Powering Strong Communities

APPA Welcomes Release of Elective Payment of Energy Tax Credit Guidance

The American Public Power Association on June 14 said that it is glad to see the release of the notice of proposed rulemaking for elective payments made possible by the Inflation Reduction Act.

The guidance was released by the Internal Revenue Service and the Treasury Department.

“We are still reviewing the proposed rules and expect to file comments but appreciate greatly the work that has been done to date to reach this point,” APPA said in a statement.

 Prior to the IRA, utilities serving nearly 30 percent of the nation’s customers were excluded from receiving energy incentives delivered through the tax code, meaning the vast majority of wind, solar, and other non-hydropower renewable generation is owned by merchant generators with roughly 60 percent of the value of associated tax credits going to banks, insurance companies, and other financial “owners.”

 “Elective payment of tax credits has the potential to be revolutionary for such investments, unlocking the ability for public power communities to own and control such projects, rather than going hat in hand to Wall Street hoping to find a willing investor. That means local decision-making driving local generation and jobs,” APPA said.

APPA noted that one caveat is that to claim energy tax credits through elective payment, the qualifying project must meet domestic content requirements.

Draft proposed domestic content regulations released by Treasury last month, though, appear quite challenging to meet from a substantive and logistical standpoint, APPA said. That means many entities wishing to claim direct payment may have to rely on waivers from the domestic content requirement for elective payments. 

As a result, APPA “eagerly awaits guidance on these waivers, which if drafted correctly could mean elective payment spurring local clean energy resource development.”

The proposed rules that will be formally published in the Federal Register on June 21, 2023, include: