Guidance on Offshore Wind Tax Cut Act for Inflation Reduction by the Federal Government

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TL/DR –

The Inflation Reduction Act of 2022 provides tax credits to incentivize investment in renewable energy projects, with an additional bonus for projects set up in “energy communities.” A recent IRS update allows projects with multiple Points of Interconnection (POIs) to qualify for the bonus, as one of the POIs is within an energy community. Also, the IRS now permits offshore wind facilities to attribute their nameplate capacity to additional property, specifically the SCADA equipment, and adds two industry codes from the North American Industry Classification System to expand the range of communities that can benefit from the energy community bonus credit.


Inflation Reduction Act of 2022 – A Boost for Renewable Energy Projects

The Inflation Reduction Act of 2022 (IRA) offers various tax incentives, including a 30% Investment Tax Credit (ITC), for renewable energy project investment. A bonus of up to 10% can be granted over the ITC if the facility is based in an “energy community”, defined as areas with high reliance on fossil fuels and above-average unemployment rates, making it particularly beneficial for offshore wind projects.

Criteria for Offshore Wind Facilities

The US Department of Treasury first proposed that an offshore wind project’s location would be identified as its closest land-based point of interconnection (POI). Industry stakeholders argued this overlooked the long-term advantages of offshore wind projects at non-POI locations, such as ports.

Revised Guidance from the IRS

On March 22, the IRS issued updated instructions in IRS Notice 2024-30, permitting projects with multiple POIs within an energy community to qualify for the bonus credit, a key factor for the shared transmission infrastructure needed for effective offshore wind energy use.

Implications for Offshore Wind Facilities

IRS Notice 2024-30 also lets offshore wind facilities allocate their nameplate capacity to supervisory control and data acquisition system (SCADA) equipment in an EC Project Port. SCADA equipment remotely controls offshore wind project operations and is at the core of these projects. An EC Project Port is defined as a port playing a significant part in the installation, operation, and upkeep of offshore wind projects and having a substantial connection with the project’s owner.

Additional NAICS Codes

The Notice includes two extra North American Industry Classification System (NAICS) codes for determining a community’s compliance with the IRA’s workforce requirements in the fossil fuel industry. These codes account for oil pipeline infrastructure and natural gas distribution, thereby extending the energy community bonus credit to more regions.

A More Holistic Approach

The updated Notice presents a comprehensive perspective of the energy communities bonus credit, providing offshore wind project developers with greater freedom in selecting ports for their investment. This flexibility will extend the economic impact of the offshore wind industry to more regions, thereby lessening the cost burden for ratepayers.

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