The Department of Treasury and the Internal Revenue Service (IRS) have recently released updated guidance relating to the 2024 Program Year for the Section 48(e) Low-Income Communities Bonus Credit Program established under the Inflation Reduction Act (IRA). The Section 48(e) program provides valuable “bonus credits” that can be stacked onto available investment tax credits for solar or wind energy projects. The 2023 program year closed on Feb. 29, 2024.

Unlike other IRA bonus credits available to any project that meets statutory criteria, such as being located in certain energy communities or using certain amounts of domestic content, the Section 48(e) bonus credits are limited and subject to a competitive application and allocation process. For 2024, 1,800 megawatts (MW), measured in direct current (DC), are available for the Section 48(e) bonus credits. The Department of Energy (DOE) administers the program, reviews applications, and makes recommendations to the IRS regarding selection of applications.

The 48(e) program is open to facilities that generate electricity from wind or solar and that have a maximum net output of less than 5 MW AC. Energy storage installed in connection with eligible solar and wind projects may also be included provided the storage is appropriately sized for the generation project. In order to be eligible for the 48(e) bonus credit, a project must fall into at least one of four facility categories, each of which are allocated a proportion of the overall 1,800 MW limit. For the 2024 program year, the 1,800 MW pool will be allocated as follows:

In the event one of the four categories has unused MW capacity for 2024, that excess capacity may be reallocated among the other categories or subcategories to maximize the 2024 allocation. In the program’s 2023 round, submitted applications for Category 2 projects (those located on Indian Land) requested less than the amount allocated. Treasury and the IRS also reallocated unused capacity within the Category 1 Eligible Residential Behind-the-Meter (BTM) sub-reservation and Category 3.

Fifty percent (50%) of each category’s allocation of bonus credits is reserved for facilities that meet one or more of the following Additional Selection Criteria (ASC):

• Ownership: the applicant is a Tribal enterprise, Alaska Native Corporation, renewable energy cooperative, qualified renewable energy company, or qualified tax-exempt entity.
• Geographic: the project is located in a Persistent Poverty County (PPC) or is located in a census tract designated in the Climate and Economic Justice Screening Tool (CEJST) as disadvantaged within certain categories (energy burden, PM2.5 exposure).

The application process includes an initial 30-day application window, followed by a rolling application window for any categories not fully subscribed during the initial 30-day application period. For applications submitted within the first 30-day application window, DOE will use a lottery system to select recipients in oversubscribed categories or sub-reservations, and applications that meet one or more ASC will receive priority over non-ASC applications within the same category or sub-reservation. Applications submitted after the 30-day application window will be awarded on a first-come, first-served basis provided that capacity allocation remains in a given category. Applicants may only submit one application per facility for the 2024 program year. At this time, DOE has not announced an opening and closing date for the 2024 Program Year.

Godfrey & Kahn Assistance

Godfrey & Kahn has assisted several clients obtain Section 48(e) bonus credits, as well as assisting clients with broader financing and development of renewable energy projects. This assistance includes combining tax credit financing, grant funding and other funding sources, for energy users, developers and investors. We have also assisted numerous organizations, municipalities, and tribes in packaging federal grants with other state and/or utility grants and tax incentives, investment tax credits, new market tax credits, or other private funding to drive down the cost of energy-related projects, often resulting in the construction of projects with no upfront capital costs. With the Inflation Reduction Act providing numerous expanded funding opportunities, we can work with you to help cost-effectively finance numerous types of clean energy projects.

The bonus credits under this newly established program can be a valuable financing source for qualifying projects. In particular, many projects may be eligible solely based on their location in a qualifying census tract. Attorneys in our Energy Practice Group would be happy to assist with reviewing eligibility for these bonus credits and assisting with the application process.

For more information about strategies to utilize the allocation amounts to meet your organization’s energy goals, please contact a member of our Energy Practice Group.