Rule2023-17078
Additional Guidance on Low-Income Communities Bonus Credit Program
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
August 15, 2023
Effective
October 16, 2023
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations concerning the application of the low-income communities bonus credit program for the energy investment credit established pursuant to the Inflation Reduction Act of 2022. Under this program, applicants investing in certain solar or wind-powered electricity generation facilities for which the applicants otherwise would be eligible for an energy investment credit may apply for an allocation of environmental justice solar and wind capacity limitation to increase the amount of the energy investment credit for the taxable year in which the facility is placed in service. This document provides definitions and requirements that are applicable for this program. These final regulations affect applicants seeking allocations of the environmental justice solar and wind capacity limitation to increase the amount of the energy investment credit for which such applicants would otherwise be eligible once the facility is placed in service.
Full Text
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<title>Federal Register, Volume 88 Issue 156 (Tuesday, August 15, 2023)</title>
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[Federal Register Volume 88, Number 156 (Tuesday, August 15, 2023)]
[Rules and Regulations]
[Pages 55506-55548]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2023-17078]
[[Page 55505]]
Vol. 88
Tuesday,
No. 156
August 15, 2023
Part II
Department of the Treasury
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Internal Revenue Service
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26 CFR Part 1
Additional Guidance on Low-Income Communities Bonus Credit Program;
Final Rule
Federal Register / Vol. 88 , No. 156 / Tuesday, August 15, 2023 /
Rules and Regulations
[[Page 55506]]
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Part 1
[TD 9979]
RIN 1545-BQ81
Additional Guidance on Low-Income Communities Bonus Credit
Program
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final regulations.
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SUMMARY: This document contains final regulations concerning the
application of the low-income communities bonus credit program for the
energy investment credit established pursuant to the Inflation
Reduction Act of 2022. Under this program, applicants investing in
certain solar or wind-powered electricity generation facilities for
which the applicants otherwise would be eligible for an energy
investment credit may apply for an allocation of environmental justice
solar and wind capacity limitation to increase the amount of the energy
investment credit for the taxable year in which the facility is placed
in service. This document provides definitions and requirements that
are applicable for this program. These final regulations affect
applicants seeking allocations of the environmental justice solar and
wind capacity limitation to increase the amount of the energy
investment credit for which such applicants would otherwise be eligible
once the facility is placed in service.
DATES: Effective date: These regulations are effective on October 16,
2023.
Applicability date: For date of applicability, see Sec. 1.48(e)-
1(o).
FOR FURTHER INFORMATION CONTACT: Concerning the regulations, Whitney
Brady, the IRS Office of the Associate Chief Counsel (Passthroughs and
Special Industries) at (202) 317-6853 (not a toll-free number).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) relating to new section 48(e) of the Internal Revenue Code
(Code). Section 13103 of Public Law 117-169, 136 Stat. 1818, 1921
(August 16, 2022), commonly known as the Inflation Reduction Act of
2022 (IRA), added new section 48(e) to the Code to increase the amount
of the energy investment credit determined under section 48(a) (section
48 credit) with respect to eligible property of the taxpayer that is
part of a qualified solar or wind facility if the taxpayer applies for
and is awarded an allocation of environmental justice solar and wind
capacity limitation (Capacity Limitation) as part of the low-income
communities bonus credit program for the section 48 credit (Low-Income
Communities Bonus Credit Program or Program).\1\ This document contains
final definitions and rules applicable to the Program.
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\1\ This notice of proposed rulemaking uses the terms
``taxpayer'' and ``applicant'' interchangeably (as the context may
require) to avoid confusion given that persons eligible to apply for
an allocation of Capacity Limitation under the Program may be exempt
from or otherwise not subject to Federal income taxes imposed by
chapter 1 of the Code.
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The section 48 credit for a taxable year is generally calculated by
multiplying the basis of each energy property placed in service by a
taxpayer during that taxable year by the energy percentage (as defined
in section 48(a)(2)). Section 48(e) increases the taxpayer's section 48
credit by increasing the energy percentage used to calculate the amount
of the section 48 credit (section 48(e) Increase) in the case of
eligible property that is part of a qualified solar or wind facility
that receives an allocation of Capacity Limitation under the Program.
On February 13, 2023, the Department of the Treasury (Treasury
Department) and the IRS released Notice 2023-17, 2023-10 I.R.B. 505, to
establish the Program. Notice 2023-17 also provided initial Program
guidance regarding applicable definitions and Program requirements.
On June 1, 2023, the Treasury Department and the IRS published in
the Federal Register (88 FR 35791) a notice of proposed rulemaking
(REG-110412-23, 2023-26 I.R.B. 1098) under section 48(e) (Proposed
Rules) relating to the Program. Numerous commenters responded to the
Proposed Rules, and after consideration of all comments received by
June 30, 2023, the Proposed Rules are adopted as modified by this
Treasury decision. The areas of comment and the revisions to the
Proposed Rules are discussed in the following Summary of Comments and
Explanation of Revisions section of this preamble. The comments are
available for public inspection at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon
request. Other minor, editorial, and clarifying revisions made to the
Proposed Rules as adopted in these final regulations are not discussed
in the Summary of Comments and Explanation of Revisions section of this
preamble.
As announced in Proposed Rules, the Treasury Department and the IRS
are also providing procedural and clarifying guidance applicable to the
Program in Revenue Procedure 2023-27, 2023-35 I.R.B. This procedural
and clarifying guidance is being issued simultaneously with these final
regulations and provides the process for applying to the Program. These
procedural rules provide guidance necessary to implement the Program,
including, in relevant part, information an applicant must submit, the
application review process, and the manner of obtaining an allocation.
Summary of Comments and Explanation of Revisions
I. Definition of Qualified Solar or Wind Facility
Section 48(e)(2)(A) and the Proposed Rules define a single
qualified solar or wind facility as any facility that (i) generates
electricity solely from a wind facility, solar energy property, or
small wind energy property; (ii) has a maximum net output of less than
5 megawatts (MW) (as measured in alternating current (AC)); and (iii)
is described in at least one of the four facility categories described
in section 48(e)(2)(A)(iii) (Category 1, 2, 3, or 4 are described in
more detail in part III of this Summary of Comments and Explanation of
Revisions section). In addition, for purposes of determining
allocations, administering the Program fairly, and avoiding abuse, the
Proposed Rules provided that multiple solar or wind energy properties
or facilities that are operated as part of a single project would be
aggregated and treated as a single facility. Whether multiple
facilities or energy properties are operated as part of a single
project would depend on the relevant facts and circumstances and would
be evaluated based on the factors provided in section 7.01(2)(a) of
Notice 2018-59 or section 4.04(2) of Notice 2013-29, as applicable.
A few commenters suggested the Treasury Department and the IRS
should not impose the single project factors to aggregate multiple
facilities or energy properties into a single facility for purposes of
these regulations. For example, some commenters said this does not work
well for Tribal or some other partially-consolidated ``projects'' that
may share ownership, financing, and other factors for efficiency, yet
are different and distinguishable facilities. Some of the commenters
suggested that a Tribe must be allowed to apply Capacity Limitation
allocations for multiple projects, as separate projects, to allow for
phased deployment of projects, and to treat each phase as a different
project. Another commenter recommended relaxing restrictions in
[[Page 55507]]
the project definition so long as a reasonable period has elapsed to
ensure adequate competitive forces in the market become established or
suggested a carve-out from this rule for certain projects. An
additional commenter suggested that if certain factors are present,
those single factors standing alone should result in energy properties
or facilities being regarded as a single project (that is, apart from
other properties or facilities with which they might otherwise be
grouped) without the need to apply all of the factors provided in
section 7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-
29, as applicable. Similarly, a commenter noted that co-located sites
are typically permitted as a single project, even though the
interconnection, ownership, financing, and construction of the
facilities are conducted independently. This commenter stated that
maintaining the requirement of one project per permit should not
disqualify either project from receiving allocation under the Program.
The Treasury Department and the IRS determined that to prevent some
applicants from attempting to circumvent the less than 5 MW maximum net
output limitation provided in section 48(e)(2)(A)(ii) by artificially
dividing larger projects into multiple facilities, it is necessary to
incorporate the single project factors tests provided in section
7.01(2)(a) of Notice 2018-59 or section 4.04(2) of Notice 2013-29, as
applicable, into the definition of qualified solar or wind facility.
Therefore, the final regulations generally adopt the definition of
qualified solar or wind facility provided in the Proposed Rules.
However, the final regulations clarify that if multiple facilities or
energy properties are regarded as a single facility for purposes of
this rule, they will be regarded as a single facility for all purposes
under the Program. Additionally, to alleviate some commenters' concerns
that multiple energy properties or facilities that satisfy any of the
listed factors will conclusively result in a single project
determination, the final regulations clarify that whether multiple
facilities or energy properties are operated as part of a single
project and thus treated a single facility, will depend on the relevant
facts and circumstances. Thus, a single factor or factors are not
determinative.
A commenter noted that the Proposed Rules specify that a qualified
facility refers to a solar energy property with an output of less than
5 MW and recommended aligning the Program with the industry standard by
allowing projects that have a capacity of up to 5 MW. This comment is
not adopted because section 48(e)(2)(A)(ii) limits the Program to
facilities that have a maximum net output of less than 5 MW (as
measured in AC).
II. Four Categories of Qualified Solar or Wind Facilities
Depending on the category of the facility, an allocation of
Capacity Limitation under the Program may result in a section 48(e)
Increase equal to either 10 percentage points or 20 percentage points.
Section 48(e)(1)(A)(i) provides for a section 48(e) Increase of 10
percentage points for eligible property that is located in a low-income
community (Category 1 facility), or on Indian land (Category 2
facility). Section 48(e)(1)(A)(ii) provides for a section 48(e)
Increase of 20 percentage points for eligible property that is part of
a qualified low-income residential building project (Category 3
facility) or a qualified low-income economic benefit project (Category
4 facility).
Under section 48(e)(2)(A)(iii)(I), the term low-income community is
generally defined under section 45D(e)(1), with certain modifications
described elsewhere in section 45D(e), as any population census tract
if the poverty rate for such tract is at least 20 percent, or, in the
case of a tract not located within a metropolitan area, the median
family income for such tract does not exceed 80 percent of statewide
median family income, or in the case of a tract located within a
metropolitan area, the median family income for such tract does not
exceed 80 percent of the greater of statewide median family income or
the metropolitan area median family income. Section 48(e)(2)(A)(iii)(I)
provides that Indian land is defined in section 2601(2) of the Energy
Policy Act of 1992 (25 U.S.C. 3501(2)). The final regulations clarify
that the poverty rate for a census tract is generally based on the
2011-2015 American Community Survey (ACS) low-income community data for
the New Markets Tax Credit (NMTC), however, if updated data is
released, a taxpayer can choose to base the poverty rate for any
population census tract on either the 2011-2015 ACS low-income
community data or the updated ACS low-income community data for a
period of 1 year following the date of the release of the updated data.
After the 1-year transition period, the updated ACS low-income
community data must be used. Applicants who satisfy the definition of
low-income community at the time of application are considered to
continue to meet the definition of low-income community for the
duration of the recapture period, unless the location of the facility
changes.
Section 48(e)(2)(B) provides that a facility will be treated as
part of a qualified low-income residential building project if (i) such
facility is installed on a residential rental building that
participates in a covered housing program (as defined in section
41411(a) of the Violence Against Women Act of 1994 (34 U.S.C.
12491(a)(3)) (VAWA), a housing assistance program administered by the
Department of Agriculture (USDA) under title V of the Housing Act of
1949, a housing program administered by a Tribally designated housing
entity (as defined in section 4(22) of the Native American Housing
Assistance and Self-Determination Act of 1996 (25 U.S.C. 4103(22)), or
such other affordable housing programs as the Secretary may provide,
and (ii) the financial benefits of the electricity produced by such
facility are allocated equitably among the occupants of the dwelling
units of such building.
Section 48(e)(2)(C) provides that a facility will be treated as
part of a qualified low-income economic benefit project if at least 50
percent of the financial benefits of the electricity produced by such
facility are provided to households with income of less than 200
percent of the poverty line (as defined in section 36B(d)(3)(A) of the
Code) applicable to a family of the size involved, or less than 80
percent of area median gross income (as determined under section
142(d)(2)(B) of the Code).
One commenter stated that the statute does not provide for
``facility categories'' and that what section 48(e)(2)(A)(iii)
describes is not four distinct facility categories, but four ways of
meeting geographic or benefits-based qualifying criteria. The Treasury
Department and the IRS determined that a change in the final
regulations is not necessary because the use of facility categories as
a means of differentiating the four distinct geographic or benefits-
based qualifying criteria is consistent with the statute and serves as
an administratively convenient mechanism to distinguish among them and
describe requirements and definitions applicable to each. Accordingly,
as discussed in part II of this Summary of Comments and Explanation of
Revisions section, the final regulations, consistent with the Proposed
Rules, require a qualified solar or wind facility to be described in
one of the four categories described in section 48(e)(2)(A)(iii)
(Category 1, 2, 3, or 4).
Another commenter asked for clarification on whether a project must
just be located in a low-income
[[Page 55508]]
community or whether benefits must also go to a low-income community to
qualify for each category. The Treasury Department and the IRS
considered the comment but did not make a change because the Proposed
Rules and now the final regulations clearly describe the categories
that have applicable benefits sharing requirements consistent with
statutory requirements, so no change is necessary. For Category 1 and
Category 2, section 48(e)(2)(A)(iii)(I) requires a facility to be
located in a low-income community (as defined in section 45D(e)) or on
Indian land (as defined in section 2601(2) of the Energy Policy Act of
1992 (25 U.S.C. 3501(2))), but the statute, and accordingly the final
regulations, do not impose any requirements to share financial benefits
with low-income subscribers or households. Conversely, for Category 3
and Category 4, section 48(e)(2)(B) and (C) does impose benefits
sharing requirements, and those rules were included in the Proposed
Rules and are provided in these final regulations as modified. See part
V of this Summary of Comments and Explanation of Revisions section for
more discussion regarding those requirements.
Specific to Category 2, another commenter noted that the definition
of located on Indian land should include simple fee and trust lands
located off-reservation owned by Tribes. Trust lands located off-
reservation are covered under the statutory definition of Indian land
referenced in section 48(e)(2)(A)(I). Fee lands, however, would only be
covered if they are included within the boundaries of a reservation or
in the census categories included within the Indian land definition.
Therefore, the final regulations did not adopt the commenter's
suggestion and define ``Indian land'' by reference to section 2601(2)
of the Energy Policy Act of 1992 (25 U.S.C. 3501(2)) without additional
clarification.
Specific to Category 3, a commenter asked for clarification that
the installation of a facility on a ``residential rental building''
extends to the curtilage of the building, including carports, sheds,
and open space on the same property. Another commenter asked for
similar clarification stating that the guidance currently defines a
facility as eligible if it is a facility installed on an eligible
building. This commenter stated that this is an overly narrow statement
that would not include adjacent carport or ground-mount solar on the
same parcel. The commenter encouraged the Treasury Department and the
IRS to include these other solar installation locations, as rural and
suburban section 42 low-income housing credit (commonly referred to as
LIHTC) properties often have excess land or large parking areas due to
zoning requirements that could host solar installations. The final
regulations adopt this comment by clarifying that a facility is treated
as installed on a residential rental building that participates in a
covered housing program or other affordable housing program (Qualified
Residential Property) even if that facility is not on the Qualified
Residential Property if the facility is installed on the same or
adjacent parcel of land as the Qualified Residential Property, and the
other requirements to be a Category 3 facility are satisfied.
Several commenters requested that the Treasury Department and the
IRS categorically include any LIHTC project as a Category 3 project.
Section 48(e)(2)(B)(i) provides that a covered housing program is
defined in VAWA. The statutory cross-reference is comprehensive and
includes numerous types of housing programs and policies across Federal
agencies, including the low-income housing credit under section 42 of
title 26. Accordingly, a solar or wind facility that is installed on a
``qualified low-income building'' under section 42 is eligible for
Category 3. In response to commenters' general inquiries on covered
housing programs, the Treasury Department and the IRS, in consultation
with other Federal agencies, developed an illustrative list of Federal
housing programs and policies that meet the requirements in section
48(e)(2)(B)(i). This list will be made available on the Program web
page and is also listed here:
Covered housing programs and policies (as defined in VAWA) with
active affordability covenants tied to the following:
<bullet> Department of Housing and Urban Development's (HUD)
Section 202 Supportive Housing for the Elderly, including the direct
loan program under Section 202;
<bullet> HUD's Section 811 Supportive Housing for Persons with
Disabilities;
<bullet> HUD's Housing Opportunities for Persons With AIDS (HOPWA)
program;
<bullet> HUD's homeless programs under title IV of the McKinney-
Vento Homeless Assistance Act, including the Emergency Solutions Grants
program, the Continuum of Care program, and the Rural Housing Stability
Assistance program;
<bullet> HUD's HOME Investment Partnerships (HOME) program;
<bullet> Federal Housing Administration (FHA) mortgage insurance
under Section 221(d)(3) subsidized with a below-market interest rate
(BMIR) prescribed in the proviso of Section 221(d)(5) of the National
Housing Act;
<bullet> HUD's Section 236 interest rate reduction payments;
<bullet> HUD Public Housing assisted under section 9 of the United
States Housing Act of 1937;
<bullet> HUD tenant-based and project-based rental assistance under
section 8 of the United States Housing Act of 1937;
<bullet> HUD Section 8 Moderate Rehabilitation Program;
<bullet> HUD Section 8 Moderate Rehabilitation Single Room
Occupancy Program for Homeless Individuals;
<bullet> USDA Section 515 Rural Rental Housing;
<bullet> USDA Section 514/516 Farm Labor Housing;
<bullet> USDA Section 538 Guaranteed Rural Rental Housing;
<bullet> USDA Section 533 Housing Preservation Grant Program;
<bullet> Treasury/IRS Low-Income Housing Credit under section 42 of
the Code;
<bullet> HUD's National Housing Trust Fund;
<bullet> Veterans Administration's (VA) Comprehensive Service
Programs for Homeless Veterans;
<bullet> VA's grant program for homeless veterans with special
needs;
<bullet> VA's financial assistance for supportive services for very
low-income veteran families in permanent housing; and/or
<bullet> Department of Justice transitional housing assistance
grants for victims of domestic violence, dating violence, sexual
assault, or stalking.
