Can You Claim the Advanced Energy Project Credit?

Originally put into place by the American Recovery and Reinvestment Act of 2009, an Advanced Energy Project Credit is a type of investment credit that has been renewed and then expanded. There are many incentives for participation in this program, including manufacturing, recycling, refining, and industrial decarbonization of critical materials processing in the name of clean energy.

When it comes to the Advanced Energy Project Credit, the base rate is 6% of the qualified investment that the taxpayer invested. This rate increases to 30% in the event that the advanced energy project meets the wage and apprenticeship requirements that are in place.

This project has been rather successful. In fact, thanks to the Inflation Reduction Act , a total of $10 billion is currently being allocated for these advanced energy project credits. According to the IRA, at least $4 billion must remain untouched so that it can be put toward these advanced energy projects instead.

These credits are intended to be put toward projects in Energy Communities Census Tracts. This is because no pre-IRA qualified advanced energy projects have been located. Meanwhile, certain coal mines are no longer accessible, and many coal-fired power plants are out of commission. For more information about this, you can reference Appendix C of Internal Revenue Bulletin Notice 2023-44 to read a thorough list of Energy Communities Census Tracts.

What is the goal of the Advanced Energy Project Credit?
The goal of the Advanced Energy Project Credit is to expand manufacturing capacity of the United States as well as clean energy jobs in the technology space. It is also intended to reduce greenhouse gas emissions in the American industrial sector while securing domestic supply chains that provide critical materials for the clean energy technology production process.

Three categories that qualifying advanced energy projects must fall into
If you are interested in applying for the Advanced Energy Project Credit, you can find concept paper materials on the Department of Energy's eXCHANGE portal. Simply download them and then submit them accordingly. 

Just note that one of these three categories must be applicable in order to receive the Advanced Energy Project Credit: 

• Clean energy manufacturing or recycling.
• Critical materials processing, refining and recycling.
• Industrial decarbonization.

Make sure you submit your application in a timely fashion, and ensure that the form is fully completed prior to submission. From there, your application will be looked at, evaluated and ranked based on its merit, not based on when you submit the application.

In terms of when the credit will be applied, it is generally allowed during the taxable year that pertains to when the eligible property is in service. If your application is accepted, you have two years from the date of the DOE's acceptance of your application to provide the DOE with evidence that you meet the requirements of the certification. 

What is the tax credit equal to?
The Advanced Energy Project Credit is equivalent to 30% of the investment costs associated with projects that meet preexisting wage and apprenticeship requirements. On the other hand, this credit equals 6% of those costs for projects that do not meet said requirements.

What qualifies a project for an Advanced Energy Project Credit?
Establishing, expanding or retrofitting an industrial or manufacturing facility with the aim of producing or recycling various items is crucial. This includes infrastructure intended for harnessing energy from sustainable sources, such as the sun, water, wind, geothermal reservoirs or other renewable resources.

Additionally, the focus extends to fuel cells, microturbines, energy storage systems and their components. Structures designed for the extraction, utilization or sequestration of carbon oxide emissions are prioritized as well. The initiative also encompasses equipment that is tailored for refining, electrolyzing and blending fuels, chemicals or products, as long as they are renewable while exhibiting low-carbon and low-emission characteristics.

Furthermore, attention is given to properties engineered for the creation of energy-conservation technologies as well as the development of electric or fuel-cell vehicles. They can be part of light, medium and heavy-duty categories as well as the associated charging infrastructure.

This comprehensive approach even includes hybrid vehicles as long as they weigh at least 14,000 pounds. Other cutting-edge energy facilities designed specifically to curtail greenhouse gas emissions are recognized as well.

The deployment of advanced technologies within industrial settings is geared toward achieving a noteworthy reduction of greenhouse gas emissions. The goal is to lower these emissions by 20% at a minimum.

With the Advanced Energy Project Credit, efforts are also directed toward re-equipping, expanding and founding industrial facilities. Similarly, there is a focus on processing, refining and recycling critical materials, which signifies a commitment to sustainable and environmentally responsible practices.
Are certain projects automatically excluded from the Advanced Energy Project Credit?

Yes, certain projects are automatically excluded from the Advanced Energy Project Credit. Projects that produce property for the purpose of refining or blending non-renewable transportation fuels are excluded from eligibility for this tax credit.

Ultimately, the DOE provides its input when it comes to the merits of any given project. The DOE also gives its recommendations to the IRS, and the IRS then has the final say as to which projects should receive this credit compared to those that should not.

It's important to remember that the IRS will only consider a project as eligible if the DOE provides a recommendation for the project first. In other words, the two government entities work together to award the Advanced Energy Project Credit to certain projects.

Feel free to look into the eXCHANGE portal; it is available online. When you are approved for a project that is eligible for the Advanced Energy Project Credit, the IRS will send a letter that allocates credits based on your qualified investment as a taxpayer. 
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Last but not least, taxpayers who have both placed projects in service within the two-year period required by the DOE and have notified the DOE of their proof of eligibility can claim the credit on their income tax returns. Just note that the claim must be made for the taxable year that the project was placed in service.

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