A clean energy project could claim the premium for the duration of the tax credit if it is located in an area designated as an ‘energy community’ when construction starts.
Meanwhile, an offshore wind farm can qualify for the hiked tax credit if it connects to the grid in an ‘energy community’, according to the final guidance issued by the Internal Revenue Service (IRS).
The government also plans to issue a searchable mapping tool so developers can see if their projects qualify for the higher tax credit.
It will accept applications from 31 May.
"Communities like coal communities have the knowledge, infrastructure, resources and know-how to play a leading role in the move to a clean energy economy," said the US deputy treasury secretary Wally Adeyemo.
The government explained that ‘energy communities’ might typically be an area where a coal mine closed or a coal-fired electric plant was retired, or even just a metropolitan area with high joblessness.
'Energy communities' can qualify if they have higher-than-average joblessness coupled with 0.17% or greater direct employment in fossil fuels or 25% or greater local tax revenues related to the extraction, processing, transport or storage of coal, oil or natural gas.
The IRS also identifies 'energy communities' as brownfield sites, including those polluted by hazardous chemicals.
The extra tax credit available in an 'energy community' is 10% for the production tax credit (PTC), often used by onshore wind projects. The PTC is $26/MWh and lasts for 10 years.
For the 30% investment tax credit – most typically used by capital-intensive offshore wind projects – it is 2%, or 10% if prevailing wage and apprenticeship requirements are also met.
The extra energy-community tax credits were made available in the Inflation Reduction Act (IRA).
“The IRA includes key incentives designed to help fossil-fuel and frontline communities benefit from the transition to clean energy. Today’s guidance will help renewable energy developers and investors better understand how this programme will work and where the boundaries lie for the ‘energy community’ designation,” said Gregory Wetstone, president and CEO of the American Council on Renewable Energy.
American Clean Power Association’s CEO Jason Grumet added: “Today’s guidance will help clean energy developers identify and invest in the communities that have been powering America for generations.”
The energy-community provisions in the IRA were crucial to Senate Democrats getting the support of the conservative Republican Joe Manchin, who represents coal-and gas-heavy West Virginia. Without Manchin, the legislation would not have passed Congress.
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