Section 48(e)(2)(B)(i) also includes the following Federal housing
programs:
<bullet> Housing assistance programs administered by the USDA under
title V of the Housing Act of 1949; and/or
<bullet> Housing programs administered by an Indian Tribe or a
Tribally designated housing entity (as defined in section 4(22) of the
Native American Housing Assistance and Self-Determination Act of 1996
(25 U.S.C. 4103(22)).
One commenter also requested that Federal Weatherization Assistance
Program (WAP) affordable housing categorically qualify as Category 3
covered housing. The WAP is not a housing program. The WAP is a program
of the DOE that provides weatherization services and support for
qualifying housing but does not provide or administer the actual
housing. Therefore, the WAP program is not included as a Category 3
housing program.
Several commenters also requested that Category 3 include as an
eligible residential rental building housing that is enrolled under a
State-specific low-
[[Page 55509]]
income housing program that is not enrolled, or may not qualify, under
the statutorily listed Federal housing programs. Similarly, several
commenters requested that housing authorities under State programs be
able to appeal for qualification under the Program. One commenter
provided that housing authorities should be able to prove they meet
certain minimum criteria and thresholds beyond enrollment in specified
Federal programs.
State specific housing programs do not categorically qualify as
Qualified Residential Properties nor do the facilities installed on
such buildings categorically meet the requirements of section
48(e)(2)(B). The statute specifically lists only Federal housing
programs and provides that the Secretary may include other affordable
housing programs. The Treasury Department and the IRS decline to
include additional housing programs in the final regulations at this
time so that the Program will focus on the statutorily-prescribed
housing programs. However, the Treasury Department and the IRS may
include additional housing programs in future Program guidance.
The final regulations also do not provide a special review process
for housing authorities to be considered as qualifying under State
specific programs for the same reasons as provided earlier regarding
State program eligibility. Moreover, a housing authority is not the
same thing as a housing program. It is the solar or wind facility that
is being reviewed, upon application, to determine whether the facility
qualifies for an allocation, and not a specific housing authority or
building that the facility will serve. The building on which the
facility is built must already be a part of a Qualified Residential
Property, otherwise the facility is not eligible under the requirements
for Category 3.
One commenter also requested greater protection for the tenants of
a Qualified Residential Property when a facility applies for or
receives an allocation under Category 3. The commenter requested rent
protection for the life of the solar or wind facility to ensure tenants
are not subject to rent increases due to the installation of the solar
or wind facility. The commenter also requested eviction protection,
relocation assistance for tenants affected by construction, with a
right of return for those tenants after construction, a sales
restriction of five years for the building on which the facility is
installed, and strong enforcement mechanisms.
The Treasury Department and the IRS considered this comment but did
not adopt the commenter's suggestions because the requirements
recommended by the commenter are outside the scope of section 48(e) and
therefore what could be implemented by these final regulations.
III. Eligible Property, Including Energy Storage Technology Installed
in Connection With Solar or Wind Facility
``Eligible property'' as defined by section 48(e)(3) means energy
property that (i) is part of a wind facility described in section
45(d)(1) for which an election to treat the facility as energy property
was made under section 48(a)(5) (wind facility), or (ii) is solar
energy property described in section 48(a)(3)(A)(i) (solar energy
property) or qualified small wind energy property described in section
48(a)(3)(A)(vi) (small wind energy property). Eligible property also
includes energy storage technology (as described in section
48(a)(3)(A)(ix)) ``installed in connection with'' such energy property.
The Proposed Rules defined ``installed in connection with'' for
energy storage technology to demonstrate what is required for such
energy storage technology to be considered eligible property under
section 48(e)(3), providing that this is met if both (1) the energy
storage technology and other eligible property are considered part of a
single qualified solar or wind facility because the energy storage
technology and other eligible property are owned by a single legal
entity, located on the same or contiguous pieces of land, have a common
interconnection point, and are described in one or more common
environmental or other regulatory permits; and (2) the energy storage
technology is charged no less than 50 percent by the other eligible
property.
The Proposed Rules also added a safe harbor, which would deem the
energy storage technology to be charged at least 50 percent by the
facility if the power rating of the energy storage technology is less
than 2 times the capacity rating of the connected wind facility (in kW
AC) or solar facility (in kW direct current (DC)).
A commenter stated that the last sentence relating to the safe
harbor appears to have the phrases ``power rating'' and ``capacity
rating'' reversed, and to have omitted how energy storage is measured.
The commenter stated that energy storage is measured in kWh, a measure
of energy. A generating facility such as a solar or wind farm produces
power, measured in kW. The commenter believes that the apparent
intended meaning of the sentence would be better rendered with: ``The
Treasury Department and the IRS also propose to add a safe harbor,
which would deem the energy storage technology to be charged at least
50 percent by the facility if the [capacity] rating of the energy
storage technology [(in kWh)] is less than 2 times the [power] rating
of the connected wind facility (in kW AC) or solar facility (in kW
DC).'' The Treasury Department and the IRS considered this comment, but
the final regulations do not adopt the commenter's suggestion.\2\ For
energy storage, the power rating (measured in kilowatts) indicates how
much power can flow into or out of the battery in any given instant. It
is similar to the capacity rating of a solar or wind facility, which
indicates how much power can theoretically come out of the solar or
wind facility in any given instant. In this context, the Treasury
Department and the IRS accurately referred to the ``power rating'' of
the energy storage technology.
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\2\ The commenter correctly identified that the Proposed Rules
omitted how energy storage is measured. The omission was an error,
and the Treasury Department and the IRS issued a correction to the
Proposed Rules published in the Federal Register (88 FR 41340) on
June 26, 2023, to clarify that the power rating of the energy
storage technology is measured in kW. The final regulations
incorporate this correction.
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Additionally, a couple of commenters requested that the Treasury
Department and the IRS eliminate the requirement that energy storage
technology be charged at least 50 percent by other eligible property.
These commenters point to the general language in sections
48(a)(2)(A)(i)(VI) and 48(c)(6) on energy storage technology and argue
against including the charging requirement for section 48(e). One
commenter said there is no statutory basis to require energy storage
technology to be charged by other eligible energy property and this
goes against Congressional intent. Another commenter said this rule may
set a problematic and inequitable precedent in the context of the
underlying section 48 credit, which Congress deliberately moved away
from this standard in the IRA to better promote the benefits of energy
storage, and that the standard for storage inclusion should not be more
burdensome for environmental justice communities or Tribes than for
other projects seeking the section 48 credit.
The general language in sections 48(a)(2)(A)(vi) and 48(c)(6)
describing energy storage technology eligible for the section 48 credit
differs from what Congress included when describing energy storage
technology eligible for a section 48(e) Increase. Eligible property as
described in section 48(e)(3) includes
[[Page 55510]]
energy storage technology (as described in section 48(a)(3)(A)(ix))
installed in connection with other eligible energy property. The use of
the phrase ``in connection with'' limits the energy storage technology
eligible for a section 48(e) Increase to energy storage that is
installed in connection with the eligible solar or wind facility. The
general energy storage technology language in section 48 includes no
such limiting language. As required by the statute, the Treasury
Department and the IRS determined that the proposed rule serves to
ensure that energy storage technology eligible for a section 48(e)
Increase has a sufficient nexus to the eligible property. The Treasury
Department and the IRS provide taxpayers with the safe harbor described
earlier as a means of deeming the energy storage technology as
satisfying the requirement that it be charged no less than 50 percent
by the other eligible property. The Proposed Rule applies uniformly to
all taxpayers seeking an allocation of Capacity Limitation. Therefore,
the final regulations retain the requirement that the energy storage
technology must be charged no less than 50 percent by the other
eligible property. However, to provide additional guidance on the
application of this standard, the final regulations clarify that ``50
percent'' is based on an annual average.
Another commenter suggested eliminating the co-location requirement
applicable to energy storage technology because the language of the
statute can and should be interpreted to include storage projects that
have firm, contractual offtake agreements with offsite solar or wind
projects, and that these projects would be located within the same
balancing authority, ensuring that all benefits are local. The final
regulations do not adopt the commenter's suggestion because the
Treasury Department and the IRS view the Proposed Rule that the energy
storage technology be located on the same or contiguous pieces of land
as the other eligible property as consistent with the statutory
requirement that limits energy storage technology eligible for a
section 48(e) Increase to only energy storage technology that is
installed in connection with other eligible property.
Finally, one commenter requested clarification that the power
rating of connected energy storage technology will not be counted
against a facility's Capacity Limitation allocation. Because the final
regulations, consistent with the Proposed Rules, define a qualified
solar or wind facility eligible for a Capacity Limitation without
reference to energy storage technology, the Treasury Department and the
IRS believe this clarification in the final regulations is unnecessary.
A few commenters also requested that final regulations expand the
definition of ``in connection with'' under section 48(e)(3)(B)
applicable to energy storage technology to include interconnection
property under section 48(a)(8), so that interconnection costs are
eligible for purposes of calculating the section 48(e) Increase.
Section 48(e)(3)(B) provides that energy storage technology defined
under section 48(a)(3)(A)(ix) installed in connection with eligible
solar or wind property described in section 45(d)(1) or section
48(a)(3)(A)(i) or (vi) is eligible property for purposes of calculating
the section 48(e) Increase. Neither section 48(e)(3)(B) nor any other
provision applicable to section 48(e) includes interconnection property
or costs in the definition of eligible property. Therefore, the final
regulations do not adopt these commenters' suggestion.
IV. Location
The Proposed Rules provided that a qualified solar or wind facility
is treated as ``located in a low-income community'' or ``on Indian
land'' under section 48(e)(2)(A)(iii)(I) or located in a geographic
area under the Additional Selection Criteria (see part VII of this
Summary of Comments and Explanation of Revisions section) if the
facility satisfies the nameplate capacity test (Nameplate Capacity
Test).
Under the Nameplate Capacity Test, a facility that has nameplate
capacity (for example, wind and solar facilities) is considered located
in or on the relevant geographic area if 50 percent or more of the
facility's nameplate capacity is in a qualifying area. A facility's
nameplate capacity percentage is determined by dividing the nameplate
capacity of the facility's energy-generating units that are located in
the qualifying area by the total nameplate capacity of all the energy-
generating units of the facility.
Nameplate capacity for an electricity generating unit means the
maximum electricity generating output that the unit is capable of
producing on a steady state basis and during continuous operation under
standard conditions, as measured by the manufacturer and consistent
with the definition provided in 40 CFR 96.202. Energy-generating units
that generate DC power before converting to AC (for example, solar
photovoltaic) should use the nameplate capacity in DC, otherwise the
nameplate capacity in AC should be used (for example, wind facilities).
Where applicable, the International Standard Organization conditions
are used to measure the maximum electricity generating output or usable
energy capacity. The nameplate capacity of any energy storage
technology installed in connection with the qualified solar or wind
facility does not affect the assessment of the Nameplate Capacity Test.
A few commenters noted concerns on the Nameplate Capacity Test and
what it means to be ``located in.'' Another commenter suggested that
the Nameplate Capacity Test should provide maximum flexibility. This
commenter noted that Tribal lands are often not contiguous, and that
new housing is limited so it is often off-reservation and there are
also issues of right of way.
The Nameplate Capacity Test to determine the location of a facility
already inherently provides flexibility because it only requires that
50 percent or more (rather than a larger percentage) of the facility's
nameplate capacity be in a qualifying area. The Treasury Department and
the IRS concluded that a 50 percent standard is a reasonable standard,
which strikes the right balance between providing flexibility to
taxpayers and ensuring that statutory requirements are satisfied.
Additionally, this standard is familiar to taxpayers because it is the
same standard that is used to determine whether a facility is located
in an energy community under Notice 2023-29, 2023-20 IRB 1.
Other commenters had concerns about the use of AC and DC. These
commenters said that the Treasury Department and the IRS should update
the Proposed Rules to clarify that the use of DC is limited to project
location and does not apply to the maximum output of a qualified
facility. One commenter also added that the Treasury Department and the
IRS should update the Proposed Rules to clarify that an allocation will
not be reduced if a qualified facility's AC output is less than the
facility's DC output. Additionally, a few commenters suggested that the
nameplate capacity for both wind and solar facilities should be based
on AC as the statute indicates and questioned the differing standard.
In response to these comments, the Treasury Department and the IRS
added language in the final regulations to clarify that the Nameplate
Capacity Test only applies for purposes of determining whether a
facility is located in a qualifying area. The Treasury Department and
the IRS did not modify the Nameplate Capacity Test to remove the
reference to DC for measuring the nameplate capacity of a solar
facility because nameplate capacity for a solar
[[Page 55511]]
facility is appropriately measured in DC. Solar facilities produce
electricity in DC, which is then converted to AC for end use.
Conversely, wind facilities produce electricity in AC.
V. Financial Benefits for Category 3 and Category 4 Allocations
Section 48(e)(2)(D) provides that ``electricity acquired at a below
market rate'' will not fail to be taken into account as a financial
benefit. The Proposed Rules provided definitions of the terms
``financial benefit'' and ``electricity acquired at a below market
rate'' under section 48(e)(2)(D), as well as a manner to apply such
definitions, appropriately, to qualified low-income residential
building projects (section 48(e)(2)(B)) and qualified economic benefit
projects (section 48(e)(2)(C)).
A. Financial Benefits for Qualified Low-Income Residential Building
Projects
For a facility to be treated as part of a qualified low-income
residential building project, section 48(e)(2)(B)(ii) provides that the
financial benefits of the electricity produced by such facility must be
allocated equitably among the occupants of the dwelling units of a
Qualified Residential Property. The Proposed Rules reserved allocations
under this category exclusively for applicants that would apply the
financial benefits requirement under Category 3 in the following
manner.
The Proposed Rules provided that financial benefits can be
demonstrated through net energy savings as defined later. At least 50
percent of the financial value of net energy savings would be required
to be equitably passed on to building occupants. This requirement would
recognize that not all the financial value of the net energy savings
can be passed on to building occupants because a certain percentage can
be assumed to be dedicated to lowering the operational costs of energy
consumption for common areas, which benefits all building occupants.
The Proposed Rules provided that applicants must equitably pass on net
energy savings by distributing equal shares among the Qualified
Residential Property's units that are designated as low-income under
the covered housing program, or by distributing proportional shares
based on each dwelling unit's electricity usage.
The Proposed Rules accounted for the specific nature of facilities
serving low-income residential buildings and facility ownership, as the
facility may be third-party owned or commonly owned with the building.
In scenarios where the facility and the Qualified Residential
Property have the same ownership, the Proposed Rules defined the
financial value of net energy savings as the financial value equal to
the greater of: (1) 25 percent of the gross financial value of the
annual energy produced or (2) the gross financial value of the annual
energy produced minus the annual costs to operate the facility. Gross
financial value of the annual energy produced is calculated as the sum
of (a) the total self-consumed kilowatt-hours produced by the qualified
solar or wind facility multiplied by the applicable building's metered
price of electricity and (b) the total exported kilowatt-hours produced
by the qualified solar or wind facility multiplied by the applicable
building's volumetric export compensation rate for solar or wind
kilowatt-hours. The annual operating costs are calculated as the sum of
annual debt service, maintenance, replacement reserve, and other costs
associated with maintaining and operating the qualified solar or wind
facility.
If the facility and building are commonly owned, a signed benefit-
sharing agreement between the building owner and the tenants would be
required. The Proposed Rules requested comments on how to adjust
definitions of gross financial value to account for scenarios in which
building occupants are compensating the facility owner for energy
services.
In scenarios where the facility and the Qualified Residential
Property have different ownership and the facility owner enters into a
power purchase agreement (PPA) or other contract for energy services
with the Qualified Residential Property owner, the Proposed Rules
defined net energy savings as equal to the greater of: (1) 50 percent
of the financial value of the annual energy produced by the facility
that accrues to the owner of the Qualified Residential Property in the
form of utility bill credit and/or cash payments for net excess
generation or (2) the financial value of the annual energy produced by
the facility that accrues to the owner of the Qualified Residential
Property in the form of utility bill credit and/or cash payments for
net excess generation minus any payments made by the building owner to
the facility owner for energy services associated with the facility in
a given year. In these scenarios, the facility owner must enter into an
agreement with the building owner for the building owner to distribute
the savings to residents.
1. Requirement To Equitably Allocate Financial Benefits
Two commenters provided that under certain State and Federal
housing programs, housing authorities receive utility subsidies based
on historical utility costs. These commenters also noted that a housing
authority may have their utility allowance decreased if the housing
authority reduces their utility costs through savings from the
facility. Additionally, these commenters stated that the department
managing a housing authority can claim a portion of net metering
credits if the housing authority receives net metering credits. One of
the commenters, therefore, requested that the Treasury Department and
the IRS draft a rule that the housing authority be able to retain 100
percent of net metering credits, regardless of the energy savings
received from the program and the facility. The other commenter
requested that the Treasury Department and the IRS waive the
requirement for public housing authorities to pass financial benefits
along to residents. This commenter stated that in public housing, all
benefits ultimately accrue to the benefit of residents. Another
commenter stated that HUD-utility allowances may need to be increased
for buildings if net benefits are to be shared between the owner and
tenants, and the external financing is used to build the system, such
that additional proceeds will be needed to pay debt service on the
energy.
The Treasury Department and the IRS considered these comments but
did not adopt them in the final regulations because section 48(e)(2)(B)
requires that the financial benefits of the electricity produced by the
facility be allocated equitably among the occupants of the Qualified
Residential Property.
One commenter warned the Treasury Department and the IRS to guard
against owner/related party financing designed to capture all or most
of the energy savings benefits by artificially manipulating their terms
of the financing to capture the savings during the term of the credit,
and against owners seeking to purchase energy wholesale and mark up
value to tenants to artificially inflate the value of the energy
savings. The commenter says the value of the energy bill savings should
be indexed against the approved meter rate as authorized by the
relevant public service commission (where applicable) or some other
third-party verifiable rate unrelated to the project sponsor or
affiliates.
In response to this comment, the Treasury Department and the IRS
have
[[Page 55512]]
maintained the baseline of 50 percent of the net energy savings
calculated from a minimum of 25 percent of the gross financial value of
electricity produced as described in the Proposed Rules to ensure the
statutory obligation that financial benefits be allocated to tenants.
The final regulations clarify, consistent with the comments received,
that gross financial value includes the sale of any renewable energy
credits or other attributes associated with the facility's production,
if separate from the metered price of electricity or export
compensation rate.
Many commenters requested that the final regulations provide
guidance for facility owners to prove equitable distribution of
benefits to tenants. A few commenters stated that in certain cases,
like a project using community renewable energy facility rate
structures offered by utilities, separately metered residents can
subscribe voluntarily, and some residents may choose not to subscribe.
