Federal Guide on Offshore Wind Tax for Inflation Reduction Act



The Inflation Reduction Act of 2022 encourages investment in renewable energy projects with tax credits, including an additional 10% bonus for projects in “energy communities”, areas with a significant fossil fuel industry and high unemployment. The Internal Revenue Service recently released updated guidance to clarify the application of these credits to offshore wind projects; rather than defining the location of these projects as the nearest land-based equipment, the new guidance permits any point of interconnection within an energy community to qualify. The new guidance also expands the definition of “energy communities” in order to include more communities, particularly those with ports that are integral to offshore wind projects, offering greater flexibility for developers and potentially reducing costs for ratepayers.

The Inflation Reduction Act of 2022 and Renewable Energy Investments

The Inflation Reduction Act of 2022 (IRA) offers tax credits to encourage investment in renewable energy projects, including an Investment Tax Credit (ITC) worth up to 30% of the project cost. An additional 10% bonus is available for projects in designated “energy communities,” notably areas with significant fossil fuel employment or high unemployment rates.

Application to Offshore Wind Facilities

The US Department of Treasury initially proposed offshore wind projects be deemed located at the closest point of interconnection (POI) with land-based equipment. However, stakeholders argued this didn’t reflect the IRA’s intent, as it neglected the long-term benefits related to offshore wind projects at non-POI locations.

Updated Guidance from IRS

On March 22, the Internal Revenue Service (IRS) issued updated guidance in IRS Notice 2024-30. The Notice allows projects with multiple POIs, provided one is within an “energy community,” to qualify for the bonus credit. This is expected to aid in the development of shared transmission infrastructure for offshore wind energy.

Attributing Nameplate Capacity to Additional Property

Moreover, the Notice permits offshore wind facilities to assign their nameplate capacity to supervisory control and data acquisition system (SCADA) equipment owned by the project owner and located in an EC Project Port. This essentially serves as a nerve center for an offshore wind project.

Defining an EC Project Port

The Notice defines an “EC Project Port” as a port facilitating maritime operations necessary for the offshore wind project, enjoying a significant long-term relationship with the project’s owner through ownership or lease arrangements. Staff at the port should perform functions essential to the project’s operations.

New Additions to Industry Codes

The Notice adds two industry codes from the North American Industry Classification System (NAICS) to those determining whether a community qualifies for the IRA’s energy community bonus credit. These codes relate to oil pipeline and natural gas distribution infrastructure, broadening the reach of the bonus credit.

Implications of the Updated Guidance

Advocates note that the Notice’s more holistic approach to the energy communities bonus credit will allow offshore wind project developers greater flexibility in identifying investment ports, thereby bringing economic benefits to more communities and reducing the cost burden to ratepayers.

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