Ascend Analytics’ analysis of the Q1 2024 IRS guidance (IRS Notice 2024-30) and 2023 unemployment data indicates important changes to Energy Community Eligibility, significantly impacting certain developer projects.
On March 22nd, 2024, the IRS issued Notice 2024-30, the latest guidance regarding the Inflation Reduction Act’s lucrative Energy Community tax credit. This credit provides a 10% bonus to the Investment or Production Tax Credit of clean energy projects in brownfields, former coal communities, and statistical areas with both a) historical employment in certain fossil-fuel related industries and b) an unemployment rate higher than the national average in the previous year. This last category is of particular interest for several reasons:
Specifically, the IRS added two industries to their qualification (in bold below).
The new industries, particularly Natural Gas Distribution, are geographically diverse from the pre-existing set of qualifying sectors. The result, as shown in Figure 1, is an additional 118 counties newly eligible for the Energy Community credit. The bonus offered by the credit dramatically improves project economics, boosting returns for currently planned facilities. Critical to the Inflation Reduction Act’s goals, borderline-economic projects may also become profitable when they would have otherwise struggled to find investors.
The clean energy industry will benefit from the additional eligible areas, but some markets will benefit significantly more than others. In Table 2, Ascend calculated the nameplate capacity of wind, solar, and storage projects seeking interconnection in the newly eligible areas, revealing a wide gap between markets. CAISO is the clear winner, with over 44 GW located in newly eligible counties as of March 22. Meanwhile, SPP, NYISO, and ERCOT saw little to no change in the capacity of projects in qualifying areas.
However, projects in certain areas may not be in a position to benefit from their recent addition to the IRS’ list of qualifying areas. The IRS updates eligibility in May of each year, and based on the previous year’s unemployment rates, some of these areas will lose eligibility as quickly as they gained it. Development assets in regions where the 2022 unemployment rate was higher than the national average, but below the national average in 2023, may receive bad news when the IRS publishes its refresh in May (see gray areas in Figure 2 below).
Project developers in areas where eligibility will not be refreshed are left with limited options:
Conversely, some areas not on the IRS list of qualifying areas have experienced increases in their unemployment rate from 2022 to 2023 and will gain eligibility when the IRS refreshes their list of qualifying areas.
On April 19th, The Bureau of Labor Statistics (BLS) published the data the IRS will use to determine which of the potentially qualifying areas had a 2023 unemployment rate higher than the national average and will ultimately qualify during the upcoming May 2024 - April 2025 eligibility period. Ascend processed this same data and visualized expected changes to the statistical area category of Energy Communities in Figure 2.
When the IRS processes 2023’s unemployment data and publishes their updated list of qualifying areas, it will have once again inadvertently picked winners and losers. In Table 3, Ascend calculated the capacity of wind, solar, and storage projects in counties whose eligibility is expected to change. CAISO again sees clear benefits and is expected to pick up nearly 15 GW of projects in qualifying areas. The effect in other markets is mixed. Notably, urban areas in ERCOT containing nearly 27GW of development projects are expected to gain eligibility, while rural counties, primarily in ERCOT’s West Zone, containing a staggering 62 GW of projects are expected to lose eligibility.
This news may come as a shock to many developers in West Texas, who favor the region for its cheap land, high solar and wind resources, and for the past year, its eligibility for the Energy Community tax credit. But it is possible to gain insight into Energy Community re-qualification risk ahead of time. The official IRS notices give information on whether an area’s previous year’s unemployment rate was above or below the national average, but they do not provide insight into the magnitude of the margin, nor historical trends. Recognizing the potentially predictive value of that data, Ascend’s Market Intelligence Maps calculate and visualize the difference between the relevant statistical area’s unemployment rate and the national average for each county in the US back to 2011, as seen in Figure 3.
Taking the West Texas non-metropolitan area as an example, Ascend’s data gives two key insights that alerted Ascend clients on the risk of losing eligibility in the upcoming annual refresh, even before the latest unemployment data was published by the BLS:
If you are interested in learning more about Ascend’s latest Energy Community updates and interactive map layers please visit Insights (ascendanalytics.com) or email us at sales@ascendanalytics.com to talk to an expert.
