In early August, the Treasury Department released long-awaited rules to guide the Low-Income Communities Bonus Credit Program of the Inflation Reduction Act of 2022 (IRA). This program could provide significant financial opportunities for projects that bring clean and resilient technologies to low-income communities. This blog post touches on a few of the program’s major elements, noting that applicants will need to familiarize themselves with many additional details associated with its administration. This blog is provided for informational purposes only and is not offered as legal, policy, or tax advice.
Stem’s Director, Federal Government Affairs, Brian Siu, will speak on our upcoming webinar, Public Power: Top 5 Considerations for Your Clean Energy Strategy where he will discuss how to leverage federal incentives, including the IRA’s Direct Pay ITC, DOE incentives, and GRIP.
What Is the Low-Income Communities Bonus Credit Program?
The Low-Income Communities Bonus Credit Program was established as part of the IRA. The program provides bonus tax credits to wind and solar projects of fewer than five megawatts (measured in alternating current) when those projects benefit low-income areas and low-income households. Energy storage is also eligible if it is installed in connection with those projects. Bonus tax credits can amount to 10-20% of a project’s costs and stack on top of the IRA’s Investment Tax Credit, substantially boosting project economics. Furthermore, the program prioritizes projects that are owned by certain tax-exempt entities such as rural cooperatives and potentially public power companies.
Where and How Do Projects Qualify for the Low-Income Communities Bonus Credit Program?
The IRA bonus credit program qualifies projects based on several factors such as location and delivered benefits (click here to access Stem’s IRA Map) to discover energy and low-income communities throughout the U.S.). These factors are reflected across four program categories that applicants can apply for:
- Category 1: Projects located in low-income communities. The program defines low-income communities as census tracts with poverty rates of at least 20%. They can also be census tracts with median family incomes that are 80% or less than the statewide median family income or the metropolitan median family income (for tracts within metropolitan areas). Bonus credits in this category are worth an additional 10%. There are 700 megawatts of bonus credits reserved for this category, with 490 megawatts of those reserved for residential behind-the-meter facilities and 210 megawatts reserved for front-of-meter and non-residential behind-the-meter facilities.
- Category 2: Projects located on tribal lands. Bonus credits in this category are worth an additional 10%. There are 200 megawatts of bonus credits reserved for this category.
- Category 3: Projects that are installed on residential rental buildings that participate in certain housing programs listed in the Inflation Reduction Act. Bonus credits in this category are worth an additional 20%. There are 200 megawatts of bonus credits reserved for this category.
- Category 4: Projects that distribute at least 50% of the financial benefits from electricity production to households with incomes of less than 200% of the poverty line or less than 80% of area median gross income. Bonus credits in this category are worth an additional 20%. There are 700 megawatts of bonus credits reserved for this category.
How is the Bonus Credit Program Administered?
The Low-Income Communities Bonus Credit Program isn’t like other tax credits under the IRA. A finite number of bonus tax credits is available, and projects must apply for them. Interest in this program could be high, so potential applicants may want to prepare now for the application window that opens 9am on October 19, 2023. The U.S. Department of Energy (DOE) plans to accept and review applications through an online portal it will host on its website. Once the application window opens, DOE will review applications for viability and eligibility. A full list of required information, the categories it applies to, and the types of projects it applies to can be found in the Internal Revenue Service’s (IRS) “Internal Revenue Bulletin: 2023-35” located on the IRS’s website.
What Are “Additional Selection Criteria” and How Can They Help Applicants Advance?
The U.S. Treasury Department identifies several “Additional Selection Criteria” (ASC) that could help advance applicants in the selection process. ASC can be geographic criteria, or they can be ownership criteria. Ownership criteria are based on the characteristics of the applicant that owns the facility. The final rule lists several specific classes that will meet these criteria. Notably, the list includes tax-exempt organizations and rural electric cooperatives. The rule also lists states and political subdivisions, agencies, and instrumentalities, very possibly including public power.
ASC can also be geographic. For instance, “Persistent Poverty Counties” designated by the U.S. Department of Agriculture (USDA) are considered as ASC. Census tracts designated as disadvantaged within the Energy Burden category of the Council on Environmental Quality’s Climate and Economic Justice Screening Tool are also considered as ASC.
If any of the four categories are oversubscribed, applicants that satisfy at least one ASC receive priority review over projects that satisfy none. If a category is oversubscribed by applicants that meet at least one ACS, then projects that satisfy two ASC receive priority review. Additionally, 50% of the bonus credits in each category are reserved for facilities that meet ASC.
Working with Stem
The recently released rules for the IRA’s Low-Income Communities Bonus Credit Program can present significant financial opportunities for clean and resilient projects in low-income communities. Familiarizing yourself with the program’s detailed administration, including the ASC, is essential to increase your chances of being prioritized for bonus credits.
Stem’s experts are here to walk you through the details. Stem plays a key role in helping developers, electric cooperatives, and public power utilities get projects to the finish line through extensive experience in storage development efforts, supply chain strength, analytical support around technical and economic analysis, construction and permitting, and ultimately operating the projects in the market to achieve increased revenues. Stem’s award-winning Athena® AI platform drives success under this framework by optimizing the economic and operational trade-offs necessary for successful market participation.
For a comprehensive analysis of the IRA, download Stem’s eBook, Clean Energy Project Economics Under the Inflation Reduction Act.