New Guidance Boosts Offshore Wind, Challenges Remain: Locke Lord LLP
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The IRS issued additional guidance on the Inflation Reduction Act’s energy communities provision on March 22, 2024. The guidance expands the criteria for offshore wind projects to qualify for the Energy Communities (EC) bonus credit. The new rules extend the bonus credit’s applicability to include ports used for the installation, operation, or maintenance of offshore wind projects, and widen the industries included in the fossil fuel employment rate calculation.
Expanded IRS Guidance on Offshore Wind Projects and Energy Communities
The IRS has issued further guidance (Notice 2024-30) on the energy communities provision of the Inflation Reduction Act, specifically focusing on offshore wind projects and the fossil fuel employment rate calculation. This article provides a detailed overview of the new guidance and its implications for offshore wind projects. For further context, check our previous articles on the Inflation Reduction Act and offshore wind, the IRA’s Energy Communities Provisions, and IRS Energy Communities Guidance.
Changes to Nameplate Capacity Attribution Rule
The new guidance adjusts the “Nameplate Capacity Attribution Rule” acknowledging the economic contributions of offshore wind projects via expanding or redeveloping ports often positioned in energy communities. Previously, only offshore wind projects linked to onshore substations within energy communities could claim the bonus credit, but now ports that fulfill certain conditions can also qualify.
Under this revised rule, an offshore wind project’s nameplate capacity can be attributed to any SCADA equipment located in a designated “EC Project Port”. The IRS defines EC Project Port as a port significantly related to the project and used for project-related maritime operations. However, the IRS requires that project staff be based at the port and perform key operational functions.
The new guidance broadens the definition of energy communities to include dedicated offshore wind project ports during its operational phase. However, it seems to exclude pre-assembly ports used only during the construction phase of projects. Feedback from industry may urge the IRS to further modify the energy communities regulations to accommodate this issue.
The new guidance is also designed to facilitate offshore wind projects with multiple points of interconnection. For these, the entire nameplate capacity of the project is attributed to any land-based power conditioning equipment at just one of the points of interconnection. This provision increases the opportunities for offshore wind projects to qualify for the energy communities bonus credit.
Industries Expansion in Fossil Fuel Employment Rate Calculation
Notice 2024-30 further broadens the availability of the energy communities bonus credit by including Natural Gas Distribution and Oil and Gas Pipeline and Related Structures Construction in the list of covered industries. This addition significantly expands the list of metropolitan statistical areas (MSAs) and non-metropolitan statistical areas (non-MSAs) designated as energy communities. Developers should refer to the IRS’s Appendix 1 and Appendix 2 to determine if their project is in an energy community.
The latest IRS guidance takes vital steps towards ensuring fair treatment of offshore wind projects under the IRA while widening the scope of the energy communities provisions. While it doesn’t cover all potential onshore facilities, it enhances the guidance and will likely increase the number of qualifying projects. Developers should be aware that multiple opportunities exist to provide feedback to the IRS on potential improvements, including commenting on this most recent guidance and the forthcoming proposed IRS regulations.
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