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New Opportunities for Renewable Energy Projects with Low-Income Communities Program

2024-01-15
The Department of the Treasury's Low-Income Communities Bonus Credit Program has received an overwhelming response in the first round of applications. With over 8 GW of renewable energy projects expressing interest, the demand is nearly four times higher than the program's current capacity. However, thanks to a generous carveout, projects that meet specific criteria are still encouraged to apply, presenting new opportunities for renewable energy expansion.  

Investment Tax Credit Expansion and Update

 

Under the 2022 Inflation Reduction Act (IRA), the investment tax credit (ITC) has been updated and expanded. This change allows most customer-sited projects to receive a substantial percentage of eligible solar, solar + storage, and wind project costs. With the help of six stackable bonus credits, project developers can now receive back at least 30% and up to 70% of their project costs.

Capacity Allocation and Bonus Credits for Low-Income Communities

The Internal Revenue Service (IRS) and the Department of Energy (DOE) initiated applications in mid-October for renewable energy projects that are under development but not yet 'placed in service.' These projects can seek a capacity allocation from one of the four bonus credits established to support low-income communities. To monitor the remaining capacity for the program year 2023, the DOE has published a Program Capacity Dashboard, which is regularly updated to reflect new applications approved by the IRS.

 

Prioritizing Communities with Energy Insecurity

 

To ensure equitable distribution of program capacity, at least half of all capacity within each of the four bonus credits is reserved for projects that meet additional selection criteria (ASC). Treasury has established this Additional Selection Criteria (ASC) carveout to prioritize applications from the communities most impacted by energy insecurity. As a result of these carveouts, approximately 364 MW of capacity is still available. Without these carveouts, three categories might have already reached their capacity limits.

 

ASC Criteria for Project Eligibility

 

To meet the Ownership ASC, an applicant must be a tax-exempt entity (including nonprofits and governments), a Tribal enterprise, an Alaska Native Corporation, a renewable energy cooperative, or a qualified renewable energy company. On the other hand, the Geographic ASC requires the project to be located in a persistent poverty county (PPC) or a disadvantaged census tract, as defined by the climate and economic justice screening tool (CEJST). To assess their eligibility for the Geographic ASC, project developers can utilize an online mapping tool produced by the DOE and NREL.

 

Empowering Communities through Renewable Energy

 

Traditionally, energy tax credits have primarily benefitted households with higher incomes, leaving low-income communities, communities of color, and seniors with limited access to locally sourced renewable energy. Nonprofits, in particular, were unable to access tax credits without engaging a third party prior to the IRA. However, the carveouts within the bonus credits aim to address this disparity by enabling more community-benefitting renewable energy projects to be developed and led by local stakeholders.

 

Impact of ASC Carveouts

 

The ASC carveouts are already making a significant impact on project capacity allocation. Category 4, for instance, may fulfill its entire 700-MW capacity solely through ASC applications, which represent 838 MW. In contrast, non-ASC applicants have contributed 3,113 MW, but none of this capacity will be allocated to Category 4. This demonstrates the effectiveness of the ASC carveouts in ensuring that ASC-eligible projects and projects located on Tribal Land can continue to apply on a rolling basis through early 2024.

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