Therefore, these commenters requested that the regulations allow for a
reduction in the equitable distribution requirement on a pro-rata basis
by the (number) of residents who choose not to subscribe. However, one
of the commenters recommended a minimum threshold of resident
participation, suggesting 50 percent participation at placed in
service, for the distribution of benefits to be considered equitable.
In consideration of these comments, the Treasury Department and the
IRS have clarified in the final regulations that for any occupant(s)
that choose to not receive utility bill savings, the portion of the
financial value that would otherwise be distributed to non-
participating occupants must be instead distributed equitably to the
participating occupants. Additionally, no less than 50 percent of the
Qualified Residential Property's occupants that are designated as low-
income must participate and receive utility bill savings for the
facility to utilize this method of benefit distribution.
2. Gross Financial Value
A few commenters suggested changes to the definition of gross
financial value. One commenter stated that for purposes of building
occupants compensating the facility owner, gross financial value could
be calculated based on the average monthly local utility rate for
either residential or low-income residential (from the previous
calendar year or trailing 12 months) multiplied by the average
residential kilowatt hour usage per square foot multiplied by the per
square footage of rentable residential space in the building. The
commenter provided variation and detail on how this would be
accomplished.
Another commenter requested clarification on how to define ``gross
financial value.'' The commenter stated that it is unclear whether the
``price of electricity'' means only the energy costs or also all the
delivery costs and other charges that may be charged on a per kilowatt
hour basis. Additionally, the commenter noted that the ``export
compensation rate for . . . kilowatt hours'' may not be solely tied to
the energy but may also include additional compensation such as the
value of renewable energy certificates or other incentives provided by
States.
Finally, one commenter stated that calculating the ``gross
financial value of the annual energy produced,'' as defined in the
Proposed Rules, would be difficult for buildings due to the complexity
of electricity rate structures in many jurisdictions, which may vary
depending on the time of day and time of year.
The Treasury Department and the IRS considered the commenters'
suggestions but generally did not adopt them because the Proposed Rules
provide a clear and accurate framework for defining ``gross financial
value.'' However, the final regulations clarify, consistent with the
comments received, that gross financial value includes the sale of any
renewable energy credits or other attributes associated with the
facility's production, if separate from the metered price of
electricity or export compensation rate. The same definition of gross
financial value applies regardless of the ownership structure.
One commenter requested clarification about whether front of the
meter (FTM) volumetric tariff compensation rate, such as Connecticut's
Residential Renewable Energy Solutions Buy-All-Sell-All tariff (BASA
Tariff), may be included in the gross financial value calculation when
the facility and Qualified Residential Property have the same
ownership. The commenter believes that the BASA tariff $/kWh revenue
would be included in the definition of gross financial value because it
is included in the definition as part of ``the total exported kilowatt-
hours produced by the qualified solar or wind facility multiplied by
the applicable building's volumetric export compensation rate for
solar.''
The Treasury Department and the IRS considered this comment but
ultimately concluded that additional clarification in the final
regulations to address specific State tariff rates is not necessary.
The definition of gross financial value included in the final
regulations, consistent with the Proposed Rules, already includes the
total exported kilowatt-hours produced by the qualified solar or wind
facility multiplied by the applicable building's volumetric export
compensation rate for solar or wind kilowatt-hours, which would include
compensation from the electricity produced from the facility.
Another commenter stated that it is not appropriate to define
financial benefits in terms of the value of energy savings. Instead,
this commenter claimed that the only financial benefit that can be
generated by facilities in Category 3 would be through net metering,
where the facility generates excess capacity that is sold back to the
grid for off-site consumption. The commenter also implied that, in the
case of net metering credits, the credit would go directly to the
tenants, and that the building owner will never receive any financial
benefit.
The Treasury Department and the IRS considered this comment but did
not adopt it in the final regulations. The Treasury Department and the
IRS determined that gross financial value from the electricity produced
from a qualified solar or wind facility may stem from self-consumed
kilowatt-hours produced by the facility, exported kilowatt-hours
produced by the facility, or the sale of any renewable energy credits
or other attributes associated with the facility's production (if
separate from the metered price of electricity or export compensation
rate). Further, financial value of energy savings from the electricity
produced is a financial benefit of the electricity produced by the
facility and section 48(e)(2)(B)(ii) provides that the financial
benefits of the electricity produced by such facility must be allocated
equitably among the occupants of the dwelling units of a Qualified
Residential Property.
3. Net Financial Value
One commenter stated that rather than creating two methods, the
Treasury Department and IRS should adopt a single method to calculate
net energy savings. The commenter stated that for both scenarios
(commonly owned and third-party owned), the final regulations should
adopt the method from the Proposed Rules that was only proposed to
apply when the facility and Qualified Residential Property have the
same ownership. The Treasury Department and the IRS considered this
comment but did not adopt it in the final regulation because it is
appropriate for ``net financial value'' to be defined differently
depending on whether the facility is commonly owned or third-party
owned because in third-party
[[Page 55513]]
owned scenarios calculating the facility's levelized cost of energy
would be overly complex and potentially vulnerable to manipulation.
Instead, relying on the PPA rate is simpler and more reliable. The
final regulations clarify that in case of a commonly owned facility
``net financial value'' is defined as the gross financial value of the
annual energy produced minus the annual average (or levelized) cost of
the qualified solar or wind facility over the useful life of the
facility (including debt service, maintenance, replacement reserve,
capital expenditures, and any other costs associated with constructing,
maintaining, and operating the facility). In the case of a third-party
owned facility, ``net financial value'' is defined as gross financial
value of the annual energy produced minus any payments made by the
building owner and/or building occupants to the facility owner for
energy services associated with the facility in a given year.
Another commenter cited to the Connecticut's Residential Renewable
Energy Solutions BASA Tariff, which involves FTM projects, and
requested a change to the net financial value definition for third-
party owned facilities. The commenter proposed that, to include FTM
projects in Category 3, the first definition of net financial value
needs to be amended to reference ``the total financial value of energy
produced by the facility that accrues to the owner of the qualified
residential property, or the facility owner, the tenants, or a
combination thereof.'' The commenter further provided that a set
percentage can be required to be provided, like 25 percent, to the
tenants, and the rest of the revenue can be allocated between the
facility owner and the property owner in whatever manner is requested.
This commenter also requested that the second definition of net
financial value be amended to say that ``the total financial value of
the annual energy produced by the facility that accrues to the owner of
the qualified residential property, or the facility owner, the tenants,
or a combination thereof minus any payments made, or revenue allocated,
to the facility owner for energy services associated with the facility
in a given year'' to consider solar site lease structures (for FTM
project like BASA) in addition to PPAs.
Another commenter generally recommended that the Treasury
Department and the IRS adopt a baseline requirement of passing on at
least 25 percent of net energy savings to tenants, to ensure meaningful
financial benefits are afforded to households in Category 3.
The Treasury Department and the IRS considered these comments but
did not adopt them in the final regulations and maintain the baseline
of 50 percent of the net energy savings calculated from a minimum of 25
percent of the gross financial value of electricity produced as
described in the Proposed Rule, which is a higher value of meaningful
financial benefits than the commenter suggests. The other 50 percent of
the net energy savings can be assumed to be dedicated to lowering the
operational costs of energy consumption for common areas, which
benefits all building occupants. The Treasury Department and the IRS
determined that the baseline of 50 percent of the net energy savings is
consistent with the statutory intent for Category 3, which is to
provide the financial benefits of the electricity produced directly to
building occupants.
4. Single Family Housing
One commenter generally noted that the financial benefit
definitions for Category 3 only contemplate multi-family housing. This
commenter requests clarification for Tribal housing programs, which the
commenter states primarily consist of Tribal single-family residences
that would have their own meter.
In response to the comment, the Treasury Department and the IRS
have modified the financial benefit definition to provide clarity for
single-family residences that meet the criteria of a Qualified
Residential Property. The final regulations state that a Qualified
Residential Property could either be a multifamily rental property or
single-family rental property. The same rules for financial benefits
for Category 3 apply to both property types.
5. Benefits Sharing Agreement
Several commenters expressed concern over the signed benefits
sharing agreement between the building owner and the tenants if the
facility and building are commonly owned. Generally, commenters
suggested the elimination of this requirement. A few commenters noted
the administrative burdens and challenges on the building owner in
obtaining signed agreements from all tenants. Likewise, another
commenter said that this requirement is overly burdensome, and that
requiring each resident to voluntarily sign a benefits sharing
agreement would prevent a facility from proceeding. This commenter also
noted the possibility that requiring such an agreement may conflict
with consumer protection laws, and another commenter agreed suggesting
certain customer protection disclosures may be required. One commenter
also stated that this process would potentially present a `false
promise' to residents should the project not be selected for an
allocation. Some commenters offered alternatives to a signed benefits
sharing agreement. Several commenters recommended that the facility
owner or building owner provide notice to all building occupants of the
expected financial benefits and the proposed method of allocating the
benefit. Similarly, another suggested that owners be required to
develop a benefits sharing plan that must be communicated to tenants,
with owners ensuring that sufficient time is given for tenants to
provide feedback. Finally, a few commenters suggested that applicants
instead submit a self-attestation form certifying that they will
equitably distribute benefits in accordance with the standards set
forth in HUD guidelines.
One commenter supported the requirement for a signed benefits
sharing agreement. However, the commenter requested additional guidance
on the contents of such a benefits sharing agreement, including
specific required consumer protection disclosures, such as resources
tenants can access to better understand or renegotiate the agreement.
This commenter additionally encouraged the Treasury Department and the
IRS to adopt a model affidavit or agreement between building owners and
tenants based on the options considered and used in California's Solar
on Multifamily Affordable Housing (SOMAH) program. Another commenter
generally asked for clarification on how to prove or attest that
financial benefits are due to cost savings associated with solar.
Several Tribal commenters requested that facilities owned by Tribes
or Tribal housing authorities should be presumed to result in an
economic benefit to Tribal members who reside on the reservation or who
live in Tribal-owned housing, and thus should not be required to enter
into a benefits sharing agreement with Tribal members to show the
financial benefit to Tribal members.
The Treasury Department and the IRS agree that requiring a signed
benefits sharing agreement between the building owner and the tenants
is burdensome and not necessary to demonstrate compliance with Program
requirements. Instead, to better achieve the goal of verifying Program
compliance and to provide clarification to applicants regarding how
they can demonstrate that statutory requirements are met the final
regulations require that facility owners for all Category 3 facilities
must
[[Page 55514]]
prepare a Benefits Sharing Statement, which must include (1) a
calculation of the facility's gross financial value using the method
described in the final regulations, (2) a calculation of the facility's
net financial value using the method described in the final
regulations, (3) a calculation of the financial value required to be
distributed to building occupants using the method described in the
regulations, (4) a description of the means through which the required
financial value will be distributed to building occupants, and (5) if
the facility and Qualified Residential Property are separately owned,
indication of which entity will be responsible for the distribution of
benefits to the occupants. In addition, the Qualified Residential
Property owner must formally notify the occupants of units in the
Qualified Residential Property of the development of the facility and
planned distribution of benefits.
6. Impact of Metering on Delivery of Financial Benefits
Regardless of ownership, residential buildings may have master-
metered or sub-metered utilities. Therefore, the Proposed Rules
provided that for sub-metered buildings, the tenants must receive the
financial value associated with utility bill savings in the form of a
credit on their utility bills. HUD has issued guidance for residents of
sub-metered HUD-assisted housing that participate in community solar,
providing an analysis of how community solar credits may affect utility
allowance and annual income for rent calculations.\3\ The Proposed
Rules provided that applicants follow the HUD guidance and future HUD
guidance on this issue to ensure that tenants' utility allowances and
annual income for rent calculations are not negatively impacted.
---------------------------------------------------------------------------
\3\ U.S. Department of Housing and Urban Development, Treatment
of Community Solar Credits on Tenant Utility Bills (July 2022): MF
Memo re Community Solar Credits, (<a href="https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf">https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_Community_Solar_Credits_signed.pdf</a>) and
Community Solar Credits in PIH Programs (August 2022), (<a href="https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf">https://www.hud.gov/sites/dfiles/documents/Solar%20Credits_PH_HCV.pdf</a>).
---------------------------------------------------------------------------
The Treasury Department and the IRS are aware that in some States
or jurisdictions it may not be administratively, or legally, possible
to apply utility bill savings on residents' electricity bills. The
Proposed Rules requested comments on this issue and how financial
benefits, such as services and building improvements, can be provided
to residents in such residential buildings.
For master-metered buildings, the Proposed Rules provided that
because residents do not have individually metered utilities and do not
receive utility bills, the building owner must pass on the savings
through other means, such as by providing certain benefits to the
building residents beyond those provided prior to the qualified solar
or wind facility being placed in service. HUD has issued guidance for
how residents of mastered-metered HUD-assisted housing can benefit from
owners' sharing of financial benefits accrued from an investment in
solar energy generation.\4\ The Proposed Rules provided that applicants
follow the HUD guidance and future HUD guidance on this issue to ensure
that tenants' utility allowances and annual income for rent
calculations are not negatively impacted.
---------------------------------------------------------------------------
\4\ U.S. Department of Housing and Urban Development, Treatment
of Solar Benefits in Mastered-metered Buildings (May 2023),
MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf (<a href="https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf">https://www.hud.gov/sites/dfiles/Housing/documents/MF_Memo_re_Community_Solar_Credits_in_MM_Buildings.pdf</a>).
---------------------------------------------------------------------------
Many commenters noted that it is difficult for utility bill credits
to be distributed to residents even in sub-metered buildings and
suggested that the financial benefit structure available under the
Proposed Rules for master metered buildings be similarly applied to
sub-metered buildings. Several commenters noted that it is not possible
to distribute utility bill credits to residents in sub-metered
buildings because most States lack legislation or regulations governing
the allocation of solar credits to consumer utility bills, and, one
commenter further stated, that even in States that do, the utilities
may not have the administrative infrastructure to allocate credits
across bills. Another commenter supported this by stating that only 21
States and DC have statewide policies that support sharing solar
savings in multi-family housing in the form of utility bill credits.
Many commenters also voiced general concern that the process of
distributing utility credits is administratively burdensome on the
owner of the facility. One commenter stated that many of the residents
who would be eligible to receive bill credits on their utility bills
will already receive a subsidized electricity price from their
distribution company, which would result in their cost of power already
being lower than other consumers in their service territory. This
commenter asserts that it be more economical to ``sell'' or
``allocate'' the bill credits to another consumer in the same service
territory and offset their higher energy costs and provide a greater
overall financial benefit to tenants. The commenter states that this
system would be similar to the process proposed for master-metered
buildings.
Many commenters asked for flexibility in providing financial
benefits to residents. A few commenters suggested that metering
configuration should not be regarded for purposes of defining financial
benefits. One commenter stated that financial benefits should be
defined by HUD, and should be applicable to all properties, regardless
of whether the residential unit is sub-metered or if the building is
master-metered. This commenter specifically stated that financial
benefits should be allowed to accrue to the common area meters and then
be disbursed equitably to occupants based upon any approved method--
without regard to metering configuration and without requiring a bill
credit allocation method. Several other commenters suggested, as
alternatives, services such as free or reduced cost high speed
internet, shuttle services, public transportation subsidization, job
training programs, community events, and building improvements as
alternatives to be allowed instead of utility bill credits.
One commenter suggested that if utility bill credits are not
available, applicants could determine a baseline year and calculate the
average price per kilowatt hour for that year and then for all
subsequent years (after placed in service date) and multiply it by the
kilowatt hours of production multiplied by an annual acceptable
adjustment. The commenter stated that net energy savings from a given
period (month, quarter, or year) would then be required to be spent on
residential service programs (available to the largest group of
residents), facility upgrades benefiting residents, and other services
that benefit a large group of residents.
A few commenters, although supportive, noted that the HUD guidance
allowing for services or other benefits to be provided in master
metered buildings, in lieu of direct financial savings to tenants, is
limited in scope. One commenter pointed out that the HUD memorandum
cited in the Proposed Rules only covers developments subsidized through
HUD's multifamily programs. This commenter noted that this guidance
does not cover HUD's Project Voucher Program and that the USDA does not
provide matching guidance for the USDA supported housing. Therefore,
this commenter suggests that the regulations directly define financial
benefits for master metered housing,
[[Page 55515]]
rather than by reference to memoranda, so that this provision is
clearly applicable to all master metered affordable housing
developments. Similarly, one commenter stated that the types of
benefits provided under the HUD guidance for community solar programs
should be available as a mechanism to distribute financial benefits for
all Category 3 applicants.
Similarly, another commenter noted that certain financial benefits
distributed directly to residents may be includable in a household's
annual income. The commenter noted that HUD has determined that
providing financial benefits in the form of gift cards or cash payments
would generally be included in income. Therefore, this commenter
supported the inclusion of language in the rules that would state that
financial benefits can include credits on utility bills or could
include benefits that can be equitably provided to residents but are
not direct payments to the residents, such as resident services, free
or reduced cost internet, job training, or building upgrades. However,
another commenter requested the opposite, stating that direct payments
or other financial benefits like rent reductions should be the
preferred form of benefits.
In response to these comments, the Treasury Department and the IRS
modified the Proposed Rules in the final regulations to provide maximum
flexibility to equitably allocate financial benefits to residents while
also ensuring the statutory requirements are satisfied. Accordingly,
the final regulations provide that financial value can be distributed
to building occupants via utility bill savings or through different
means, and depending on the method selected, the final regulations
prescribe the requirements that must be met. For purposes of this via
utility bill savings provision, financial benefits will be considered
to be equitably allocated if at least 50 percent of the financial value
of the energy produced by the facility is distributed as utility bill
savings in equal shares to each building dwelling unit among the
Qualified Residential Property's occupants that are designated as low-
income under the covered housing program or other affordable housing
program (described in section 48(e)(2)(B)(i)) or alternatively
distributed in proportional shares based on each low-income dwelling
unit's square footage, or each low-income dwelling unit's number of
occupants. For any occupant(s) that choose to not receive utility bill
savings (for example, exercise their right to ``opt out'' of a
community solar subscription in applicable jurisdictions), the portion
of the financial value that would otherwise be distributed to non-
participating occupants must be instead distributed to all
participating occupants. No less than 50 percent of the Qualified
Residential Property's occupants that are designated as low-income must
participate and receive utility bill savings for the facility to
utilize this method of benefit distribution. If financial value is not
distributed via utility bill savings, financial benefits will be
considered to be equitably allocated if at least 50 percent of the
financial value of the energy produced by the facility is distributed
to occupants using one of the methods described in HUD guidance, or
other guidance or notices from the Federal agency that oversees the
applicable housing program identified in section 48(e)(2)(B).
