REST Easy with Mahoney July 2023

Background
The base credit available to Section 48 energy property is 6%. Projects with a maximum net output of less than 1 Megawatt or meet prevailing wage and apprenticeship requirements as determined by the Secretary of Labor, qualify for a multiplier of 5; providing you with a 30% tax credit.

Additionally, a 10 percent boost is available for qualified solar and wind projects located in low-income communities. A 20 percent boost is available for projects that are part of a low-income residential building project. The boost must be allocated by the Secretary of Labor and is limited to providing 1.8 gigawatts of direct current capacity per calendar year. This boost is likely to be competitive and only applies to the 2023 and 2024 calendar years.

A qualified solar and wind project is any facility that generates electricity solely from a wind facility, solar energy property, or small wind property; has a maximum net output of less than 5 megawatts ac; and is in a low-income community, located on Indian Land, part of a qualified low-income residential building project, or a qualified low-income economic benefit project.

Later this year the IRS and Treasury Department is expected to issue a comprehensive set of procedures and rules for applicants applying to the 2023 Capacity Limitation.

Proposed Rules
More specifics can be located within the full published document by the IRS, but a summary of what was proposed is as follows:

I. Definitions

a. Definition of Facility– Multiple properties operating as part of a single project should be aggregated and treated as a single qualified solar and wind facility. A facility will be treated as part of a low-income residential building project if such facility is installed on a residential rental building that is already part of a covered housing program.

b. Energy Storage Technology Installed in Connection with Solar and Wind Facility– Energy storage technology would be “installed in connection with” other eligible property if they are part of a single facility, are connected through pieces of land and have a common interconnection point. The technology also must be charged by no less than 50 percent by the other eligible property. A safe harbor has been proposed that deems the technology be charged at least 50 percent by the facility if the power rating of the energy storage technology is less than twice the capacity rating of the connected facility.

c. Financial Benefits for Category 3 and Category 4 Allocations– For facilities to qualify as part of a low-income residential building project, and therefore qualify for the 20 percent boost, financial benefits of the electricity must be allocated equitably amongst the occupants of the units of a residential rental building that participates in an affordable housing program. At least 50 percent of the financial value of Net Energy Savings must be passed on to the residents.

d. Location– A qualified facility is treated as located on Indian Land or as located in a low-income community if the facility satisfies the Nameplate Capacity Test. Nameplate capacity for an electricity generating unit refers to the maximum output a unit can generate on a steady and continuous basis under standard conditions. If more than half of the nameplate capacity is on Indian Land or in a low-income community, it satisfies the Nameplate Capacity Test.

II. Proposed Program Requirements and Structure

e. PIS Prior to Allocation Award– Facilities placed in service prior to being awarded an allocation are not eligible to receive an allocation.

f. Selection Process– Previously, applications were accepted in a phased approach for 60 Day Application windows. The IRS has proposed a new approach going forward into 2023. The IRS expects applicants seeking an allocation to possibly exceed the total Capacity Limitation allocation available. The new process will include an initial application window in which applications received by a certain time and date would be evaluated together. Following this, a rolling application process will go into effect if the Capacity Limitation is not fully allocated after the initial application window closes. A lottery system may be introduced if there are too many similar applications. Priority will be given to facilities meeting at least one of two additional selection criteria.

g. Additional Selection Criteria– The Additional Selection Criteria apply to ownership and location. If a facility is owned by a tribal enterprise, an Alaska Native corporation, a renewable energy cooperative, a qualified renewable energy company, or a qualified tax-exempt entity, then it meets the additional ownership criteria. If a facility is in a Persistent Poverty County or in a census tract designated as disadvantaged in the Climate and Economic Justice Screening Tool (CEJST), then it meets the additional geographic criteria. Some document examples have been provided in the IRS’s publication of examples of forms that may be needed.

h. Sub-Reservations of Allocation for Facilities Located in a Low-Income Community– The IRS anticipates that Category 1 will receive the most applications, and that most applications will be for small rooftop residential solar facilities. Thus, 700 MW is being reserved for Category 1 Allocations, with 560 MW specifically being reserved for eligible residential behind the meter (BTM) facilities, including projects such as rooftop solar. The remaining allocation is being set aside for front of the meter (FTM) facilities and non-residential BTM facilities.

i. Application Materials– To ensure allocations are awarded to visible projects, the IRS as proposed a list of documents and attestations to be required within the application. Examples include executed interconnection, purchase/site control, and other agreements.

j. PIS Materials– Also proposed was the requirement of facilities that received an allocation to report to the Department of Energy (DOE) that the facility has been placed in service. Additionally, they will be required to provide additional documentation, including a permission to operate letter, a final professional engineer stamped as-built design plan, a benefit sharing agreement for qualified residential building projects between owner and tenants, a final list of households served, and a spreadsheet demonstrating expected financial benefits.

k. Post Allocation Compliance– Rules have been provided detailing disqualifications after receiving allocations and a recapture period for Section 48e Increase. Disqualifications can be caused by things such as; the location of the facility changing, the nameplate capacity increasing to exceed the 5 MW ac limitation or decreases by the greater of 2 kW or 25 percent of the capacity limitation awarded in the allocation, or not placing the facility into service within the 4 year time limit of the allocation to the facility.