- July 29, 2024
- by Spencer Almen
Energy Community Tax Credit Bonus: The quick version
For solar projects in eligible geographies, the Energy Community Tax Credit Bonus (“EC Credit”) provides an additional 10% tax credit.
For example, a $1,000,000 solar project would already receive the 30% Investment Tax Credit (“ITC”), or $300,000; with the incremental 10% EC Credit, the total tax credit would increase to 40%, or $400,000 (see table below).
Want to dive deeper? Read on.
What is the “Energy Community Tax Credit Bonus”?
The Energy Community Tax Credit Bonus is a provision under the Inflation Reduction Act (IRA) of 2022 that incentivizes renewable energy investments in specific areas called “energy communities.” The tax credit aims to encourage economic revitalization and job creation in areas currently dependent on or transitioning away from fossil fuels.
To be specific, the EC Credit provides an additional 10% bonus tax credit on top of any existing tax credits, like the ITC, for renewable energy projects.
For instance, a solar project that qualifies for the base 30% ITC and is located in an energy community can receive a total tax credit of 40%. The value of the credit is determined by multiplying the applicable percentage by the project’s total installation cost. So, the owner of a $1,000,000 solar project receiving a total tax credit of 40% would benefit from a $400,000 dollar-for-dollar reduction in income taxes for the year the project is placed in service.
What does this mean for my company?
The EC Credit makes eligible solar energy installations more attractive than ever before. Projects that might have appeared marginally economic in years past now present a strongly positive business case – and projects that already made for a strong business case now look like a slam dunk.
One useful way to think about this is that because solar projects have very low operating costs, the 10% EC Credit translates into a nearly 10% reduction in electricity cost. Again, this is on top of the 30% reduction in electricity cost thanks to the ITC.
If your company consumes a significant amount of electricity and has space available for a solar system installation (ideally land, but large roof areas also work), it’s likely a very good time to reach out to a thoughtful developer about installing on-site solar.
Who’s eligible for the Energy Community bonus tax credit?
To qualify for the EC Credit, a solar project must be located in an Energy Community. And as defined by the U.S. Department of Energy, there are three ways for a given area to be considered part of an Energy Community:
- Be located in a census tract with a coal closure or directly adjoin a census tract with a coal closure (colored below in green).
- Be located in an area that meets both the Fossil Fuel Employment (FFE) threshold and the unemployment requirement (colored below in pink).
- Many brownfield sites also qualify, but there is no single map showing all of these locations.
Several states benefit enormously from this definition. For example, most of Michigan, including most of Consumers Energy territory, qualifies as an Energy Community. This includes nearly all Consumers territory north of the Muskegon-Flint axis as well as most Consumers territory directly bordering Ohio.
What should you do next?
If you have a facility located in an energy community (whether in Michigan or elsewhere) that consumes a significant amount of electricity (10,000,000 kWh+), we’d love to hear from you.
Nokomis Energy, based in Minnesota, develops on-site solar projects for manufacturing and industrial facilities. We have particular expertise developing projects in the Upper Midwest and Mountain West regions, but also develop projects nationally for organizations with facilities spread across other regions of the country.
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Nokomis Energy is a clean energy developer focused on the Upper Midwest and Mountain West regions. Our mission is to identify opportunities to create clean, low-cost energy projects for our customers. We work directly with our customers and partners to implement and build clean energy solutions that work for your specific needs.