With respect to allocating financial value via utility bill
savings, commenters addressed the language in the Proposed Rules that
provided an alternative method for net energy savings to be distributed
in proportional shares based on each dwelling unit's electricity unit.
The commenters stated that this method is not permitted by HUD. These
commenters also proposed a third option for equitable distribution,
which they claim is used in California's SOMAH program, where shares
are distributed to each unit based on square footage. In response to
this comment, the Treasury Department and the IRS added language in the
final regulations to clarify that the financial value should be
distributed in equal shares to each building dwelling unit among the
Qualified Residential Property's occupants that are designated as low-
income under the covered housing program or other affordable housing
program (described in section 48(e)(2)(B)(i)) or alternatively
distributed in proportional shares based on each low-income dwelling
unit's square footage, or each low-income dwelling unit's number of
occupants.
Another commenter suggested that in a master-metered building, the
facility owner be allowed to allocate the value of energy savings to
the building's tenant association to distribute equally as the
association sees fit. This was suggested in addition to and as
alternative to the options provided in the HUD guidance.
In response to this comment, the Treasury Department and the IRS
considered but did not adopt this suggestion. The Treasury Department
and the IRS have provided additional clarity on the applicability of
HUD guidance in the final regulations to provide flexibility to the
applicant to determine the methodology most appropriate for allocation
of the value of energy savings based on the circumstances of the
Qualified Residential Property. This includes options that have been
determined to not affect a tenants utility allowance and annual income
for rent calculations.
B. Financial Benefits in Qualified Low-Income Economic Benefit Projects
For a facility to be treated as part of a qualified low-income
economic benefit project, section 48(e)(2)(C) requires that at least 50
percent of the financial benefits of the electricity produced by the
facility be provided to qualifying low-income households. To satisfy
this standard, the Proposed Rules required that the facility serve
multiple households and at least 50 percent of the facility's total
output is distributed to qualifying low-income households under section
48(e)(2)(C)(i) or (ii). In addition, to further the overall goals of
the Program, the Proposed Rules reserved allocations under this
category exclusively for applicants that would provide at least a 20-
percent bill credit discount rate for all such low-income households.
The Proposed Rules defined a ``bill credit discount rate'' as the
difference between the financial benefit distributed to the low-income
household (including utility bill credits, reductions in the low-income
household's electricity rate, or other monetary benefits accrued by the
household) and the cost of participating in the Program (including
subscription payments for renewable energy and any other fees or
charges), expressed as a percentage of the financial benefit
distributed to the low-income household. The bill credit discount rate
can be calculated by starting with the financial benefit distributed to
the low-income household, subtracting all payments made by the low-
income customer to the facility owner and any related third parties as
a condition of receiving that financial benefit, then dividing that
difference by the financial benefit distributed to the low-income
household.
1. Category 4 Community Solar
Because of the financial benefits requirements that are structured
for community solar projects, several commenters thought that the
Proposed Rules too narrowly limited Category 4. Commenters noted that
the Proposed Rule precluded otherwise eligible facilities from
qualifying under Category 4, including behind the meter (BTM)
facilities that meet the Category 4 requirements. One commenter
suggested that Category 4 should be open to projects that directly
benefit Tribal member small businesses. Similarly, a
[[Page 55516]]
commenter noted that Category 4 should be open to all projects, whether
FTM or BTM, that directly benefit Tribal member small businesses (where
the small business can apply for the section 48 credit) or Tribal
enterprises, located on Tribal lands, that may want to deploy
commercial roof-top or ground-mount solar (such as canopies) to offset
energy costs, provide energy security, or support job creation. Another
commenter also criticized the narrow nature of Category 4 noting that
the Proposed Rules have made eligibility for Category 4 solely
applicable to multifamily and community solar.
Some commenters also made suggestions on how to define Category 4.
One commenter suggested that projects under Category 4 allow only on-
site commercial and industrial projects to reach overall deployment and
savings goals. Similarly, one commenter requested that Category 4
incentivize larger agribusiness projects that employ residents living
in these areas and working at these agribusiness facilities (or similar
industries) and stated that the 50 percent household requirement is too
complicated. This commenter felt that residential facilities are being
prioritized in categories 1, 3, and 4, and, therefore, that Category 4
should be modified to incentivize facilities supplying power to
businesses but providing financial benefits to low-income residents in
the same area. Another commenter recommended that the Category 4
allocation give priority to qualified low-income benefit projects less
than 1 MW that are located in low-income communities.
The Treasury Department and the IRS recognize the commenters'
concerns that Category 4 is limited. However, projects must meet the
statutory requirements under section 48(e)(2)(C) to be considered
eligible for Category 4. To ensure these requirements are not too
narrowly construed, the Treasury Department and the IRS adopted a
change to the FTM definition in the final regulations applicable to
Category 4 to ensure that projects meeting the intent of Category 4, as
that intent was described in the Proposed Rules, are not
unintentionally disqualified due to an overly strict definition of FTM.
The final regulations clarify that a facility is FTM if it is directly
connected to a grid and its primary purpose is to provide electricity
to one or more offsite locations via such grid or utility meters with
which it does not have an electrical connection; alternatively, FTM is
defined as a facility that is not BTM. The final regulations also
clarify that for the purpose of Category 4, a qualified solar or wind
facility is also FTM if 50 percent or more of its electricity
generation on an annual basis is physically exported to the broader
electricity grid.
However, the Treasury Department and the IRS emphasize that this
does not change the intent of Category 4 that projects falling under
the definition of BTM are not eligible for Category 4, and that
financial benefits to eligible low-income households can only be
delivered via utility bill savings. Based on industry and market
research, community solar programs primarily use utility bill savings
to deliver financial benefits to households. For this reason, the
Treasury Department and the IRS have defined financial benefits in this
manner.
At least one other commenter requested allowing public and
affordable housing buildings to participate in Category 4 through the
use of geo-eligibility to establish qualification for a Category 4
site. One of these commenters mentioned the process being adopted in
New York for its Inclusive Community Solar Adder, which will allow
anyone who lives in a designated ``Disadvantaged Community'' to qualify
upon demonstration that their address is in one of the so-called DAC
zones. This commenter noted that the Climate and Economic Justice
Screening Tool (CEJST) map is already being used to qualify sites for
Category 1 participation.
Because section 48(e)(2)(C) provides requirements for ensuring that
the financial benefits of the electricity produced by a qualified solar
or wind facility are provided to qualifying households, establishing
categorical eligibility for Category 4 based on geographic location of
the project is inappropriate. Similarly, as discussed in more detail
later under part V.B.6. of this Summary of Comments and Explanation of
Revisions section, qualifying households based on geography is also
inappropriate because of statutory requirements. Similarly,
establishing eligibility for multifamily buildings (including master-
metered buildings), agribusinesses, or other arrangements that do not
directly result in utility bill savings for low-income households is
also inappropriate. As discussed earlier, financial benefits to
eligible low-income households can only be delivered via utility bill
savings under these regulations. Therefore, the final regulations do
not adopt these comments.
2. Twenty Percent Bill Credit Discount
One commenter urged the Treasury Department and the IRS to require
a higher bill discount rate than 20 percent, stating the programs in
Illinois, Massachusetts, and Maryland already provide discounts at or
above the proposed threshold level. This commenter believes that the
increased credit for qualified low-income economic benefit projects
should allow for an increase in the amount of financial benefit
delivered to low-income customers in these markets.
Another commenter supported the method of requiring financial
benefits in the form of bill credits, but suggested an additional
requirement to be included in cases where beneficiaries have no cost of
participation through a subscription fee. In this situation, the
commenter suggested that the bill credit discount rate should be
calculated as the total savings on a customer's utility bill, annually,
divided by the total value of the electricity produced by the project,
as measured by the income to the project paid by the utility,
independent system operator (ISO), or other customer procuring power
from the project.
Another commenter requested clarification on the interpretation of
bill credit discount rate, which the commenter read to mean that 20
percent of the total export credit rate would be the minimum required
revenue share with the low-income customer, rather than 20 percent of
the customer's pre-solar electricity bill. This commenter also
requested clarification as to whether the calculation will be annual,
and whether the form of benefits must specifically be ``utility bill
credits'' or could be other documented financial benefits provided to
tenants.
One commenter stated that a 20 percent cost savings requirement
will likely be unattainable in some energy markets, specifically States
and localities that have less amicable laws and utility regulations for
community solar. This commenter recommended a 15 percent cost savings
for 2023, stating that 15 percent is still on the higher end of the
current industry average for community solar cost savings. This
commenter also requested that the benefit should be an annual reduction
(of 15 percent) because there can be cost savings fluctuations
throughout a calendar year. Although the Treasury Department and the
IRS considered various percentages for required cost savings between 5
percent and 20 percent, based on a review of various State program
rates and market information, the Treasury Department and the IRS have
decided to maintain the 20 percent rate. This rate will allow for the
greatest savings to the low-income households and further the
[[Page 55517]]
requirement of section 48(e)(2)(C) that 50 percent of the financial
benefits of the electricity produced by the facility are provided to
such households. Additionally, in response to comments, the Treasury
Department and the IRS clarified that the 20 percent bill discount is
an annual savings.
Tribal commenters requested that projects owned by Tribes or Tribal
housing authorities should be presumed to result in an economic benefit
to Tribal members who reside on the reservation or who live in Tribal-
owned housing.
The Treasury Department and the IRS decline to adopt the suggestion
of presumption of economic benefit. The statutory requirements for the
Program require that an qualified low-income economic benefit project
serves multiple households and at least 50 percent of the facility's
total output is distributed to qualifying low-income households under
section 48(e)(2)(C). To help applicants meet this requirement, the
Treasury Department and the IRS have provided in the final regulations
an illustrative list of categorical eligibility options to provide
maximum flexibility to qualify low-income households. This includes
eligibility based on Tribal programs and housing programs, among many
other options.
3. Single Household
Several commenters have requested that the Treasury Department and
the IRS add eligibility under Category 4 for projects that benefit one
single-family residence where 100 percent of the facility's total
output is distributed to the qualifying low-income household residing
at that residence, provided that the project meets all other Category 4
criteria, and the facility provides at least a 20-percent utility bill
savings for such low-income household. Several commenters also added
that Congress's use of the term ``households'' is more properly read as
a programmatic term applying to all low-income households that can
benefit from the Program, rather than a narrower reading suggested in
the Proposed Rules. One commenter argued that this narrow reading
(excluding single family households from Category 4) would
unnecessarily and unfairly discriminate against certain households.
After consideration of all these comments, the final regulations do
not adopt the commenter's suggestion. Section 48(e)(2)(C) applicable to
Category 4 facilities requires that at least 50 percent of the
financial benefits of the electricity produced by the facility be
provided to ``households'' with certain income levels. Because the
statute uses the plural term ``households,'' the Treasury Department
and the IRS determined that providing financial benefits to a single
household is insufficient to meet the requirements of section
48(e)(2)(C) applicable to Category 4 facilities.
4. Utility Bill Savings
Several Tribal comment letters requested that Category 4 should not
be limited to projects that provide only individual benefits or
community-scale projects. These commenters urged the Treasury
Department and the IRS to expand the definition of ``financial
benefit'' to include community-wide benefits, such as direct benefits
to the Tribal government from the additional tax credit (especially for
projects owned by the Tribe and receiving elective payments from the
Treasury Department), job creation and economic benefits to low-income
Tribal members. These same commenters also stated that Category 4
should be open to all projects, regardless of metering, that directly
benefit Tribal member small businesses (where the small business can
apply for the section 48 credit) or Tribal enterprises located on
Tribal lands. Additionally, some of the Tribal comments requested
flexibility for Tribal housing or economic development projects that
are serving Tribal lands and Tribal households to define benefits
collectively (rather than individually), because many of the Tribal
commenters are located in States that do not allow for community solar.
These commenters stated that they will have to negotiate directly with
a utility to deploy community scale projects on the Reservation.
To promote more flexibility with respect to financial benefits
requirements in Category 4, a few commenters requested that the
Treasury Department and the IRS extend the same flexibility is provided
for Category 3 projects regarding financial benefits to Category 4
projects as well. These commenters requested that a manner other than
bill credits be permitted to provide financial benefits directly to
low-income subscribers in Category 4 that still meets the nominal 20
percent discount requirement, like gift cards, direct payments, or
checks. One commenter asked whether master-metered projects are
eligible for Category 4 if a project adheres to the same HUD guidance
used for Category 3 projects.
The Treasury Department and the IRS considered the comments
requesting expansion or flexibility with respect to financial benefits
for Category 4 to allow methods other than utility bill savings but
ultimately decided not to adopt the commenters' suggestions in these
final regulations. Requiring financial benefits via utility bill
savings is the only means through which the Treasury Department and the
IRS can ensure that the provision of financial benefits to qualifying
households is sufficiently regulated such that the requirements of
section 48(e)(2)(C) are satisfied. Therefore, the final regulations
clarify that financial benefits for Category 4 must be tied to a
utility bill of a qualifying household. The Treasury Department and the
IRS may consider other methods of determining Category 4 financial
benefits in future years.
The final regulations, however, address comments regarding the
potential unsuitably of the proposed rules to net-credit billing, or
other structures where the qualifying household does not make a direct
payment to the project owner by providing an alternative methodology
for calculating a 20 percent bill credit discount rate in this
scenario. In cases where the qualifying household has no or only a
nominal cost of participation, the bill credit discount rate should be
calculated as the financial benefit provided to a qualifying household
(including utility bill credits, reductions in a qualifying household's
electricity rate, or other monetary benefits accrued by a qualifying
household on their utility bill) divided by the total value of the
electricity produced by the facility and assigned to the qualifying
household (including any electricity services, products, and credits
provided in conjunction with the electricity produced by such
facility), as measured by paid by the utility, ISO, or other off-taker
procuring electricity (and related services, products, and credits)
from the facility.
5. Fifty Percent of the Facility's Total Output to Low-Income
Households
One commenter requested that the facility should not have to
provide power to households, as long as the financial benefits were
distributed to residents of qualifying households. In this case, the
commenter stated that a non-profit organization planned to build a
facility on the non-profit office building but distribute the savings
the non-profit derived from the facility to the residents of apartments
the non-profit administers. Similarly, another commenter noted that the
use of ``distribute'' rather than ``assigned'' in the requirement in
the Proposed Rules that 50 percent of the facility's total output is
distributed to qualifying low-income households may imply that
beneficiaries are expected to receive the physical flows of electricity
from the
[[Page 55518]]
facility, which is not how community solar works in most cases, nor is
it what the statute requires.
In response to these comments and to clarify the intent of the
Proposed Rules, which was to structure Category 4 consistent with the
market as it exists today (including community solar business models),
the final regulations adopt the suggestion of the commenter to change
``distributed'' to ``assigned.'' Therefore, the full clause in the
final regulations is ``at least 50 percent of the facility's total
output must be assigned to Qualified Households.''
6. Low-Income Verification
To ensure the requirements of section 48(e)(2)(C) are met,
verification of households' qualifying low-income status is required.
The Proposed Rules provided that applicants are responsible for proof-
of-income verification and would be required to submit documentation
upon placing the qualified solar or wind facility in service that
identifies each qualifying low-income household, the output allocated
to each qualifying low-income household in kW, and the method of income
verification utilized.
The Proposed Rules provided that applicants may use categorical
eligibility or other income verification methods to qualify low-income
households. Categorical eligibility consists of obtaining proof of
household participation in a needs-based Federal,\5\ State, Tribal, or
utility program with income limits at or below the qualifying income
level for the specific facility (qualifying program). State agencies
(for example, State community solar/wind program administrators) can
also provide verification of low-income status if the State program's
income limits are at or below the qualifying income level for the
qualified solar or wind facility. If a household is not enrolled in a
qualifying program, additional income verification methods can be used
such as: paystubs, tax returns, or income verification through
crediting agencies and commercial data sources. Eligibility based on
the applicant (or contractors or subcontractors) collecting self-
attestations from households is not permitted.
---------------------------------------------------------------------------
\5\ Federal programs may include, but are not limited to:
Medicaid, Low-Income Home Energy Assistance Program (LIHEAP),
Weatherization Assistance Program (WAP), Supplemental Nutrition
Assistance Program (SNAP), Section 8 Project-Based Rental
Assistance, and the Housing Choice Voucher Program.
---------------------------------------------------------------------------
Several commenters commented on the verification methods to qualify
low-income households. On self-attestation, many commenters disagree
with the Proposed Rules prohibiting eligibility based on self-
attestation. Many commenters were in favor of self-attestation, which
according to one commenter could include an attestation to the effect
that the household either participates in one of the programs that has
the relevant standard as a criterion or otherwise meets the standard to
the best of the resident's knowledge. One commenter stated that self-
attestation is the fastest and most efficient way to ensure maximum
low-income customer participation. This commenter noted that many
customers will be skeptical of providing documents, and that the
process of obtaining, processing, and verifying the documentation is
administratively burdensome and time consuming. Another commenter noted
a practical consideration that by accepting self-certification,
households who are not yet enrolled in Federal or State energy
assistance programs but are eligible or in the process of enrolling may
still participate in qualified low-income economic benefit projects.
Another commenter stated that only a fraction of eligible households
currently participate in existing State, Federal, utility, or Tribal
programs for which they are eligible, and many barriers--including
knowledge, time, documentation, and language fluency--prevent many
households from participating.
Some of the commenters' recommendations also tied into the use of
State programs. One commenter suggested removing the self-attestation
limitation where self-attestation is permitted by State agencies. Two
other commenters similarly suggested the rules accept income
verification via State-program verification where States specifically
accept self-attestation with one of the commenters noting that
subscribers and applicants should not have to double verify a household
if self-attestation is used on the State level. Another commenter
encouraged that applicants be allowed to use benefit cards as
sufficient evidence of participation in qualifying programs where such
cards are the means by which a State makes the benefit available to
participants.
Another commenter requested that the rules clarify whether the use
of State-approved geo-qualification maps or CEJST are approved income
verification methods and recommended that, for individuals who reside
within a CEJST or Persistent Poverty County (PPC), the rules should
consider allowing self-attestation as a means of income-qualification
in States where it is a permissible method for income-qualification.
Another commenter asked for clarification about the interaction between
this Program and State agency provided income verification, as well as
Department of Energy's (DOE) community solar subscription tool tying
eligibility, initially, to LIHEAP. The commenter noted that some State
agencies allow self-attestation and/or State-approved geo-qualification
maps in various programs and requested that the rules allow self-
attestation and geo-qualification (including both State maps and CEJST)
meeting certain standards to the maximum extent allowable by law.
