IRS Released New Guidance Regarding The ‘Energy Community Adder’ – Renewables

On March 22, 2024, the IRS released new guidance¹
regarding the “energy community adder.” The energy
community adder increases the amount/rate one can receive under the
investment tax credit and production tax credit for certain
projects arising in the renewable energy industry (depending on the
nature of the project and the timing of placement in service). The
so-called “EC adder” is new to the Code via the Inflation
Reduction Act of 2022 and to date, lacks regulations regarding the
same, but this latest Notice 2024-30 constitutes the second IRS
notice on the matter.² Notice 2024-30 expands the scope
of facilities that may qualify for the energy community adder.

As a reminder, the IRA identifies three location-based
categories of energy communities, described in Notice 2023-29 as
the Brownfield Category, the Statistical Area Category, and the
Coal Closure Category. The Statistical Area Category includes both
metropolitan and non-metropolitan statistical areas that (1) have
(or had at any time after December 31, 2009) 0.17% or greater
direct employment (“Fossil Fuel Employment”) or 25% or
greater local tax revenues related to the extraction, processing,
transport, or storage of coal, oil, or natural gas (using 2017
NAICS industry codes listed in Notice 2023-29); and (2) has an
unemployment rate at or above the national average unemployment
rate for the previous year. An EC Project will be considered
located in or placed in service in an energy community based either
on its footprint or pursuant to the “Nameplate Capacity
Test,” under which the EC Project will be placed in an energy
community if 50% or more of the EC Project’s nameplate capacity
is in such statistical area. The Statistical Area Categories can
easily be searched using the government’s online tool, although
notably, the map does not appear to have been updated yet to
account for the additional NAICS codes added via Notice 2024-30 so
be sure to cross-check any findings on the map against the IRS
Notices themselves.³

Notice 2024-30 makes two substantive modifications to the prior
notice: (1) it modifies the “Nameplate Capacity Test”
with respect to offshore wind facilities, and (2) it adds two NAICS
codes to consider for purposes of calculating the Fossil Fuel
Employment threshold. In the former case, the new definition
expands the criteria under which a facility with solely offshore
energy generation units (i.e., no units in a statistical area) can
satisfy the Nameplate Capacity Test via attribution. Previously,
all nameplate capacity had to be attributed to the land-based power
conditioning equipment closest to the interconnection point. The
latest notice expands that definition to cover the location of any
land-based power conditioning equipment, not necessarily the one
closest to the point of interconnection (while acknowledging that
multiple points of interconnection may also exist), and provides a
new alternate test based on the location of the facility’s
“supervisory control and data acquisition (SCADA)
equipment” located in an “EC Project Port.”

The latest guidance brings both certainty and opportunity for
offshore renewable energy developers looking to get more out of
their investment tax credits or production tax credits, while the
NAICS Code expansion should have the effect of opening up new areas
to energy community status.

Footnotes

1. N-2024-30
(irs.gov)

2. Notice 2023-29 describes certain rules that the
Department of the Treasury and the Internal Revenue Service intend
to include in forthcoming proposed regulations for determining what
constitutes an energy community and for determining whether a
qualified facility, an energy project, or energy storage technology
is located in an energy community.

3.
Energy Community Tax Credit Bonus – Energy
Communities

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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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