by Cory R. Wendt, Principal, Baker Tilly
Here’s some important news and a rapidly approaching deadline for manufacturers with plans on the drawing board to expand, update or build a new facility.
The application process for the first $4 billion in tax credit allocations, as part of the $10 billion Section 48C Advanced Energy Credit (AEC) program, will open May 31, 2023, and close on July 31, 2023. The remaining $6 billion of funds will be issued at some point in the future.
Program guidance released in February reveals that the first step in the process for manufacturers seeking this credit (7/31 deadline) is the submission of a concept paper describing their project. Quite different from many of the tax credits in the Inflation Reduction Act (IRA) of 2022, the AEC is a competitive tax credit program that requires manufacturers apply to receive an allocation.
What is the Section 48C Advanced Energy Credit?
The Inflation Reduction Act of 2022 extended credits originally offered through the American Recovery and Reinvestment Act of 2009, which was previously known as the Advanced Manufacturing Tax Credit (AMTC). The AMTC allowed a 30 percent tax credit that was valued at $2.3 billion and was largely oversubscribed by applications.
The current credit, Section 48C Advanced Energy Credit, includes $10 billion in new 30 percent investment tax credits and expands what is deemed to be eligible energy property. To secure the full 30 percent credit value, the project capital investment must be deemed as eligible energy property and meet prevailing wage and apprenticeship requirements.
Examples of eligible investments include projects which re-equip, expand or establish a manufacturing facility in one or more of the following ways:
- A project which re-equips, expands or establishes a manufacturing facility for production or recycling of property used to produce certain energy product types used to conserve and/or store energy
- A project which re-equips, expands or establishes a manufacturing facility for production or recycling of property used to produce energy from certain energy areas, or designed to beneficially capture, remove, use, or sequester carbon oxide emissions
- A project which re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of certain critical materials (as defined by Energy Act of 2020)
- A project to produce equipment designed to refine or blend any fuel, chemical or product which is renewable or low carbon/low emission
- Existing facility which re-equips with equipment designed to reduce greenhouse gas emissions by at least 20 percent
- Facility manufacturing other advanced energy property designed to reduce greenhouse gas emissions including specialized components and equipment for nuclear power reactors may be determined by the Secretary
In addition, the credit covers infrastructure related to grid modernization, carbon capture, EV production and energy storage. Manufacturers in or adjacent to legacy Energy Communities, that did not receive an AMTC allocation, have been allocated 40 percent of the AEC ($4 billion) that was set aside for new clean technology manufacturing facilities in these designated areas.
A Significant Opportunity for Manufacturers
The tax credits awarded through Section 48C are significant. Manufacturers can seek up to 30 percent of the total amount invested in facilities that build or recycle renewable energy components as described above.
Many manufacturers may be eligible to apply for the credit as part of a current or planned project, but manufacturers need to start working now to assess eligibility and prepare application materials. When these credits were introduced in 2009, applications exceeded the available funding by more than three to one.
The Time to Act Is Now
Since Section 48C is a competitive tax credit program, manufacturers will need to apply and receive certification from the IRS for the investment tax credit allocation for their project. It is certainly worth pursuing pre-application feedback from the Department of Energy and it’s vital that manufacturers start assessing eligibility of their existing and future projects and prepare to apply once the application window opens in May.
With the application window nearing and the substantial nature of the credits, it will be financially and logistically beneficial for manufacturers to seek a qualified consultant to assist them with evaluation and development of their projects to assure they maximize the opportunity.
For more information, contact Baker Tilly’s Inflation Reduction Act team to learn more about Section 48C and how it may impact your business.
Cory Wendt is a principal with Baker Tilly. He provides operational and project development consulting support to clients in energy, industrial and food process manufacturing environments.
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