Another commenter suggested expanding those who can provide
verification to not just the State agencies but also utilities. In
contrast, another commenter instead recommended removing the concept of
allowing State agencies to provide verification at all and proposed
adding a requirement to make clear that the requirement is on
applicants to receive verification directly from the customers.
Some commenters asked for the expansion of categorical eligibility.
For example, one commenter recommended that public housing, USDA Rural
Development, and the Project Based Voucher Program be added to the list
of categorically eligible Federal assistance programs noted in footnote
5 of the Proposed Rules. Another commenter asked if the listed methods
are the only possible methods of verification or if other State-
approved methods may be considered as well. Another commenter also
suggested for purposes of Category 4 that the rules allow participation
in more programs as proof of income and that paystubs, tax returns, and
credit checks should be removed as possibilities as these could
alienate low-income households. An additional commenter noted their
view on the importance of protecting Tribal data sovereignty. This
commenter said the rules should not tie Tribes to external sources of
data. This commenter believes that self-certification as to poverty
levels or other metrics by Tribes should be sufficient.
A few commenters suggested adding geographic eligibility to verify
low-income status. One commenter suggested adding geographic
eligibility to the ``category eligibility'' and ``other income
verification methods'' to qualify low-income households, where
``geographic eligibility'' is defined as a household that is currently
residing in a LIHTC Qualified Census Tract (LIHTC Qualified Census
Tract) and where at least one adult in that household has resided for
at least the previous six months. The commenter claims that the LIHTC
Qualified Census Tract
[[Page 55519]]
household income standard is stricter than that in section
48(e)(2)(C)(ii), and thus this standard is an administratively
efficient method of qualifying low-income households for a tax credit
similar to the Low-Income Communities Bonus Credit. Another commenter
recommended adding the physical location of the customer's home as an
additional qualifying criterion, noting a reasonable criterion for
inclusion as areas where at least 20 percent of the population falls
below the poverty line, with prevalent harmful environmental impacts as
outlined in the 2014-2018 5-year American Community Survey (ACS),
conducted by the U.S. Census Bureau. Moreover, one commenter suggested
including geo-qualification based on State maps and the CEJST Tool.
In contrast, one commenter supported the Proposed Rules noting that
categorical income verification decreases costs and increases available
low-income customer benefits. Another commenter provided an entirely
different suggestion stating that income verification is a vestige of
the community solar subscription model and is alternatively achieved by
serving communities in low-income areas as measured by area or State
median income census data. The commenter suggested that income
verification through the Statewide Shared Clean Energy Facility (SCEF)
program (which is a Connecticut program) relies on the distribution
utilities determining customer eligibility.
After consideration of all of comments on the verification methods
to qualify low-income households, the final regulations adopt these
comments in part. The Treasury Department and the IRS considered
numerous verification methods in crafting the Proposed Rules and the
final regulations to strike a balance between reducing administrative
burden for taxpayers and households and ensuring adequate checks that
the facilities receiving a Capacity Limitation under Category 4 meet
the requirements of section 48(e)(2)(C). The final regulations adopt
the Proposed Rules' prohibition on self-attestations because they are
not sufficiently reliable or verifiable. However, this prohibition on
direct self-attestation from a household does not extend to categorical
eligibility for needs-based Federal, State, Tribal, or utility programs
with income limits that rely on self-attestation for verification of
income. The final regulations clarify that income verification is
accepted via program verification where the relevant jurisdiction
specifically accepts self-attestation.
The Treasury Department and the IRS agree that subscribers and
applicants should not have to double verify when a State program
accepts self-attestation. The final regulations, consistent with the
Proposed Rules, provide flexibility for applicants to qualify
households through several means, including categorical eligibility and
paystubs, tax returns, or income verification through crediting
agencies and commercial data sources. Moreover, the list of Federal
programs included in footnote 5 of the Proposed Rules is not the
exclusive list of Federal programs that could be used to demonstrate
categorical eligibility, which provide additional flexibility to
qualify households. However, in response to the comments, the final
regulations will include additional examples of programs that will be
considered categorically eligible based on income status. Therefore, in
response to the commenter's request the following additional programs
will be added to the illustrative list that was provided in the
Proposed Rules: Federal Communication Commission's Lifeline Support for
Affordable Communications, USDA's National School Lunch Program; U.S.
Social Security Administration's Supplemental Security Income; or any
verified government or non-profit program serving Asset Limited Income
Constrained Employed (ALICE) persons or households. The final
regulations also clarify that to qualify for categorical eligibility
under one of these programs, an individual in the household must be
currently enrolled or must have received an award letter or other
written documentation from the program in the last 12 months.
With respect to State programs, the final regulations, consistent
with the Proposed Rules, provide that categorical eligibility also
consists of obtaining proof of household participation in a needs-based
State or utility program, so long as the income limits are at or below
the qualifying income level for the specific facility. The final
regulations clarify that the qualifying income level for a household is
based on where such household is located. Without additional
information or requirements, geographic-based eligibility verification
does not prove that a particular household necessarily meets the income
parameters of section 48(e)(2)(C). Although one commenter, for example,
noted that LIHTC Qualified Census Tracts have stricter income
requirements, this does not address the concern that a particular
household's income may not qualify under the statute but only that
there are households in the census tract that would qualify.
Two commenters requested eligibility of low-income households be
established only at the time of enrollment and remain for the length of
the subscription and that there should not be a continual obligation to
verify households as low-income. This request is consistent with the
Proposed Rules, which provided that applicants are responsible for
proof-of-income verification and would be required to submit
documentation once upon placing the qualified solar or wind facility in
service that identifies each qualifying low-income household as well as
other information. The final regulations maintain the Proposed Rule but
clarify that the low-income status of a household is determined at the
time the household is enrolled in the community program and does not
need to be re-verified. Similarly, the recapture rules discussed in
part XIII of this Summary of Comments and Explanation of Revisions
section are not imposed if the low-income status of households change
in later years; however, the Treasury Department and the IRS determined
that a change in the final regulations to clarify this point is
unnecessary.
VII. Annual Capacity Limitation
Under section 48(e)(4)(C), the total annual Capacity Limitation is
1.8 gigawatts (GW) of DC capacity for each of the calendar year 2023
and 2024 programs. Consistent with section 4.02 of Notice 2023-17, the
Proposed Rules specified how the annual Capacity Limitation would be
allocated across the four facility categories for 2023. The Proposed
Rules, consistent with Notice 2023-17, reserved a portion of the total
annual Capacity Limitation of 1.8 GW of DC capacity for each facility
category for calendar year 2023 as follows:
------------------------------------------------------------------------
------------------------------------------------------------------------
Category 1: Located in a Low-Income 700 megawatts.
Community.
Category 2: Located on Indian land.. 200 megawatts.
Category 3: Qualified Low-Income 200 megawatts.
Residential Building Project.
Category 4: Qualified Low-Income 700 megawatts.
Economic Benefit Project.
------------------------------------------------------------------------
[[Page 55520]]
The Proposed Rules also provided that the Treasury Department and
the IRS would retain the discretion to reallocate Capacity Limitation
across categories and sub-reservations to maximize allocation in the
event one category or sub-reservation is oversubscribed and another has
excess capacity.
One commenter suggested eliminating the 1.8 GW Capacity Limitation
altogether, in favor of the same uncapped allocation that they view
other solar customers, typically customers in a higher income bracket,
have previously received. However, section 48(e)(4)(C) provides the 1.8
GW Capacity Limitation, and it cannot be modified by the final
regulations. Therefore, the final regulations do not adopt this
comment.
Another commenter suggested re-allocating the Capacity Limitation
under Category 3 to Category 4 to increase the total number of MW that
can be deployed efficiently while yielding the highest economic
benefit. Similarly, a different commenter recommended increasing
Category 4 by combining Category 1 and 4 into a single 1.4 GW category
applicable to both. In addition, this commenter suggested that the
Treasury Department and the IRS should layer on preferences for
economic benefits over location in facility selection, similar to its
preferences around ownership and location (discussed in part VII of
this Summary of Comments and Explanation of Revisions section).
Procedurally, an applicant would submit an application for this
combined category in the applicable sub-allocation and indicate under
which category qualification, and thus bonus level, for the project is
sought. The commenter added that the Treasury Department and the IRS
can apply a similar approach to the Proposed Rules to sub-allocate
capacity among facility types within that combined category,
subdividing among commercial, community, and single-family residential
solar as strongly recommended by both industry and environmental
justice groups since last year. Another commenter also had
recommendations about how to re-allocate capacity taking into account
the Additional Selection Criteria (ASC). The commenter suggested that
the Treasury Department and the IRS reallocate unused capacity in the
same year. Specifically, the commenter suggested that if there is
unused capacity from a category or an ASC reservation that it be
allocated in the same year to ensure all 1.8 GW of projects can be
efficiently deployed annually. The commenter encouraged the Treasury
Department and the IRS to consider implementing subcategory capacity
carveouts within each category to effectively allow for a rolling
application system. For example, in Category 4, there should be more
capacity dedicated to certain projects over others. Two commenters
expressed disagreement for the large total reservation in Category 1.
These commenters suggested that some of the Category 1 reservation
should be moved to Category 4.
After consideration of these comments, the final regulations,
consistent with the Proposed Rules, provide that the total Capacity
Limitation for each Program year will be divided across the 4 facility
categories and that the Treasury Department and the IRS retain the
discretion to reallocate Capacity Limitation across categories and sub-
reservations to maximize allocation in the event one category or sub-
reservation is oversubscribed and another has excess capacity. The
Treasury Department and the IRS continue to believe that the
reservations based on facility category best allow a wide variety of
facilities and benefits to go to low-income communities to further the
intent of the statute. Absent category reservations, all the annual
Capacity Limitation could get allocated to one facility category, which
is contrary to the statute providing four distinct categories.
The final regulations clarify that the specific reservations for a
Program year are provided in guidance published in the Internal Revenue
Bulletin. For Program year 2023, Notice 2023-17 and Revenue Procedure
2023-27 provide the specific reservation amounts for each category. As
clarified in the final regulations, the specific reservation amounts
are established based on factors such as the anticipated number of
applications that are expected for each category and the amount of
Capacity Limitation that needs to be reserved for each category to
encourage market participation in each category consistent with
statutory intent.
One commenter stated that sub-allocations should be adaptable in
future Program years to account for lessons learned. However, the
commenter said that the 200 MW for Indian land should not be
reallocated to other categories even if not fully claimed by
applications in any given year, nor should any shortfall of
applications be used to justify smaller future allocations. The
Treasury Department and the IRS understand the importance of all of the
categories provided by Congress in the statute and agree that the
Capacity Limitation allocated to each facility category should be
adaptable. Accordingly, the Treasury Department and the IRS have
retained discretion to reallocate Capacity Limitation and to revise
amounts reserved for each category in each Program year. After the 2023
Program year, the Treasury Department and the IRS will determine
whether to change the facility category reservation amounts for the
2024 Program year based on the factors provided in the final
regulations and will announce the specific reservation amounts in
Program guidance applicable to 2024.
VIII. Additional Selection Criteria
The Proposed Rules provided that facilities that meet at least one
of the two categories of Ownership and Geographic Criteria,
collectively the ASC, would receive priority for an allocation within
each facility category described in section 48(e)(2)(A)(iii). The
Proposed Rules also provided that at least 50 percent of the total
Capacity Limitation in each facility category would be reserved for
facilities meeting ASC.
The Proposed Rules provided that in evaluating applications
received during the initial application window, priority would be given
to eligible applications for facilities meeting at least one of the two
ASC. If the eligible applications for Capacity Limitation for
facilities that meet at least one of the two ASC criteria exceed the
Capacity Limitation for a category, facilities meeting both ASC
criteria would be prioritized for an allocation.
Several commenters expressed overall agreement and support for the
inclusion of ASC, and the purpose behind these criteria, which
commenters feel will promote community ownership. One commenter
expressed disagreement with the use of ASC in the Program or that it
should not be used for the 2023 Program. Another commenter echoed this
by saying that the Treasury Department and the IRS should first assess
the Program and applications received for 2023, and then consider
including the ASC and a corresponding capacity reserve amount.
Other commenters suggested that if ASC is used, the percentage of
the total Capacity Limitation in each facility category for ASC should
be reduced from 50 percent to 25 percent or to 10 percent. Another
commenter stated that the Ownership Criteria is too restrictive, and
few applicants will be able to meet the high standard. This commenter
recommended giving preferential allocation of capacity limitation to
groups that meet one or both of the ASC, without reserving 50 percent
of the capacity under each category on a
[[Page 55521]]
rolling basis. One commenter similarly stated that an inflexible
reservation of 50 percent of the total Capacity Limitation in each
category for facilities meeting ASC may result in potentially hundreds
of MW of unclaimed Capacity Limitation for 2023. This commenter
suggested that a smaller amount of reservation should be reserved for
ASC projects in 2023, and that the amount of reservation should be
increased in future years. A few other commenters, similarly, suggested
that in the first year of the Program, ten percent of the capacity in
each sub-reservation should be reserved for ASC applicants, with the
Treasury Department and the IRS retaining authority to reallocate the
capacity and expand the capacity reservations in future Program years.
One commenter separately stated that except for reallocations
(meaning reallocations of capacity between categories) for facilities
meeting the ASC, the Treasury Department and the IRS should ensure that
proposed reallocations more than 50 MW are subject to public notice and
comment.
A few commenters who supported reduction of the ASC reservation
amounts, stated that it will take significant time and coordinated
effort for new community solar markets to emerge where efforts to
establish Program frameworks have been lacking to date. These
commenters stated that it is likely that there will be few applicants
who meet the ASC, or that the projects developed by owners that would
qualify tend to be small scale projects. Some commenters also asserted
that the restrictive Ownership Criteria would likely encourage gaming.
In contrast, some commenters expressed support for at least 50
percent of the total Capacity Limitation being reserved for facilities
meeting ASC. Additionally, one of the commenters supporting the
reduction in the ASC reservation amounts stated that the Treasury
Department and the IRS should prioritize reallocations to facility
categories with more than 25 percent of the facilities meeting the ASC.
One commenter suggested that a third set of ``Market-based''
criteria should be added to ASC. The commenter stated that these
criteria would prioritize projects that maximize the benefit delivered
to the largest number of low-income customers. The two criteria
provided by the commenter under this category are: 1. Proposed discount
rate: Savings delivered to low-income customers; and 2. Percentage of
project reserved for low-income customers: The percentage of the output
capacity that will service low-income customers. However, the commenter
only includes community solar projects in discussing the reason for
this proposal. Two other commenters also proposed a third set of
criteria focused on prioritizing projects that are participating in
State low-income renewable energy programs, with one commenter
specifically naming programs funded under the Environmental Protection
Agency's (EPA) Greenhouse Gas Reduction Fund Solar For All Program.
However, one of the comments specifically limits these criteria to
Category 1 projects. Neither of the comments explain how these criteria
would be equitably applied to facilities applying from all States,
especially States that do not have such programs, nor do the commenters
explain how wind facilities would be eligible under the previously
recommended criteria. Other commenters provided additional criteria
that could be considered including the use of minority and woman-owned
businesses as contractors and employment of workers from low-income
communities. Finally, a group of commenters suggested that the Treasury
Department and the IRS consider applicants under ASC if the applicant
signs a binding commitment to provide financial benefits for longer
than the statute requires; or if the applicant sign a binding
commitment promising to provide greater financial benefits than
required. Another commenter, similarly, suggested incorporating a new
category of ASC based on whether the project provides benefits to the
local community and its members. The commenter suggested that this
would better ensure that Category 1 and Category 2 projects are
providing direct benefits to households or the local community. This
comment gives examples of criteria for this ``provision of benefits''
category including: targeted hiring provisions, local procurement
standards for Minority, Women and Disadvantaged owned Business
Enterprises, Community Workforce Agreements, and Community Benefit
Agreements; provision of direct financial benefits to community
members, such as energy bill savings or reduction of energy burden; and
for Category 1 projects, actual low-income status of households who
would be benefited.
After consideration of these comments, the final regulations,
consistent with the Proposed Rules, maintain that at least 50 percent
of the total Capacity Limitation be reserved for facilities meeting ASC
to help achieve the Treasury Department and the IRS's stated goals of
the Program in Notice 2023-17 to (1) increase adoption of and access to
renewable energy facilities in low-income communities and communities
with environmental justice concerns; (2) encourage new market
participants in the clean energy economy; and (3) provide social and
economic benefits to people and communities that have been marginalized
from economic opportunities and overburdened by environmental impacts.
While many of the comments provide suggestions for alternative or
additional ASC, many of the suggestions could not be applied to all
categories or applied nation-wide such as the use of enrollment in a
specific State energy program. Other suggestions are infeasible due to
statutory conflict such as providing benefits for a longer duration
than the statute requires. Lastly, the Treasury Department and the IRS
are anticipating upwards of 100,000 applications annually for the
Program. Selection criteria that is qualitative, subjective, and would
require significant review such as a Community Benefits Agreement,
Workforce Agreement, or procurement or hiring targets are
administratively infeasible to have timely decisions made throughout
the year. The Treasury Department and the IRS heard from many
stakeholders that timely decisions will be key to Program success. The
ASC proposed by the Treasury Department and the IRS are also directly
connected to the applicant (ownership) or the facility (geography),
which allows objective criteria. The Treasury Department and the IRS
may consider other ASC in future guidance that help achieve these goals
and are administratively feasible for the Program. However, the
Treasury Department and the IRS did not adopt the commenters'
suggestions to add other ASC at this time because the Treasury
Department and the IRS determined the ASC provided in the Proposed
Rules best promote the Program goals discussed earlier and should be
the focus of the Program.
The final regulations maintain that at least 50 percent of the
Capacity Limitation in each facility category will be reserved for
facilities meeting the ASC but clarify that the method for utilizing
the ASC and the specific amount of the reservation (at or above 50
percent) will be provided in guidance published in the Internal Revenue
Bulletin. For program year 2023, those procedures are provided in
Revenue Procedure 2023-27. The final regulations clarify that the total
Capacity Limitation in each facility category reserved for qualified
facilities meeting the ASC may be reevaluated in future guidance
provided at least 50
[[Page 55522]]
percent is reserved. The final regulations also clarify that after the
reservation for qualified facilities meeting the ASC is established in
guidance, it may later be re-allocated across facility categories and
sub-reservations in the event one category or sub-reservation within a
category is oversubscribed and another has excess capacity.
