The Energy & Project Finance Group’s spring webinar series kicked off on April 26 with a session that took a closer look at the current state of the Inflation Reduction Act of 2022 (IRA). Partners Heather Cooper, Philip Tingle and Edward Zaelke specifically discussed the overall impact of the IRA, what market changes the industry has experienced thus far, how the energy landscape has shifted (and will continue to shift) and more.
Key takeaways included:
- Following the passage of the IRA, the Internal Revenue Service (IRS) has been issuing guidance that addresses the applicability of the IRA’s numerous tax credits. Recently issued guidance includes those for electric vehicle purchases and the energy community adder, however, many others are trickling out slowly.
- Recent IRS guidance for the prevailing wage requirements that infrastructure developments must meet to qualify for full tax credits essentially repeated the rules included in the IRA. More detailed prevailing wage guidance is forthcoming, but the existing guidance has started the clock on when projects must comply with the prevailing wage requirements.
- The IRS has also released guidance on requirements for the energy community and low-income community adders, which provide tax credit bonuses for energy projects sited in certain former fossil fuel-heavy and low-income areas of the country. Additional clarity on the low-income community requirements is expected in Q3 of 2023.
- Highly anticipated IRS guidance includes details on the requirements for hydrogen projects to qualify as green for tax credit purposes, the transferability of IRA tax credits, additional details on prevailing wage requirements and domestic content sourcing requirements. Some of these require significant consideration by the IRS, so it’s possible we won’t see some of this guidance until later this year.
- Despite the many missing pieces of IRS guidance with respect to the IRA, the renewables industry has generally felt confident enough to proceed with certain types of transactions. However, further clarity is needed to boost the market to where it needs to be. Tax equity investors, for example, have been reluctant to fund credits dependent on low-income and domestic content adders until further guidance is available. Additional clarity on the transferability of tax credits is needed to get less traditional/more entrepreneurial participants, such as C-corporations and other nontraditional energy investors, into the tax credit market.
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