Leveraging IRS Feedback for Final Round of 48C Tax Credit Funding

The Inflation Reduction Act (IRA) expands the advanced energy project tax credit in Section 48C of the Internal Revenue Code, allocating $10 billion in tax credits for qualified investments in eligible projects. Of the total award, $4 billion must be allocated to projects located in 48C Energy Communities Census Tracts. This program is the IRA’s only capped tax credit and is a competitive, national application.

For eligible projects, the base credit is 6% of capital expenses. The maximum credit is 30% if the project meets wage and apprenticeship requirements. Qualifying projects must fit into one of three distinct categories:

1. Clean Energy Manufacturing and Recycling: Projects that establish, expand, or update a facility producing or recycling one or more specified advanced energy properties, or their components or materials.
2. Industrial Decarbonization: Projects at existing industrial or manufacturing facilities that reduce greenhouse gas emissions from the facility by at least 20%. Facilities are not required to produce products or materials with energy applications.
3. Critical Materials: Projects that establish, expand, or update a facility that processes, refines, or recycles one or more critical materials, as defined here.

Round 1 Announcements

The first round of the 48C program, which opened in mid-2023, awarded $4 billion in March 2024 to more than 100 projects—$2.7 billion for clean energy manufacturing and recycling, $500 million for industrial decarbonization, and $800 million for critical minerals. The investment promises to catalyze technological progress in these industries and the communities affected by the projects, driving economic benefits and employment opportunities in accordance with Justice40 principals.

Notable wins include several hydrogen and fuel cell production projects from innovating firms such as Bloom Energy, Electric Hydrogen, Ballard Power Systems, Nel Hydrogen, Topsoe, Twelve, and Nuvera Fuel Cells. Other awardees can be found here.

Next Steps for Round 2

To participate in Round 2 of the 48C program, prospective applicants must submit a concept paper by June 27, 2024. Based on the concept paper, the Department of Energy (DOE) will provide an encourage or discourage notification prior to applicants submitting a full application. A total of $6 billion in funding is left for this final round.

Prior to preparing the concept paper, organizations interested in pursuing the credit should take the following initial steps:

• Review Current Guidance: Program requirements are complex. Understanding how DOE evaluates concept papers can strengthen the pursuit.
• Register in DOE’s Application Portal: Applicants must register to be eligible to submit a concept paper.
• Verify Organizational and Project Eligibility: Organizations should ensure that the organization and project meet the specific program requirements prior to pursuit. Projects must be placed in service within 2 years of the award letter.

Concept Paper Guidance

The concept paper should feature all aspects of the project, demonstrate the technology’s commercial viability, describe emissions reduction strategies, and outline domestic supply chain and project community benefits. The IRS identified a number of common issues with the concept papers submitted in Round 1, which applicants can review and incorporate to improve concept paper quality for the second round:

1. Insufficient Quantitative Detail: Many submissions lacked measurable specificity in the concept paper, the workforce and community engagement plan, and the data sheet. The lack of detail made it difficult to determine project eligibility and expected performance.
2. Eligibility Noncompliance: Some projects failed to meet the criteria for qualifying advanced energy projects. Projects were submitted under inappropriate categories, leading to their rejection.
3. Inclusion of Ineligible Costs: Several proposals included ineligible costs not covered by the program, such as costs associated with constructing or expanding buildings.
4. Lack of Commercial Viability or Environmental Impact: Projects are evaluated on their commercial viability and net impact on reducing greenhouse gas emissions. Proposals with an unclear path to commercialization or minimal mitigatory environmental measures are less likely to be encouraged to submit a full application.
5. Failure to Demonstrate Impact on US Supply Chains and Domestic Manufacturing: A project’s ability to strengthen domestic supply chains and prepare domestic manufacturing for the net-zero economy is a critical evaluation criterion. For favorable consideration, applicants need to demonstrate outsize benefits in supply chain resilience and US industrial base capacity building.

The 48C program will help accelerate clean energy technology production, reduce greenhouse gas emissions, and boost critical mineral production in the US. Learning from Round 1, organizations can enhance application effectiveness to secure part of the 48C tax credit.