One commenter stated that most, if not all, categories, will be
oversubscribed, and acknowledged that there will need to be a selection
process other than a first-come, first-served application process.
However, this commenter recommended against using the proposed
Ownership and Geographic Criteria as a means for prioritizing
applications. This commenter asserted that criteria related to the
ownership or location of a project provides no indication of project
viability. This commenter stated that instead, applicants should be
prioritized based on project maturity, providing a list of factors that
are already included in the Proposed Rules for the Program, for some or
all categories, such as site control and possession of all non-
ministerial permits. The commenter suggested that a lottery be used in
oversubscribed categories for projects that meet the commenters stated
project maturity factors. A few other commenters requested that
applicants who have made meaningful financial investments in relatively
mature projects should be shown preference for an allocation.
Specifically, this group of commenters suggested that the Treasury
Department and the IRS, in addition to the Ownership and Geographic
Criteria, prioritize projects that have signed agreements with income-
qualified customers representing 10 percent of a project's capacity.
After consideration by the Treasury Department and the IRS, these
comments are not adopted. The project maturity selection criteria that
these commenters suggest are already part of the minimum Program
requirements to apply that were provided in the Proposed Rules. ASC are
selection factors for prioritizing projects in addition to the already
required minimum project maturity level that this commenter requests.
Prioritizing signed agreements with customers would not work for all
categories, and applicants in Category 4
A. Ownership Criteria
The Proposed Rules provided that the Ownership Criteria category is
based on characteristics of the applicant that owns the qualified solar
or wind facility. A qualified solar or wind facility will meet the
Ownership Criteria if it is owned by a Tribal enterprise, an Alaska
Native Corporation, a renewable energy cooperative, a qualified
renewable energy company meeting certain characteristics, or a
qualified tax-exempt entity. If an applicant wholly owns an entity that
is the owner of a qualified solar or wind facility, and the entity is
disregarded as separate from its owner for Federal income tax purposes
(disregarded entity), the applicant, and not the disregarded entity, is
treated as the owner of the qualified solar or wind facility for
purposes of the Ownership Criteria.
The Proposed Rules provided that a Tribal enterprise, for purposes
of the Ownership Criteria, (1) is an entity that is owned at least 51
percent, either directly or indirectly (through a wholly owned
corporation created under its Tribal laws or through a section 3 or
section 17 Corporation),\6\ by an Indian Tribal government (as defined
in section 30D(g)(9) of the Code), and (2) the Indian Tribal government
has the power to appoint and remove a majority (more than 50 percent)
of the individuals serving on the entity's board of directors or
equivalent governing board.
---------------------------------------------------------------------------
\6\ A ``section 17 corporation'' is a corporation incorporated
under the authority of section 17 of the Indian Reorganization Act
of 1934, 25 U.S.C. 5124. A ``section 3 corporation'' is a
corporation that is incorporated under the authority of section 3 of
the Oklahoma Indian Welfare Act, 25 U.S.C. 5203.
---------------------------------------------------------------------------
The Proposed Rules provided that an Alaska Native Corporation, for
purposes of the Ownership Criteria, is defined in section 3 of the
Alaska Native Claims Settlement Act, 43 U.S.C. 1602(m).
The Proposed Rules provided that a Renewable Energy Cooperative,
for purposes of the Ownership Criteria, is an entity that develops
qualified solar and/or wind facilities and owns at least 51 percent of
a facility and is either (1) a consumer or purchasing cooperative
controlled by its members who are low-income households (as defined in
section 48(e)(2)(C)) with each member having an equal voting right, or
(2) a worker cooperative controlled by its worker-members with each
member having an equal voting right.
The Proposed Rules provided that a Qualified Renewable Energy
Company (QREC), for purposes of the Ownership Criteria, is an entity
that serves low-income communities and provides pathways for the
adoption of clean energy by low-income households. In addition to its
general business purpose, the Proposed Rules noted that the Treasury
Department and the IRS were considering the following requirements and
specifically requested comments on these potential requirements that a
QREC would need to satisfy:
(1) At least 51 percent of the entity's equity interests are owned
and controlled by (a) one or more individuals, (b) a Community
Development Corporation (as defined in 13 CFR 124.3), (c) an
agricultural or horticultural cooperative (as defined in section
199A(g)(4)(A) of the Code), (d) an Indian Tribal government (as defined
in section 30D(g)(9)), (e) an Alaska Native corporation (as defined in
section 3 of the Alaska Native Claims Settlement Act, 43 U.S.C.
1602(m)), or (f) a Native Hawaiian organization (as defined in 13 CFR
124.3);
(2) After applying the controlled group rules under section 52(a)
of the Code, the entity has less than 10 full-time equivalent employees
(as determined under section 4980H(c)(2)(E) and (c)(4) of the Code) and
less than $5 million in annual gross receipts in the previous calendar
year;
(3) The entity first installed or operated a qualified solar or
wind facility as defined in section 48(e)(2)(A) two or more years prior
to the date of application; and
(4) The entity has installed and/or operated qualified solar or
wind facilities as defined in section 48(e)(2)(A) with at least 100 kW
of cumulative nameplate capacity located in one or more Low-Income
Communities as defined in section 48(e)(2)(A)(iii)(I).
The Proposed Rules provided that a ``qualified tax-exempt entity'',
for purposes of the Ownership Criteria, is (1) An organization exempt
from the tax imposed by subtitle A of the Code by reason of being
described in section 501(c)(3) or section 501(d); (2) Any State, the
District of Columbia, or political subdivision thereof, any territory
of the United States, or any agency or instrumentality of any of the
foregoing; (3) An Indian Tribal government (as defined in section
30D(g)(9)), political subdivision thereof, or any agency or
instrumentality of any of the foregoing; or (4) Any corporation
described in section 501(c)(12) operating on a cooperative basis that
is engaged in furnishing electric energy to persons in rural areas.
The final regulations modify the definition of ``qualified tax-
exempt entity'' by striking ``any territory of the United States.'' The
Treasury Department and the IRS made this change to correct a drafting
error. The tax rules in section 50(b) related to investment tax credits
(ITCs), such as section 48, generally provide that credit-eligible
property cannot be used predominantly outside the United States
[[Page 55523]]
(the fifty States and the District of Columbia) unless the property is
owned by a U.S. corporation or U.S. citizen (other than a citizen
entitled to the benefits of section 931 (Guam, American Samoa, or the
Northern Mariana Islands) or section 933 (Puerto Rico)). Therefore,
property used in the territories and owned by a territory government,
or an entity created in or organized under the laws of a U.S.
territory, generally would not qualify for a section 48 credit.
Another commenter stated that the Ownership Criteria should be
eliminated because Congress indicated no intent in the IRA to prefer
applications for the Program on project ownership. This commenter
asserts that the Ownership Criteria results in non-profits
organizations receiving outright allocation awards, while qualified
business taxpayers will be subject to a lottery system for any
remaining credit. Similarly, another commenter stated that the ASC and
the reservations for ASC are not grounded in the statute. Although
Congress did not include Ownership Criteria directly in the statute, it
did direct the Treasury Department to create a Program to allocate the
annual Capacity Limitation of 1.8 GW as measured in DC. As discussed
earlier, the Treasury Department and the IRS stated three goals for the
Program: (1) increase the adoption of and access to renewable energy
facilities in low-income communities and communities with environmental
justice concerns; (2) encourage new market participants in the clean
energy economy; and (3) provide social and economic benefits to people
and communities that have been marginalized from economic opportunities
and overburdened by environmental impacts. Based on the breadth of
research around the barriers to adoption of renewable energy technology
by low-income communities and to meet statutory objectives and Program
goals, the inclusion of Ownership Criteria will allow the participation
of institutions that are well positioned to increase adoption of clean
energy in low-income communities and by low-income households.
Moreover, all applicants, with limited exception, in a given category
and sub-category, are generally required to meet the same requirements
to be awarded an allocation amount based on the projected net output of
the facility. No applicant is being awarded the actual bonus credit
amount during the application and selection period. All facility owner-
applicants who are awarded an allocation will then have to place the
facility in service and meet certain requirements before the owner can
claim the section 48(e) Increase for the section 48 credit.
A few commenters stated that it is not appropriate to apply the ASC
to Category 3 facilities. One commenter said that multi-family
affordable housing guarantees that the benefits in Category 3 will be
provided to low-income households. Another commenter claimed that
Category 3 facilities are subject to existing rules that conflict with
the ASC.
Several commenters stated that the current Ownership Criteria may
conflict with ownership structures typically used for LIHTC projects.
One commenter expressed concern that a tax-exempt applicant who is an
owner of a facility through a partnership structured as a limited
liability company or a limited partnership for State law purposes would
not be considered a qualified tax-exempt entity because the tax-exempt
applicant is not the sole owner. This commenter requested revision of
the Ownership Criteria to ensure that tax-exempt entities (and other
prioritized owner types) remain eligible if the entity controls the
managing member or general partner of the partnership that owns the
facility for Federal income tax purposes. Another commenter suggested
that additional language should state that a qualified tax-exempt
entity would still meet the Ownership Criteria if the tax-exempt entity
directly serves as the managing member or general partner of the
partnership that owns the facility for Federal income tax purposes. A
few commenters also stated that most tax-exempt entities entering into
a renewable energy tax credit transaction related to a LIHTC project
will enter into a partnership with a tax equity investor where the tax-
exempt entity is a general partner or managing member and has control
over the partnership's operations, but is not the majority owner. The
tax equity investor is usually the majority owner to allow the investor
to claim most of the tax credits generated by the project.
The Treasury Department and the IRS understand that for tax credit
monetization purposes, LIHTC projects and solar and wind facilities are
often financed using tax equity partnership structures where a tax-
exempt entity (or other Ownership Criteria entities) owns a minority
interest (either directly or indirectly) in an entity treated as a
partnership for Federal income tax purposes that owns the project or
facility. In response to these comments, the Treasury Department and
the IRS have clarified through additional language in the final
regulations that a qualified solar or wind facility owned by an entity
treated as a partnership for Federal income tax purposes is eligible
for ASC consideration if an entity that meets the Ownership Criteria
has at least a one percent interest (either directly or indirectly) in
each material item of partnership income, gain, loss, deduction, and
credit of the partnership and is a managing member or general partner
(or similar title) under State law of the partnership (or directly owns
100 percent of the equity interests in the managing member or general
partner) at all times during the existence of the partnership. Because
indirect ownership is permissible, this means an entity that meets the
Ownership Criteria can hold its partnership interest through a taxable
subsidiary. This clarification should allow tax partnerships formed for
the purpose of monetizing LIHTCs or section 48 credits that are
directly or indirectly owned and managed by an entity that satisfies
the Ownership Criteria to meet the ASC and thus better reflect
potential applicants and financing structures for all Categories. The
final regulations also clarify that a facility that has received a
Capacity Limitation allocation based, in part, on meeting the Ownership
Criteria will not be disqualified and lose its allocation if it is
transferred by the original applicant to a tax partnership, prior to
being placed in service, in which the original applicant retains the
requisite direct or indirect ownership of the tax partnership and is a
managing member or general partner (or similar title) under State law
of such partnership (or directly owns 100 percent of the equity
interests in the managing member or general partner) at all times
during the existence of the partnership.
One commenter specifically noted that some Tribal enterprises do
not have a ``board of directors or equivalent governing board,'' but
the corresponding Tribes own utilities and have the power to appoint
and remove the utility's leadership. Therefore, the commenter asked
that the Treasury Department and the IRS to clarify Tribally owned
utilities (or those Tribally owned entities that do not have a
``board,'' such as an LLC) meet the Ownership Criteria set forth in the
Program. The commenter also stated that ``Ownership'' should stem from
a Tribe's sovereign decision to construct a project rather than how a
managing entity is structured and stated that Tribes should be able to
attest to ownership control without further documentation. Several
commenters included a similar statement. Another commenter further
requested that the Tribe be considered the applicant and
[[Page 55524]]
not the LLC, but that the LLC should also be allowed to apply, if it is
a disregarded entity, and wholly owned by the Tribe (or Tribal
enterprise).
In response to these comments, the Treasury Department and the IRS
have modified the definition of Tribal enterprise in the final
regulations by providing that a Tribal enterprise for purposes of the
Ownership Criteria is an entity that (1) an Indian Tribal government
(as defined in section 30D(g)(9) of the Code) owns at least a 51
percent interest in, either directly or indirectly (through a wholly
owned corporation created under its Tribal laws or through a section 3
or section 17 Corporation), and (2) is subject to Tribal government
rules, regulations, and or codes that regulate the operations of the
entity.
Several commenters requested revisions to the definition of QREC.
One commenter requested that QREC be further defined but did not
provide specific language to further define the term. Additionally, a
few commenters recommended that the Treasury Department and the IRS
change the ``and'' at the end of the list of requirements that a QREC
must satisfy to ``or'' so that the applicant only needs to meet one
requirement, inclusive of the general business purpose to serve low-
income communities. One commenter added that this would be more
inclusive for new market entrants. Another commenter requested that the
criteria for QREC be modified to include trusts as individuals, and
that the requirement that 51 percent of the equity interest be
controlled by an individual be reduced to 45 percent or, alternatively,
at least 25 percent employee owned, and that the second requirement be
expanded to provide that the company must have less than 100 full time
employees and less than $30 million in annual gross receipts from the
previous calendar year. The same commenter also suggested that the
definition of a QREC be expanded to include public benefit
corporations. One commenter suggested that Category 1(a) of the QREC
definition, which currently reads as ``one or more individuals,''
should be replaced with ``renewable energy cooperative,'' claiming that
this keeps the consistency of the definition with the previous section
and requires more rigorous working agreements.
A few commenters variously commented on employee requirements for
QRECs. Two commenters, also commenting on the gross receipts threshold,
suggested that a QREC maintain less than 10 full time employees and
less than $30.4 million in annual gross receipts from the previous
calendar year. Another commenter stated that requiring a QREC to have
fewer than ten full-time equivalent employees is excessively
restrictive and unrealistic. This commenter also stated that the less
than $5 million threshold for annual gross receipts in the previous
calendar year may be unrealistically low. One commenter stated that the
small size requirement appears to be arbitrary and suggested that the
Treasury Department and the IRS use the Small Business Administration
(SBA) small business size and revenue requirement to promote small
business entrants. Further, another commenter stated that imposing an
additional requirement to employ workers in certain low-income
communities would be too onerous. Additionally, one commenter stated
that it is unclear whether the requirement to employ low-income persons
would be applicable at the time of application or through the life of
the project. This commenter requested that the Treasury Department and
the IRS clarify that this requirement is applicable at the time of
application, and then consider allowing State or Federally approved
workforce training programs, supported through the project, as a means
of qualification. However, another commenter, who generally opposed the
inclusion of QRECs as an ASC Ownership Criteria category, requested
that the Treasury Department and the IRS require such companies to
enter into Community Workforce Agreements to ensure workers within low-
income and disadvantaged communities benefit from the wealth building
opportunities provided by the Program. This commenter also provided a
list of the community benefits that should be incorporated into the
commenter's suggested agreements.
Additionally, one commenter stated that new market entrants are
altogether barred from meeting this definition. Overall, the same
commenter suggested as modification adding other consumer protection
measures, minority- or women-owned business enterprise criteria,
individual rather than company-based experience thresholds, and
providing flexibility with regard to size, so as to enable more local
clean energy business growth. A separate commenter also noted that new
entrant companies, that would otherwise meet the QREC definition, will
not qualify due to the specific experience requirement. Another
commenter requested the Treasury Department and the IRS update the
definition of QREC to include qualified rooftop lessors. This commenter
provided an example of projects installed by small businesses that
otherwise meet the definition but are counterparties to a lease
provided by a third-party project developer. This commenter said that
many single-family residential rooftop facilities use third-party
ownership (TPO) models to meet the requirements of section 48 but
claims that in many States legal title to such facilities is not
possible for entities meeting the definition of a QREC, which, by
virtue of their small size, do not have access to a lease fund. One
commenter also noted that many new market entrants have prior
experience as part of other solar projects that they do not own and
suggested that companies that have been subcontractors be included for
criteria (3) and (4), and that the scope be broadened to be ``any solar
provider.'' A Tribal comment letter also stated that the definition of
a QREC is too limited and does not support newly formed entities that
are owned in part by Tribes. This commenter claims that, prior to the
IRA, Tribes were not able to create joint ventures to deploy solar or
wind projects.
After consideration of all comments on the definition of QREC, the
final regulations adopt some changes and do not adopt others. The
Treasury Department and the IRS will maintain the inclusion of QREC in
the final regulations. However, to provide increased flexibility and to
encourage new market participants, the Treasury Department and the IRS
have modified the QREC definition to allow for previous participation
in a renewable energy project as a service provider (either as an
individual or a company) to demonstrate a track record for serving low-
income communities. While some commenters stated that brand new
entities may not meet the criteria for QREC, the Treasury Department
and the IRS developed the QREC criteria to support companies or
entrepreneurs with a commitment and track record of serving low-income
communities that have not been able to grow their market share. The
Treasury Department and the IRS also increased the annual gross
receipts threshold based on the comments and additional market research
to allow for flexibility to growing companies that may still not have
significant market-share. After careful assessment of all the proposals
provided in the comments and current market information, the final
regulations provide additional flexibility to new market entrants by
modifying the requirements that a QREC would need to satisfy:
(1) At least 51 percent of the entity's equity interests are owned
and controlled by (a) one or more
[[Page 55525]]
individuals, (b) a Community Development Corporation (as defined in 13
CFR 124.3), (c) an agricultural or horticultural cooperative (as
defined in section 199A(g)(4)(A) of the Code), (d) an Indian Tribal
government (as defined in section 30D(g)(9)), (e) an Alaska Native
corporation (as defined in section 3 of the Alaska Native Claims
Settlement Act, 43 U.S.C. 1602(m)), or (f) a Native Hawaiian
organization (as defined in 13 CFR 124.3);
(2) Has less than 10 full-time equivalent employees (as determined
under section 4980H(c)(2)(E) and (c)(4) of the Code) and less than $20
million in annual gross receipts in the previous calendar year;
(3) First installed or operated a qualified solar and or facility
as defined in section 48(e)(2)(A) two or more years prior to the date
of application; or
(4) Has provided solar services as a contractor or subcontractor to
qualified solar or wind facilities as defined in section 48(e)(2)(A)
with at least 100 kW of cumulative nameplate capacity located in one or
more Low-Income Communities as defined in section 48(e)(2)(A)(iii)(I).
