communities? Or are these 2 separate requirements?

Projects do not have to be in locations that are both energy and low-income communities. They are two separate adders.

Does the law address minority-owned companies?

no

If a company builds separate wind projects to power a hydrogen plant that powers an energy storage technology like CAES and all the components are a separate LLC, does this meet the definition of an “unaffiliated” entity to qualify for the PTCs and ITC?

The PTC generally has a requirement to sell power to an independent party. It is therefore likely that the proposal would raise issues that would need to be circumvented.

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