The Low-Income Communities Bonus Credit Program application window will open in just a couple of days (October 19th), and it comes with an expected close to $1Bn annual government program in projects located in previously underserved communities.
The Low-Income Communities bonus credit is one of the three bonus credits made available by the Inflation Reduction Act, alongside the Domestic Content and Energy Communities bonus adders. The LIC bonus credit will be a 10-20% additional credit to the base 30% Renewable Energy Investment Tax Credit (bringing the total tax credit subsidy to at least 40-50% of the investment).
The objective of the bonus credit is to ensure that the impact of the Inflation Reduction Act reaches low-income and disadvantaged communities, contributing to the Investing in America agenda from the Biden-Harris Administration. By providing both benefit and/or location requirements, the program will contribute to economic revitalization in the target communities by providing high quality jobs and bringing down the energy costs to families, while also contributing to energy access justice.
The following guide provides an overview of the program as well as detail on the qualification requirements and application process. Please reach out to us at firstname.lastname@example.org for further information or help.
Overview of the Low-Income Communities Bonus Credit Program
The Low-Income Communities Bonus Credit Program will allocate bonus tax credits of 10%-20% of the total investment, bringing the total tax credit subsidy to at least 40-50% for projects benefiting these communities that are selected for the program.
The program will allocate subsidies for 1.8 GW of installed capacity each year (around $5Bn of investment) for projects under 5 MW, divided in 4 different categories. Each category will have a capacity cap and certain criteria, as detailed below. The program will run on an annual basis, and applications for the 2023 bonus credits will open on October 19th, with a 30 day window to apply - after the 30 day window, projects will be reviewed on a rolling basis if there is capacity available.
One of the key items of this bonus adder is that projects will receive a confirmation of eligibility from the IRS, which should help make buyers more comfortable with the overall project in the case of a transfer.
Summarizing the key items:
- Bonus tax credits of 10% or 20% depending on the category.
- Projects under 5 MW are eligible, and only Section 48 Investment Tax Credits.
- Total annual capacity for the program is 1.8 GW, allocated across 4 categories.
- Applications open on October 19th, with an initial 30-day window to apply.
Which projects qualify?
Solar, wind and battery storage projects under 5 MW of installed capacity qualify for the Low-Income Communities Bonus Credit Program. Moreover, bonus tax credits can only be claimed alongside Section 48 Investment Tax Credits (not Production Tax Credits).
There are four different categories of eligible projects, each with a different bonus credit and capacity cap:
The criteria to qualify for each of the categories is as follows (source: DOE and Federal Registry):
- Category 1: facilities located in a Low-Income Community, defined as any population census tract if the poverty rate for such tract is at least 20 percent, or, in the case of a tract not located within a metropolitan area, the median family income for such tract does not exceed 80 percent of statewide median family income, or in the case of a tract located within a metropolitan area, the median family income for such tract does not exceed 80 percent of the greater of statewide median family income or the metropolitan area median family income (see the following map).
- Category 2: facilities that are placed in Indian land as defined in section 2601(2) of the Energy Policy Act of 1992.
- Category 3: facilities that are part of federally-subsidized residential buildings, including housing supported by the Low-Income Housing Tax Credit and Section 8 of the Housing Act.
- Category: facilities where at least 50 percent of the financial benefits of the electricity produced go to households with incomes below 200 percent of the poverty line or below 80 percent of area median gross income.
Category 1 will be further divided into projects BTM (behind the meter) and FTM (front of the meter), with 70% of the cap (490 MW) assigned to BTM projects and 30% of the cap assigned to FTM projects (210 MW).
Furthermore, each category will have an “Additional Selection Criteria” (ASC), reserving 50% of each category’s total capacity for projects meeting additional geographical or ownership criteria:
- Geographical criteria: a facility would need to be located in a Persistent Poverty County or in a census tract that is designated in the CEJST as disadvantaged.
- Ownership criteria: if it is owned by a Tribal enterprise, an Alaska Native Corporation, a renewable energy cooperative, a qualified renewable energy company meeting certain characteristics, or a qualified tax-exempt entity
The previously referenced map from the U.S. Department of Energy is helpful to identify the geographies meeting the Additional Selection Criteria.
What is the application process?
The application window opens on October 19th, and projects will have a 30-day window to submit an application. All the projects submitted within that window will be treated as having the same application date, and priority will be assigned through a lottery within each bucket. After the window closes, if there is further capacity available, additional submissions for 2023 will be treated on a rolling basis up until Q1 2024. In Q2 2024, applications for 2024 will open.
Lastly, projects are required to submit a certain set of documents and attestations that will depend on the category the fall underneath and whether they are front-of or behind the meter. Please refer to the tables provided below.
What if applications exceed the capacity?
Applications are expected to exceed the 1.8 GW threshold (at least in some of the categories and sub-divisions), so it is important to understand how it would be dealt with.
If applications exceed the capacity allocated in each category, Additional Selection Criteria projects will take priority over other projects. Additionally the priority will be randomized for projects that have submitted within the application window, as all of them will be considered to have the same application date.
Let's use a couple of scenarios within Category 4 (700 MW) to understand the logic above:
- Scenario 1: Fewer than 350 MW of ASC applications are submitted. The 350 MW carve-out is maintained for future ASC application submissions within the program year. If non-ASC applications exceed 350 MW, a lottery will take place for those applications to determine review order.
- Scenario 2: More than 350 MW but less than 700 MW of ASC applications are submitted. ASC takes review priority over non-ASC applications and a lottery will take place for non-ASC to determine review order if the combined capacity is over 700 MW.
- Scenario 3: More than 700 MW of ASC applications are submitted. ASC takes review priority over non-ASC applications and a lottery will take place for ASC to determine review order.
What are the document and attestation requirements?
All projects are required to submit the following documents and attestations, depending on the project characteristics.
At the same time, depending on the Category and Additional Selection Criteria (ASC) eligibility, the following documents and attestations would be required:
The Low-Income Community Bonus Credit Program should help provide a development boost in the target communities, bringing not only cheaper and cleaner energy, but also spurring economic development in those communities. The 1.8 GW alone should lead to a $5Bn annual investment in these communities, but further projects that will not reach the potentially (and hopefully) oversubscribed program, will also be developed, thus increasing to total amount invested in these communities.
Additionally, for corporates considering acquiring tax credits from clean energy projects, accessing projects within the program could be very attractive for them: it contributes to the Enviromental & Social aspects of ESG, and tax credits are certified by the government.
We hope that this guide was useful and please reach out to us if you have any additional questions or need help: send us an email at email@example.com or book a slot with us at https://www.concentro.io/schedule-a-call.
Moreover, we have found the following resources useful (used as sources for this article):
- Department of Energy - Low-Income Communities Bonus Credit Program Portal: https://www.energy.gov/diversity/low-income-communities-bonus-credit-program
- Department of Energy - Webinar Slides: https://www.energy.gov/media/307161
- Department of Treasury: https://home.treasury.gov/news/featured-stories/the-low-income-communities-bonus-credit-program-our-approach-to-an-inclusive-clean-energy-economy
- Internal Revenue Service - Full Guidance: https://www.federalregister.gov/documents/2023/08/15/2023-17078/additional-guidance-on-low-income-communities-bonus-credit-program