The Treasury Department and the IRS may consider other changes to
the definition of a QREC in future guidance based on updated market
information and what is administratively feasible for the Program.
Another commenter suggested that the definition of QREC be revised
to provide that the 51 percent ownership requirement applies as an
average over the life of the project because of tax credit equity
partnerships that may change facility ownership for a period of time.
In response to these comments, the Treasury Department and the IRS
have clarified through additional language in the final regulations
that a partnership for Federal income tax purposes is eligible for ASC
consideration so long as an entity that meets the Ownership Criteria
has at least a one percent interest (either directly or indirectly) in
each material item of partnership income, gain, loss, deduction, and
credit of the partnership that owns the qualified solar or wind
facility and is a managing member or general partner (or similar title)
under State law of the partnership (or directly owns 100 percent of the
equity interests in the managing member or general partner) at all
times during the existence of the partnership. Therefore, there is no
need to revise the 51 percent ownership requirement as it applies as an
average over the life of the project as the commenter suggests. This
also allows more flexibility for all applicants that meet the Ownership
Criteria to enter financing arrangements such as tax equity
partnerships.
This commenter also suggested that the definition of Renewable
Energy Cooperatives be revised to require not only that each member
have an equal voting right, but also that each member have rights to
profit distributions based on patronage as defined by the proportion of
either (i) volume of energy or energy credits purchased (kWh), (ii)
volume of financial benefits delivered ($), or (iii) volume of
financial payments made ($), and in which at least 50 percent of the
patronage in the qualified project is by cooperative members who are
low-income households. The commenter noted that the second requested
change clarifies that the Renewable Energy Cooperative as a whole does
not need to be made up solely of low-income households, but only that
for qualified projects that are seeking the Low-Income Bonus Credit,
over 50 percent of the participating member interests (and
corresponding member benefits) must accrue to households that qualify
as low-income (as defined in section 48(e)(2)(C)).
One commenter stated, regarding Renewable Energy Cooperatives, that
it may be difficult for cooperatives to ensure income verification of
their members, and suggested adding eligibility pathways, potentially
based on geography or charter documents, that retain an equity and
justice focus while allowing greater flexibility.
Based on these comments, the Treasury Department and the IRS have
modified the definition of Qualified Renewable Energy Cooperative in
the final regulations to account for different energy cooperative
models where profits could be distributed to members based on volume of
energy, volume of financial benefits delivered, or volume of financial
payments made. The modified language states that a Qualified Renewable
Energy Cooperative is an entity that develops qualified solar and/or
wind facilities and is either (1) a consumer or purchasing cooperative
controlled by its members with each member having an equal voting right
and with each member having rights to profit distributions based on
patronage as defined by the proportion of either (i) volume of energy
or energy credits purchased (kWh), (ii) volume of financial benefits
delivered ($), or (iii) volume of financial payments made ($), and in
which at least 50 percent of the patronage in the qualified project is
by cooperative members who are low-income households (as defined in
section 48(e)(2)(C)) or (2) a worker cooperative controlled by its
worker-members with each member having an equal voting right.
One commenter expressed that qualified tax-exempt entity should not
include all section 501(c)(3) entities without additional guardrails.
This commenter further suggests that if QRECs are required to submit
documentation of ``general business purpose,'' then section 501(c)(3)
organizations applying as a qualified tax-exempt entity should be
required to provide minimal documentation showing relevant charitable
purposes. This commenter additionally requested clarification about the
manner of application for tax-exempt entities in Puerto Rico and other
territories. Similarly, one commenter noted that many large
corporations have section 501(c)(3) organizations that could deploy
renewable energy projects without tax credits but will be eligible
under the definition in the Proposed Rules. This commenter proposed
adding to the definition the following requirements: annual gross
receipts of no more than $30.4 million (consistent with recommendations
for QRECs); prior experience owning, operating, or consulting on a
renewable energy project; and an organizational mission statement and/
or values that show alignment with the Program.
One commenter requested more clarity on how Tribal enterprises, as
well as Tribal governments, political sub-divisions, and agencies or
instrumentalities thereof under the qualified tax-exempt entity
definition and Tribally owned QRECs can satisfy the Ownership Criteria.
The Treasury Department and the IRS have not adopted any changes in
the final regulations regarding qualified tax-exempt entities. The
addition of guardrails such as requiring a particular business or
charitable purpose is infeasible. All tax-exempt organizations that
qualify for ASC will need to demonstrate a charitable purpose through
their tax-exempt designation. The Treasury Department and the IRS
anticipate that a wide variety of qualified tax-exempt entities may
participate in the Program that may include community-based
organizations, educational institutions of all sizes, and State and
local governments, among others. Accordingly, there is no one business
or charitable purpose for qualified tax-exempt entities that would
apply to the range of entities that support meeting the stated goals of
the Program. The Treasury Department and the IRS may consider changes
in future guidance based on updated market information
[[Page 55526]]
and what is administratively feasible for the Program. The Treasury
Department and the IRS are also providing clarity through modifications
in the definition of Tribal enterprise, and the circumstances in which
Tribal governments, political sub-divisions, and agencies or
instrumentalities thereof would meet the criteria of the qualified tax-
exempt entity definition and other Ownership Criteria based on a
variety of comments provided by Tribes.
B. Geographic Criteria
The Proposed Rules provided that the Geographic Criteria category
is based on where the facility will be placed in service. To meet the
Geographic Criteria, a facility would need to be located in a PPC \7\
or in a census tract that is designated in the CEJST as disadvantaged
based on whether the tract is either (a) greater than or equal to the
90th percentile for energy burden and is greater than or equal to the
65th percentile for low income, or (b) greater than or equal to the
90th percentile for PM<INF>2.5</INF> exposure and is greater than or
equal to the 65th percentile for low income.\8\ The Proposed Rules
provided that applicants who meet the Geographic Criteria at the time
of application are considered to continue to meet the Geographic
Criteria for the duration of the recapture period, unless the location
of the facility changes.
---------------------------------------------------------------------------
\7\ <a href="https://www.ers.usda.gov/data-products/poverty-area-measures/">https://www.ers.usda.gov/data-products/poverty-area-measures/</a>.
\8\ <a href="https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5">https://screeningtool.geoplatform.gov/en/#3/33.47/-97.5</a>. The
CEJST website provides further detail on the terms used in
identifying census tracts for the Energy category. ``Energy cost''
is defined as ``Average household annual energy cost in dollars
divided by the average household income.'' PM<INF>2.5</INF> is
defined as ``Fine inhalable particles with 2.5 or smaller micrometer
diameters. The percentile is the weight of the particles per cubic
meter.'' ``Low income'' is defined as ``Percent of a census tract's
population in households where household income is at or below 200%
of the Federal poverty level, not including students enrolled in
higher education.'' See Methodology & data--Climate & Economic
Justice Screening Tool (<a href="http://geoplatform.gov">geoplatform.gov</a>).
---------------------------------------------------------------------------
The Proposed Rules defined a PPC generally as any county where 20
percent or more of residents have experienced high rates of poverty
over the past 30 years. For the purposes of the Program, the Proposed
Rules provided that the PPC measure adopted by the USDA should be used
to make this determination. The most recent measure, which would apply
for the 2023 Program year, incorporates poverty estimates from the
1980, 1990, 2000 censuses, and 2007-11 ACS 5-year average.
Generally, commenters were supportive of the Geographic Criteria,
including several commenters who had concerns with Ownership Criteria.
However, one commenter stated that the Geographic Criteria conflict
with existing Federal housing policy because it would encourage
facilities to be built in connection with housing in certain areas,
rather than supporting low-income residents no matter where they live.
Another commenter stated that the Geographic Criteria is imprecise
because it does not take into account disadvantaged communities in
certain areas, especially those that are highly disadvantaged but
border affluent communities.
Several commenters on behalf of Tribes stated that Geographic
Criteria should not be applied to Category 2 Projects. However, a few
Tribal commenters asked that the Treasury Department and the IRS retain
Geographic Criteria for Category 3 and Category 4 projects that are
located on Indian land so that Tribal projects can better compete. In
response to these comments, the Treasury Department and the IRS have
decided to not include Geographic Criteria as an ASC for Category 2 but
maintain the use of Geographic Criteria as an ASC as stated in the
Proposed Rules in all other categories.
Another commenter provided several suggestions for revising the
Geographic Criteria, stating that the Treasury Department and the IRS
should consider broadening the Geographic Criteria by including all
Indian land or not applying additional Geographic Criteria to them;
adding LIHTC and New Markets Tax Credit designations; applying all or
at least more of CEJST's burden thresholds as well as the Environmental
Protection Agency's EJScreen's thresholds; allowing State screening
tools and maps; providing for community self-nomination; or perhaps
including adjacent tracts.
Another commenter, providing a comment on Category 3 projects,
generally supported the use of Geographic Criteria to prioritize
allocations, but recommended reconsideration of the use of the PPCs as
a poverty measure. This commenter stated that the PPCs provide data at
a county-level designation and that this masks significant variation
within counties and does not capture persistent poverty within counties
not registering as PPCs. This commenter instead recommended that the
LIHTC Qualified Census Tract geographic definition be utilized as an
option to determine whether a project meets the Geographic Criteria,
stating that the QCT designation denotes census tracts where either (1)
50 percent or more of the households have an income less than 60
percent of the Area Median Gross Income, or (2) the poverty rate is
over 25 percent. One Tribal commenter recommended that the Treasury
Department and the IRS use a geographic determination based on the
LIHTC, or the NMTC because Tribes have been using these to build new
Tribal housing or invest in clean energy. Additionally, another
commenter suggested that the Geographic Criteria should be expanded to
include: disadvantaged communities in other burdened categories; a
process for communities to be recognized as communities with
environmental justice concerns based on State environmental justice
screening tools; and a self-nomination process for communities to
submit additional information to demonstrate that they are communities
with environmental justice concerns that may not be captured by CEJST
or other screening tools. This commenter additionally requested the
provision of a publicly accessible mapping tool to identify the areas
that meet the geographic criteria.
After consideration of these comments, the Treasury Department and
the IRS have not adopted the suggestions. The intent of the Geographic
Criteria as applied to Category 3 and to other categories is to
encourage the construction of energy facilities in areas across the
country that have high energy costs and that might otherwise suffer
from underinvestment. This includes areas of the country where
affordable housing currently exists but where the adoption of renewable
energy technology may be challenging. The Treasury Department and the
IRS have determined ASC based on their applicability across all
categories. While LIHTC Qualified Census Tract as a Geographic criteria
may meet some goals of the program, it is a methodology that is used
primarily in the LIHTC industry and not widely known or used by other
housing programs or in energy programs. Therefore, its inclusion as a
Geographic Criteria is not adopted. Additionally, an allocation based
on Geographic Criteria in Category 3 for a facility built in connection
with an existing Federally subsidized housing building does not impact
the Federal housing policy with regards to siting of the housing
itself. The Treasury Department and the IRS may consider other metrics
for Geographic Criteria in future guidance that help achieve the
Program goals and are administratively feasible for the Program. A
publicly accessible mapping tool will be available on DOE's Program
website.
[[Page 55527]]
IX. Sub-Reservation of Allocation for Facilities Located in a Low-
Income Community
The Proposed Rules provided that the 700 MW Capacity Limitation
reservation for facilities seeking a Category 1 allocation would be
sub-divided with 560 MW reserved specifically for eligible residential
BTM facilities, including rooftop solar. The Proposed Rules provided
that the remaining 140 MW of Capacity Limitation would be available for
applicants with FTM facilities as well as non-residential BTM
facilities.
Several commenters opposed to the reservation of capacity in
Category 1 for BTM residential facilities. Generally, these commenters
requested that the 560 MW capacity reserved for BTM residential
facilities be eliminated (leaving a general 700 MW reservation) or that
the amounts should be revised. The main concern of commenters is that
the proposed 140 MW will provide very limited eligibility for FTM
projects, including community solar projects that would otherwise
qualify under the statute. One commenter strongly recommended against
subdividing the Category 1 Capacity Limitation into BTM and FTM MW
blocks. This commenter stated that a BTM project typically requires a
credit review and/or a long-term financial commitment from the
customer, which the commenter believes is antithetical to the objective
of a Program intended to ease financial burdens on low-income
households, not impose them. The commenter suggested to instead require
that a certain percentage of all generating facilities' capacity be
allocated to low-income, residential subscribers. Another commenter
pointed out that location is the only requirement in Category 1 under
the statute, and that the focus on BTM residential facilities does not
fit with the statute.
Other commenters have noted that this focus on BTM residential
facilities limits the potential of other applicants to benefit from
Category 1. For example, at least two commenters have noted that the
prioritization of residential facilities limits the potential for non-
profit organizations and municipalities from obtaining an allocation
for facilities built to power schools, libraries, food pantries,
shelters, houses of worship, education facilities, local community-
based non-profits, assisted living facilities, performing arts centers,
and community development corporations. One of these commenters
explains that these organizations play crucial roles in their
communities, providing necessary services and support to the residents
of the surrounding area, and the sub-reservation overlooks the fact
that commercial and industrial scale solar benefits may be more
impactful. In arguing against the sub-reservation, another commenter
noted the belief that Category 1 should be reserved specifically for
facilities that are ``Located in a Low-Income Community,'' which
directly benefit the residents of that community. As an alternative,
the commenter asks that non-profits, public facilities, and
municipalities be included in the larger sub-reservation. Another
commenter, in its suggestion to revisit this sub-reservation, stated
their view that community facilities represent the ``highest and best
use'' of the 10 percent low-income adder from the standpoint of
ensuring meaningful community benefit. Similarly, another commenter
stated that the reservation of 560 MW exclusively for residential BTM
ignores the fact that most agrivoltaic and agribusiness BTM projects
that benefit farmers (and thus consumers) would also benefit from
Category 1. This commenter states that the benefit of using renewable
energy solar and storage is an emerging renewable agribusiness industry
that would benefit America significantly by lowering energy input costs
and lowering food prices for the nation by extension.
One commenter suggested to amend the requirements from focusing on
FTM versus BTM to instead distinguish ``on-site usage of credits'' from
``off-site usage of credits'' to more accurately prioritize residential
projects. Similarly, another commenter had concerns with the limitation
of defining residential rooftop solar as BTM. The commenter appreciated
the efforts to set aside an allocation for residential rooftop solar,
but the commenter believed that the Proposed Rules go too far by
defining residential rooftop solar as solely BTM. This commenter
explained that Connecticut's regulated utilities offer a FTM solar
tariff for residential and commercial solar projects and that FTM
residential solar projects, though somewhat rare in Connecticut, are
particularly attractive for projects in low-income communities.
Therefore, this commenter suggested an updated definition that
accounted for single family or multi-family residential that does not
qualify under Category 3 and has a maximum net output (and is not
limited as BTM). Another commenter noted that BTM arrangements are not
achievable in States like Vermont and offered suggestions for
redefining BTM.
Commenters had other suggestions on how to handle the sub-
reservations in Category 1. One commenter recommended expanding the
criteria for qualifying Category 1 projects to allow 600 MW (85
percent) of the allocated MW for FTM facilities. Another commenter
noted that if the concern is that the 700 MW capacity allocation will
be monopolized by businesses in low-income areas, the rules could
reserve a portion of the total allocation for businesses, but that the
rules should consider a larger reservation for commercial and
industrial scale solar projects for non-profit community organizations,
public entities, and other impactful entities that play a key role in
these low-income communities. This commenter suggests considering, in
addition to the 140 MW reservation for businesses, a 280 MW carve out
for residential solar and a separate 280 MW carve out for community-
based not-for-profit organizations. Another commenter suggested a sub-
allocation of at least 400 MW for BTM installations at community
facilities.
One commenter suggested that if the 560 MW amount cannot be
changed, the rules should allow any facility that serves at least 50
percent residential customers to qualify. This commenter noted that the
goal of the sub-reservation is a laudable intent, but that community
solar, though predominantly deployed FTM, is also positioned to serve
residential customers, especially low-income customers. Another
commenter recommended altering the sub-reservations by providing a
third sub-reservation in Category 1 of at least 150-200 MW for eligible
community solar projects that are located on (non-residential) rooftops
or parking lots in low-income communities, are less than 1 MW, reserve
at least 50 percent of off-take for low-income households, and offer a
minimum 20 percent discount to low-income subscribers.
Two commenters had additional concerns with Category 1,
particularly related to consumer protections for residential customers.
While this commenter is opposed to prioritization of residential
rooftop solar over other types of solar installations within Category
1, the comment implied this is because of serious consumer protection
issues associated with how these allocations are being implemented by
the private marketplace. This commenter provided an example of solar
installers telling potential customers that the IRS will send them a
check for 70 percent of the cost of the solar installation if they sign
up with the installer. Therefore, this commenter encourages the
Treasury Department and the IRS to be vigilant and to ensure that
companies awarded these credits are held accountable within the scope
of
[[Page 55528]]
the Treasury Department and the IRS's authority.
After consideration of the comments recommending elimination or
significant modification of the rules regarding the Category 1 sub-
reservation, the comments are not adopted. The purpose of the
residential BTM sub-reservation is to preserve capacity for projects
that directly benefit residential customers and would not otherwise be
eligible for Category 3 or Category 4, while also recognizing the large
and established market share of companies using the TPO single-family
residential business model. Additionally, residential BTM (of which the
majority is expected to be single-family) have faster development
timelines, allowing this capacity to be efficiently allocated.
Moreover, a separate set-aside allows like-projects to compete for
capacity and will allow for more streamlined application processing.
Accordingly, the final regulations provide that the Program
includes a sub-reservation for eligible BTM residential facilities but
clarifies that the specific amount of the sub-reservation for a Program
year will be provided in guidance published in the Internal Revenue
Bulletin. The final regulations also clarify that the amount of the
sub-reservation is established based on factors such as promoting
efficient allocation of Capacity Limitation and allowing like-projects
to compete for an allocation. Revenue Procedure 2023-27 provides the
Category 1 sub-reservation for eligible BTM residential facilities for
the 2023 Program year.
