The American Public Power Association on May 12 said it appreciates the Treasury Department’s release of guidance on domestic content rules for energy tax credits as modified under the Inflation Reduction Act.
“APPA continues to review the guidance with a particular eye to ensuring that cost of compliance is not overly burdensome. However, we believe this is a step toward the clear and reliable rules that will be needed to ensure that the legislation works as intended while allowing projects to get underway,” it said.
APPA noted that the IRA was important to public power because, in addition to extending and expanding a variety of critical energy tax incentives, it created a refundable direct pay mechanism to ensure that all utilities can benefit from these incentives.
Without such a mechanism, public power utilities and electric cooperative utilities — which are non-profit, tax-exempt entities — would be effectively blocked from owning tax creditable energy projects.
These utilities collectively serve nearly 30 percent of U.S. customers, so allowing them to benefit from energy tax provisions for projects they own makes these tax incentives more effective, while also ensuring that no communities are left behind, APPA said.
The IRA also included provisions to incentivize the use of domestic content in these projects. These provisions are the focus of Treasury’s guidance.
Generally, any project meeting the domestic content requirements receives a bonus credit for a project that would otherwise qualify for an energy tax credit. Conversely, these domestic content requirements must be met for any project for which refundable direct payment is sought.
“As such, getting these rules right is important for projects relying on the bonus credit, but they are existential for projects relying on direct payment,” APPA said.
Since the IRA’s enactment, APPA has asked that implementing guidance be clear, simple, and certain. As with past guidance, Treasury’ domestic content guidance “provides a measure of certainty by allowing owners to rely on this guidance until otherwise modified by a notice of proposed rulemaking or final rules.”
Likewise, owners can begin to assess how and whether they will meet the domestic content requirements by including today guidance identifying and categorizing components common to wind, solar, and battery storage projects.
“These are steps in the right direction, which APPA appreciates.”
APPA said it will continue to review the guidance released on May 12 “and look forward to continuing to work with the Treasury Department, the Internal Revenue Service, and the Department of Energy to ensure that these provisions work as intended.”