48C Tax Credit – Round 2

The Inflation Reduction Act (IRA) has revived the Qualifying Advanced Energy Project Credit under 26 U.S. Code Section 48C, also known as the 48C investment tax credit, to accelerate domestic clean energy manufacturing and the transition to clean energy technologies. The IRA allocated $10 billion to be distributed through Section 48C with up to a 30% tax credit for qualified energy projects. These incentives are available for projects in three categories: clean energy manufacturing and recycling; industrial decarbonization; and critical materials processing, refining, and recycling.

The Section 48C tax credit is based on an application and award process that allocates tax credits to successful applicants for their qualifying projects. Eligibility is a highly competitive process and entities must apply for approval. $4 billion in tax credit allocations was made available for Round 1, which closed in August 2023. According to the Department of Energy (DOE), applicants submitted concept papers for projects totaling almost $42 billion for Round 1. The application process for Round 2 is expected to open in 2024, and will allocate up to the remaining $6 billion of tax credits.

What is a qualifying project, defined in 26 USC §48C(c)(1)?

As stated above, the qualified projects fall into three categories, which are described below. A more detailed discussion of these, including qualifying, and non-qualifying, project examples can be found in this table.

1. Projects that re-equip, expand, or establish an industrial facility for the processing, refining or recycling of critical minerals. Critical minerals are defined as any mineral, element, substance, or material designated by the Secretary of the Interior, through the Director of the U.S. Geological Survey, and include minerals such as antimony, chromium, cobalt, gallium, graphite, lithium, manganese, nickel, platinum, titanium, and zirconium. The full list of fifty critical minerals is available from DOE.
2. Projects that re-equip an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20% through the installation of:
   • Low-or-zero-carbon process heat systems
   • Carbon capture, transport, utilization and storage systems
   • Energy efficiency and reduction in waste from industrial processes
   • Other industrial technology designed to reduce greenhouse gas emissions, as determined by the Department of Treasury
3. Projects to re-equip, expand or establish an industrial or manufacturing facility for the production or recycling of:
   • Property designed to produce energy from the sun, water, wind, geothermal deposits or other renewable resources
   • Fuel cells, microturbines or energy storage systems and components
   • Grid modernization equipment or components
   • Property designed to capture, remove, use or sequester carbon dioxide emissions
   • Equipment designed to refine, electrolyze or blend any fuel, chemical or product that is renewable or low-carbon and low-emissions.
   • Fuel cell or electric vehicles, and their components, materials and charging infrastructure
   • Hybrid vehicles weighing less than 14,000 pounds and their components and materials
   • Property designed to produce energy conservation technologies
   • Other property designed to reduce greenhouse gas emissions, as determined by Department of Treasury

The second category is the most widely accessible covering significant energy efficiency, electrification, or renewable energy projects, but category three is broad so there may be opportunity for creative interpretation. Companies should consider forming a cross-functional team comprised of tax professionals, accounting, finance, legal, and environmental staff to explore project opportunities and eligibility. If a potentially qualified project has already been implemented at a facility it will not qualify but if will be replicated at a second facility the new project could qualify.

What is the application process?

The Internal Revenue Service (IRS) provided guidance through IRS Notice 2023-18 and Notice 2023-44 on the application process. Entities interested in the 48C tax credit are required to first submit a “concept paper” through a portal created by the DOE. The DOE then reviews submitted concept papers and will issue a letter to the interested party either encouraging or discouraging the party to submit a full application.

To be considered for a Round 1 allocation, concept papers were to be submitted within 30 days of the application portal opening, however this deadline was extended to August 3, 2023. Following submission, the Department of Energy (DOE) issued a letter encouraging or discouraging the submission of a formal application. The full applications can be submitted as early as 7 days but no later than 45 days after the letter of encouragement or discouragement is issued. The deadline for Round 1 full applications is December 18, 2023. Final Round 1 allocation decisions are expected to be made by March 31, 2024.

Entities should not be misled by the short application timeframes. Complex project calculations and significant supporting documentation are required for both the concept letter and the full application. The application process is extensive and requires significant data development. The process to apply for Round 2 allocations is anticipated to be similar to the Round 1 application process.

What is the allowed 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 provide evidence (for example, permits) that the requirements have been met. The Treasury Department will then provide certification for the tax credit. Failure to meet this two-year construction deadline will result in a forfeiture of the tax credit allocation under Section 48C.

If you are interested in the 48C tax credit but missed the Round 1 deadline to submit a concept paper, the IRS anticipates opening at least one more allocation round. While the IRS has not released definitive guidance as to when Round 2 will open for concept paper submissions, it is likely it won’t be until late Spring or early Summer of 2024, after the Round 1 allocations have been made.

How can ALL4 help?

ALL4 is currently working with clients to prepare full applications for Round 1 and to strategize and identify potential qualifying projects. ALL4 can provide technical analysis and documentation, project management support and assistance with timely application development. It is important for interested parties to begin to assess project eligibility soon in order to prepare for the opening of Round 2 and subsequent submittal deadlines. If you have any questions or need help determining if a project you are contemplating could qualify, feel free to contact Jenny Brown or Daryl Whitt.