In response to the commenters' concerns about restrictions on FTM
facilities and the ability of community facilities to apply for
Category 1, FTM community facilities serving residential customers may
apply for an allocation of the remaining Capacity Limitation in
Category 1 and receive a section 48(e) Increase of 10 percentage
points, assuming they do not meet Category 4 requirements, or apply for
an allocation under Category 4 if they meet all of the requirements of
Category 4 and receive a section 48(e) Increase of 20 percentage
points. The Treasury Department and the IRS note that the rules do not
impose additional requirements on Category 1 beyond the statutory
location requirement, given the importance of creating an objective and
administrable process that will allow taxpayers to quickly receive
feedback on their applications. However, the Treasury Department and
the IRS seek to encourage community solar projects to apply in Category
4 as opposed to Category 1 because, although Category 1 facilities must
be located in low-income communities, they do not necessarily have to
serve low-income customers and do not have to comply with Category 4
financial benefits requirements. Therefore, directing more community
solar projects to Category 4 where there is a protected set aside of
700 MW better promotes programmatic goals.
In response to comments, the Treasury Department and the IRS agree
that the 560 MW carve-out for residential BTM limits the potential for
community organizations such as non-profit organizations and
municipalities that serve communities from obtaining an allocation, and
they will need to compete for limited capacity with for-profit
nonresidential businesses (and all other projects that are located in a
low-income community). As a result, the Treasury Department and the IRS
modified the Category 1 sub-reservation for BTM residential in Revenue
Procedure 2023-27 to reduce this sub-reservation to 490 MW for the 2023
Program. Therefore, a larger portion of the Capacity Limitation in
Category 1 (210 MW) will be available to FTM and non-residential BTM
projects. The Treasury Department and the IRS may change this sub-
reservation amount for future years.
The Proposed Rules defined a FTM facility as a facility that is
directly connected to a grid, and its sole purpose is to provide
electricity to one or more offsite locations via such grid;
alternatively, FTM is defined as a facility that is not BTM.
The Proposed Rules defined an eligible residential BTM facility as
single-family or multi-family residential qualified solar or wind
facility that does not meet the requirements for Category 3 and is BTM.
A qualified wind and solar facility is BTM if: (1) it is connected with
an electrical connection between the facility and the panelboard or
sub-panelboard of the site where the facility is located, (2) it is to
be connected on the customer side of a utility service meter before it
connects to a distribution or transmission system (that is, before it
connects to the electricity grid), and (3) its primary purpose is to
provide electricity to the utility customer of the site where the
facility is located. This also includes systems not connected to a grid
and that may not have a utility service meter, and whose primary
purpose is to serve the electricity demand of the owner of the site
where the system is located. Commenters requested clarification on the
meaning of ``residential.''
The final regulations generally adopt the definition of BTM from
the proposed rules, but the final regulations clarify that a qualified
solar or wind facility is residential if it generates electricity for
use in a dwelling unit used as a residence. The final regulations also
clarify that a facility is FTM if it is directly connected to a grid
and its primary purpose is to provide electricity to one or more
offsite locations via such grid or utility meters with which it does
not have an electrical connection; alternatively, FTM is defined as a
facility that is not BTM. For the purposes of Category 4, a qualified
solar or wind facility is also FTM if 50 percent or more of its
electricity generation on an annual basis is physically exported to the
broader electricity grid.
X. Application Process
A. Documentation and Attestations
The Proposed Rules provided the general framework for evaluating
applications for Capacity Limitation, including that applicants would
be required to submit with each application certain information,
documentation, and attestations specified in Program guidance.
The Proposed Rules described the following required documents and
attestations.
Documentation and Attestations To Be Submitted for All Facilities
----------------------------------------------------------------------------------------------------------------
FTM BTM <=1 MW AC BTM >1 MW AC
----------------------------------------------------------------------------------------------------------------
Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
An executed contract to purchase the No...................... Yes.................... Yes.
facility, an executed contract to
lease the facility, or an executed
PPA for the facility.
A copy of the final executed Yes..................... No..................... Yes.
interconnection agreement, if
applicable \9\.
----------------------------------------------------------------------------------------------------------------
[[Page 55529]]
Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
The applicant has site control Yes..................... No..................... No.
through ownership, an executed
lease contract, site access
agreement or similar agreement
between the property owner and the
applicant.
The facility has obtained all Yes..................... Yes.................... Yes.
applicable Federal, State, Tribal,
and local non-ministerial permits,
or that the facility is not
required to obtain such permits.
The applicant is in compliance with Yes..................... Yes.................... Yes.
all Federal, State, and Tribal
laws, including consumer protection
laws (as applicable).
The applicant has appropriately No...................... Yes.................... Yes.
sized the facility (to meet no more
than 110 percent of historical
customer load).
The applicant has appropriately Yes..................... No..................... No.
sized the customer's facility
output share and has based facility
output share on historical customer
load.
The applicant has inspected Yes..................... Yes.................... Yes.
installation sites for suitability
(for example, roofs).
----------------------------------------------------------------------------------------------------------------
Documentation and Attestations To Be Submitted for Certain Facilities Depending on Category and ASC
----------------------------------------------------------------------------------------------------------------
Category 1 Category 2 Category 3 Category 4
----------------------------------------------------------------------------------------------------------------
Proposed Document Requirement
----------------------------------------------------------------------------------------------------------------
Documentation demonstrating No................. No................. Yes.............. No.
property will be installed on
an eligible residential
building.
Plans to ensure tenants receive No................. No................. Yes.............. No.
required financial benefits.
If applying under ASC: Yes................ Yes................ Yes.............. Yes.
Documentation demonstrating
applicant meets Ownership
Criteria.
----------------------------------------------------------------------------------------------------------------
Proposed Attestation Requirement
----------------------------------------------------------------------------------------------------------------
Facility location is eligible Yes................ Yes................ No............... No.
\10\.
Consumer disclosures informing Yes................ Yes................ Yes (provided to Yes.
customers of their legal tenants).
rights and protections have
been provided to customers
that have signed up and will
be provided to future
customers.
The applicant will ensure at No................. No................. No............... Yes.
least 50 percent of the
facility's total output will
be provided to qualifying low-
income households and that
each receive at least a 20
percent bill credit discount
rate.
If applying under ASC: Facility Yes................ No................. Yes.............. Yes.
location is eligible based on
PPC/CEJST.
----------------------------------------------------------------------------------------------------------------
The final regulations adopt the requirement that applicants must
submit specified information, documentation, and attestations to
demonstrate Program eligibility and project viability but clarify that
the specific information, documentation, and attestations will be
provided in guidance published in the Internal Revenue Bulletin. For
the 2023 Program year, Revenue Procedure 2023-27 provides the
application requirements. The specific information, documentation, and
attestations that applicants are required to submit may get updated in
future Program guidance for Program years following 2023.
---------------------------------------------------------------------------
\9\ If an interconnection agreement is not applicable to the
facility (for example, due to utility ownership), this requirement
is satisfied by a final written decision from a Public Utility
Commission, cooperative board, or other governing body with
sufficient authority that financially authorizes the facility. If
the facility is located in a market where the interconnection
agreement cannot be signed prior to construction of the facility or
interconnection facilities, this requirement is satisfied by a
signed conditional approval letter from the jurisdictional utility
and an affidavit from a senior corporate officer of the applicant
(or someone with authority to bind the applicant) stating that an
interconnection agreement cannot be executed until after
construction of the facility.
\10\ Facility location would be reviewed using latitude and
longitude coordinates when possible.
---------------------------------------------------------------------------
In developing the application requirements for the 2023 Program
year provided in Revenue Procedure 2023-27, the Treasury Department and
the IRS carefully considered the comments submitted in response to the
Proposed Rules.
One commenter requested that the Treasury Department and the IRS
design the application intake mechanism to allow for bulk application
submissions, including attestations. For example, the commenter stated
that applicants could potentially be allowed to submit a spreadsheet
for many projects at one time, along with required attestations. The
commenter also cited to the efficient allocation language at section
48(e)(4)(A), which states ``. . . the Secretary shall provide
procedures to allow for an efficient allocation process, including,
when determined appropriate, consideration of multiple projects in a
single application if such projects will be placed in service by a
single taxpayer.''
One commenter cited to the language in the Proposed Rules that
states a Category 1 or Category 2 facility that also qualifies as a
Category 3 or Category 4 facility is considered a Category 3 or
Category 4 facility, and requested that these facilities be
automatically reviewed under Category 1 if their application is denied
for an allocation in Category 4. As provided in Revenue Procedure 2023-
27, the Treasury Department and the IRS will not move applications from
the category and sub-reservation under which the facility owner applied
for an allocation. The statement the commenter cited was intended to
remind applicants that if their facility meets the requirements under
Category 1 or 2 and under Category 3 or 4, the applicant should apply
under Category 3 or 4, as applicable, to be considered for the section
48(e) Increase of 20 percentage points. Additionally, as provided in
Notice 2023-17 and Revenue Procedure 2023-27 each applicant may only
apply
[[Page 55530]]
for consideration of its facility, or for each facility if the
applicant owns multiple facilities, under one category in 2023. If the
facility is not awarded an allocation under the category in which the
applicant applies, the facility will not be considered for an
allocation in another category.
1. Permits
Several commenters were concerned with the required attestation
that the facility has obtained all applicable Federal, State, Tribal,
and local non-ministerial permits, or that the facility is not required
to obtain such permits. A few commenters suggested alternatively that
the rule instead require applicants to provide sufficient documentation
that the project ``expects to receive'' or has received all necessary
permits to comply with and Federal, State, or local requirements.
Another commenter uses the phrase ``proof of initiating'' in its
suggestion.
Commenters provided reasons for their concerns about the required
permits. For example, a commenter stated that the requirement to have
all necessary permits in place as a requirement for application (given
the limited application window) as out of their direct control and not
necessary given the other requirements of the guidelines. Another
commenter considering the same issue noted that because there is
tremendous variation in the scope and applicability of State and local
permit requirements that eligible projects may be subject to depending
on their geographic location, a completed permit requirement would
serve to disqualify projects in locations that have suitable and
appropriate permitting requirements and potentially advantage projects
either already advancing without the benefit of Federal support or
projects in jurisdictions with the lowest State and local permitting
requirements.
Additionally, commenters requested guidance on the definition of
non-ministerial permits. For example, a commenter requested clarity on
whether ``local non-ministerial permits'' includes such things as
building and/or electrical permits. The commenter noted their agreement
with the need to ensure applications for projects that are likely to
move forward but that obtaining such permits requires significant
expenditure of funds and investment of time in a project and that if
all permits are required, many developers will be unlikely to invest in
projects that need the low-income community bonus credit. Other
commenters assumed building permits are required as non-ministerial
permits and noted their disagreement with the requirement. Another
commenter suggested that the Treasury Department and the IRS should
clarify whether the appeals period for non-ministerial permits must
have lapsed prior to application submission. Finally, a commenter noted
that given the uncertainty of a competitive program, projects should
not be required to secure building permits. Another commenter said
rooftops particularly should not require building permits in the
application. Further, one commenter requested that if a roof is found
to be unsuitable for installation of a facility, after an inspection,
that the application to the Program allow for the inclusion of a scope
of work contract to make the roof suitable, in lieu of attesting that
the roof is suitable. The commenter additionally requested that the
cost of such construction work be allowed to be included in the cost of
the overall installation.
The Treasury Department and the IRS considered these comments but
determined that a standard such as ``expects to receive'' or has
``proof of initiating'' with respect to required permits is not enough
to demonstrate sufficient project maturity to give assurances of the
viability of the project. As explained in the Proposed Rules, section
48(e)(4)(A) directs the Secretary to provide procedures to allow for an
efficient allocation process. Additionally, section 48(e)(4)(E)(i)
requires that facilities allocated an amount of Capacity Limitation be
placed in service within four years of the date of allocation.
Therefore, as explained in the Proposed Rules, the Treasury Department
and the IRS determined that to promote efficient allocation and to
ensure that allocations will be awarded to facilities that are
sufficiently viable and well defined to allow for a review for an
allocation and sufficiently advanced such that they are likely to meet
the four-year placed in service deadline, applicants are required to
submit certain documentation and attestations when applying for an
allocation. This requirement includes an attestation that the facility
has obtained all applicable Federal, State, Tribal, and local non-
ministerial permits, or that the facility is not required to obtain
such permits, which demonstrates completion of a critical project
milestone.
In response to the concerns commenters raised regarding the lack of
clarity with respect to the definition of non-ministerial permits, the
Treasury Department and the IRS included the following definition of
non-ministerial permits in Revenue Procedure 2023-27, clarifying that
building and electrical permits are not considered non-ministerial
permits. Revenue Procedure 2023-27 provides that non-ministerial
permits are defined as: ``Permits in which one or more officials or
agencies consider various factors and exercise some discretion in
deciding whether to issue or deny permits. This does not include
ministerial permits based upon a determination that the request
complies with established standards such as electrical or building
permits. Non-ministerial permits typically come with conditions and
usually require public notice or hearings. Examples of non-ministerial
permits include local planning board authorization, conditional use
permits, variances, and special orders.'' Lastly, on the question of
whether the appeals period for non-ministerial permits must have lapsed
prior to application submission, the lapse of this period is not a
requirement for application submission.
With respect to the comment about unsuitable roofs, applicants will
continue to be required to attest that the location of the qualifying
facility has been determined suitable for installation at application,
to give assurances of the viability of the project. Additionally, the
Treasury Department and the IRS cannot accommodate the request for the
cost of roof repairs to be includable in the overall cost of the
project, presumably, so that the repair costs are eligible costs for
determining the bonus credit amount. The statutory language provides
for the energy percentage increase with respect to eligible property
that is part of a solar or wind facility. The roof of a building is not
part of a solar or wind facility, and therefore, costs associated with
building improvements are not includable in the basis of the solar or
wind facility to determine the section 48(e) Increase.
2. Interconnection Agreements
Several commenters disagree with the documentation requirement in
the Proposed Rules that for FTM and BTM larger than 1 MW, a copy of the
final executed interconnection agreement, if applicable, is required.
Commenters suggested that requiring negotiated or approved
interconnection agreements is premature for the first application
period. Some commenters suggested an interconnection proxy, such as a
submitted interconnection application or some other documentation from
the utility that acknowledges the interconnection process has formally
begun.
Many commenters noted practical considerations. For example, a
commenter pointed out that an executed
[[Page 55531]]
interconnection agreement and all applicable permits are typically
received up to the date (and often after) a financial closing on a
transaction occurs; it is not anticipated that a debt and equity
investor will close on financing without prior receipt of an award
letter by the IRS. Therefore, the commenter argues that requiring such
documents at time of application will slow down the development
process, increase the cash requirements of a developer prior to
financial closing, and lengthen the construction timing. The commenter
instead suggests that these documents be required when the facility is
placed in service. As an alternative for the application, this
commenter suggests requiring teaming agreements be in place and that
each of the teaming parties provide a resume outlining at least 3 years
of experience obtaining permits and interconnection agreements within
the specified jurisdictions along with the number of renewable energy
facilities that each of the parties has placed in service in such
jurisdictions. Echoing that concern, another commenter suggested that
this requirement of mandating signed interconnection agreements sets a
high bar and would only make the Program accessible to those developers
with financing readily available for upgrades before being accepted
into the Program. Another commenter provided that an applicant should
not be disadvantaged due to stricter requirements on permitting and
interconnection agreements in one locality versus another. Another
commenter said that by requiring eligible projects to submit final
executed interconnection agreements, the Treasury Department and the
IRS prevent taxpayers in certain States from being able to apply for
capacity under the Program. The commenter explained that in California,
Connecticut, North Carolina, and Washington, DC, utilities often do not
execute or sign interconnection service agreements until after a
project has received permission to operate (PTO). The commenter noted
that a footnote in the Proposed Rules elaborates that if a taxpayer is
not able to present a signed interconnection agreement, the taxpayer
can instead submit a final written decision from the Public Utilities
Commission or other governing body or a signed conditional
interconnection approval letter that authorizes the facility. However,
the commenter said that these alternatives to providing an executed
interconnection agreement are infeasible in States and regions like
those listed. The commenter suggests as an alternative to the proposed
rulemaking, the Treasury Department and the IRS should allow taxpayers
to submit an unsigned or customer-signed contingent approval to
interconnect for projects located in utility zones that don't provide
executed interconnection agreements until PTO.
Other commenters suggested additional alternatives. For example,
instead of an executed interconnection agreement, a commenter suggested
allowing FTM facilities to submit interconnection applications and
studies. Another commenter also suggested proof of an interconnection
application stating it should be adequate given the differing processes
across utilities districts (which reiterates the comment earlier
describing limitations in certain States and Washington, DC) Another
suggestion for a larger project is proof that such project has an
active queue position and an attestation from the applicant that the
project is not in default, payment or otherwise, with the relevant
transmission and distribution companies. This commenter pointed out
that with the time required, most applicants with an actual executed
interconnection agreement started their projects before the IRA was
enacted. This commenter suggested that for future application rounds
for larger projects, an ``executed interconnection agreement'' may be a
more feasible expectation. Another commenter similarly suggested that
projects that are actively in the queue for interconnection, and
projects with a proposed timeline for site interconnection application
should suffice. Lastly, a commenter recommended that for BTM projects
smaller than 1 MW, a ``limited notice to proceed'' with an EPC
(engineering, procurement and construction) contractor authorizing the
EPC to produce a design for a renewable energy facility and apply for
interconnection should be considered adequate documentation in lieu of
an executed contract to purchase the energy facility.
The Treasury Department and the IRS considered these comments but
ultimately decided not to make a change to the interconnection
agreement requirements, and the proposed requirements are included in
Revenue Procedure 2023-27. For the same reasons explained earlier under
part X.A1. of this Summary of Comments and Explanation of Revisions
section, the interconnection agreement documentation requirements are
necessary to achieve Program goals including ensuring applications
represent mature, viable projects. In response to the comment that
these projects with executed interconnection agreements would have
begun prior to the implementation of the IRA, the Treasury Department
and the IRS believe that this issue will be mitigated as the Program
progresses.
Additionally, in response to the commenters who raised scenarios
where interconnection agreements are not possible or feasible, footnote
9 of the Proposed Rules explained that if the facility is located in a
market where the interconnection agreement cannot be signed prior to
construction of the facility or interconnection facilities, the
interconnection agreement requirement is satisfied by a signed
conditional approval letter from the jurisdictional utility and/or an
affidavit from a senior corporate officer of the applicant (or someone
with authority to bind the applicant) stating that an interconnection
agreement cannot be executed until after construction of the facility.
The Treasury Department and the IRS determined that this alternative
provided in the Proposed Rules covers the scenarios identified by
commenters. Lastly, a commenter requested clarification if an
interconnection service agreement (ISA) is amended after submission of
the initial application, whether this amendment must be submitted to
the Treasury Department and the IRS. Details on these procedural
requirements will be provided in later Program information.
3. 110 Percent Historical Customer Load
Generally, commente
[…truncated; see source link]Indexed from Federal Register on August 15, 2023.
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