Understanding Energy Communities and the Energy Community Tax Credit Bonus
The Inflation Reduction Act (IRA) has introduced groundbreaking incentives for commercial solar projects through the Energy Community Tax Credit Bonus. By encouraging renewable energy development in areas impacted by the decline of the fossil fuel industry, this program is transforming energy communities across the nation.
As an NYSERDA Gold Quality Installer, a Top Solar Contractor in New York State, and a seasoned local expert in clean energy policy and incentives, we’re breaking down everything you need to know about energy communities, their tax credit bonus, and how solar projects can benefit.
Here's what we'll cover:
What Are Energy Communities?
Energy communities are specific geographic areas defined by their historical or current ties to fossil fuel industries. The IRA classifies them into three main categories:
1. Brownfield Sites
Defined under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), these are properties where redevelopment is complicated by hazardous substances or pollutants.
Examples include certain mine-scarred lands and sites with a history of industrial use
2. Metropolitan and Non-Metropolitan Statistical Areas
Areas meeting these criteria:
- Employment: At least 0.17% of local employment is tied to coal, oil, or gas industries (since 2009).
- Revenue: 25% or more of local tax revenues come from these industries.
- Unemployment: The area’s unemployment rate is at or above the national average of the previous year.
3. Coal Closure Census Tracts
Locations where:
- A coal mine has closed after 1999.
- A coal-fired electric generating unit has been retired after 2009.
Important Note: If a project qualifies under any one of these categories, it is eligible for the energy community tax credit bonus—there is no need to meet multiple criteria.
Why Do Energy Communities Matter?
For decades, traditional energy industries like coal, oil, and gas were the backbone of these communities. As these industries decline, energy communities face economic challenges. The IRA, combined with the Bipartisan Infrastructure Law, seeks to address this by investing billions of dollars to create jobs, foster innovation, and transition these areas to clean energy hubs.
The energy community tax credit bonus is one way of helping energy communities rebuild.
How to Identify New York Energy Communities
The U.S. Department of Energy (DOE) and Environmental Protection Agency (EPA) has developed tools and resources to help identify energy communities:
New York Energy Community Maps
U.S. Department of Energy Map: this interactive map highlights:
- Census tracts affected by coal mine closures or coal plant retirements.
- Statistical areas meeting fossil fuel employment thresholds and unemployment rate requirements.
What Is the Energy Community Tax Credit Bonus?
This energy community tax credit bonus aims to incentivize clean energy developments like solar projects in areas needing economic revitalization and offers significant advantages:
- Enhanced financial incentives: Solar projects in energy communities benefit from increased tax credits, improving their return on investment.
- Job Creation: Stimulates local economies by creating jobs in clean energy, advanced manufacturing, and more.
- Economic Revitalization: Developing renewable energy on previously industrial sites helps transform underutilized areas into green energy hubs.
1. Bonus Investment Tax Credits (ITC): A 10 percent increase to the standard 30% Investment Tax credit.
2. Bonus Production Tax Credits (PTC): a per kilowatt-hour (kWh) tax credit for electricity generated by solar and other qualifying technologies for the first 10 years of a system’s operation. It reduces the federal income tax liability and is adjusted annually for inflation.
FAQs About Energy Communities and Tax Credits
Q: Does My Project Qualify for the Energy Community Tax Credit?
The IRS has put together a complete FAQ for energy community tax credit eligibility; however, at a high level, qualification depends on the timing that your project is placed in service and the percentage of your project that’s located in an energy community, as detailed below. GreenSpark Solar can help you identify project eligibility during the consultation process.
Q: How Much of My Project Must Be in an Energy Community?
Projects qualify if 50% or more of their nameplate capacity (or physical footprint) is located within an energy community. For offshore projects, capacity is attributed to the nearest land-based interconnection point.
Q: Can a project qualify under multiple energy community categories?
Yes. However, the bonus credit amount does not increase if a project qualifies under multiple categories.
Q: Can an energy community lose its status?
Yes. Designations depend on annual unemployment rates. New unemployment rates for the prior year are released around May every year. That means the list of energy communities gets updated once a year, and their status usually lasts from May of one year to April of the next. If in May, an energy community’s unemployment rate for the previous year is at or above the national average, it no longer qualifies as an energy community.
Q: What happens if a project’s energy community status changes during construction?
For PTCs, status is reviewed annually for the credit period. For ITCs, eligibility is determined at the time the project is placed in service.
Ready to Take Advantage of Energy Community Incentives?
At GreenSpark Solar, we’re committed to making solar energy accessible while supporting community revitalization. Whether you’re looking to develop a solar project in an energy community or want to learn more about tax credits, our team is here to guide you.
Our team can identify eligible sites, design your project for maximum benefits, and ensure compliance with all requirements. Let’s create a brighter, greener future together.
Contact us today to schedule a no-obligation project consultation.