Ascend Analytics’ analysis of the Q1 2024 IRS guidance (IRS Notice 2024-30) and 2023 unemployment data indicates important changes to Energy Community Eligibility, significantly impacting certain developer projects.
On March 22nd, 2024, the IRS issued Notice 2024-30, the latest guidance regarding the Inflation Reduction Act’s lucrative Energy Community tax credit. This credit provides a 10% bonus to the Investment or Production Tax Credit of clean energy projects in brownfields, former coal communities, and statistical areas with both a) historical employment in certain fossil-fuel related industries and b) an unemployment rate higher than the national average in the previous year. This last category is of particular interest for several reasons:
Specifically, the IRS added two industries to their qualification (in bold below).
The new industries, particularly Natural Gas Distribution, are geographically diverse from the pre-existing set of qualifying sectors. The result, as shown in Figure 1, is an additional 118 counties newly eligible for the Energy Community credit. The bonus offered by the credit dramatically improves project economics, boosting returns for currently planned facilities. Critical to the Inflation Reduction Act’s goals, borderline-economic projects may also become profitable when they would have otherwise struggled to find investors.
The clean energy industry will benefit from the additional eligible areas, but some markets will benefit significantly more than others. In Table 2, Ascend calculated the nameplate capacity of wind, solar, and storage projects seeking interconnection in the newly eligible areas, revealing a wide gap between markets. CAISO is the clear winner, with over 44 GW located in newly eligible counties as of March 22. Meanwhile, SPP, NYISO, and ERCOT saw little to no change in the capacity of projects in qualifying areas.
However, projects in certain areas may not be in a position to benefit from their recent addition to the IRS’ list of qualifying areas. The IRS updates eligibility in May of each year, and based on the previous year’s unemployment rates, some of these areas will lose eligibility as quickly as they gained it. Development assets in regions where the 2022 unemployment rate was higher than the national average, but below the national average in 2023, may receive bad news when the IRS publishes its refresh in May (see gray areas in Figure 2 below).
Project developers in areas where eligibility will not be refreshed are left with limited options:
Conversely, some areas not on the IRS list of qualifying areas have experienced increases in their unemployment rate from 2022 to 2023 and will gain eligibility when the IRS refreshes their list of qualifying areas.
On April 19th, The Bureau of Labor Statistics (BLS) published the data the IRS will use to determine which of the potentially qualifying areas had a 2023 unemployment rate higher than the national average and will ultimately qualify during the upcoming May 2024 - April 2025 eligibility period. Ascend processed this same data and visualized expected changes to the statistical area category of Energy Communities in Figure 2.
When the IRS processes 2023’s unemployment data and publishes their updated list of qualifying areas, it will have once again inadvertently picked winners and losers. In Table 3, Ascend calculated the capacity of wind, solar, and storage projects in counties whose eligibility is expected to change. CAISO again sees clear benefits and is expected to pick up nearly 15 GW of projects in qualifying areas. The effect in other markets is mixed. Notably, urban areas in ERCOT containing nearly 27GW of development projects are expected to gain eligibility, while rural counties, primarily in ERCOT’s West Zone, containing a staggering 62 GW of projects are expected to lose eligibility.
This news may come as a shock to many developers in West Texas, who favor the region for its cheap land, high solar and wind resources, and for the past year, its eligibility for the Energy Community tax credit. But it is possible to gain insight into Energy Community re-qualification risk ahead of time. The official IRS notices give information on whether an area’s previous year’s unemployment rate was above or below the national average, but they do not provide insight into the magnitude of the margin, nor historical trends. Recognizing the potentially predictive value of that data, Ascend’s Market Intelligence Maps calculate and visualize the difference between the relevant statistical area’s unemployment rate and the national average for each county in the US back to 2011, as seen in Figure 3.
Taking the West Texas non-metropolitan area as an example, Ascend’s data gives two key insights that alerted Ascend clients on the risk of losing eligibility in the upcoming annual refresh, even before the latest unemployment data was published by the BLS:
If you are interested in learning more about Ascend’s latest Energy Community updates and interactive map layers please visit Insights (ascendanalytics.com) or email us at sales@ascendanalytics.com to talk to an expert.
Ascend Analytics is the leader provider of market intelligence and analytics solutions for the energy transition. The company's offerings enable decision makers in power development and supply procurement to maximize the value of planning, operating, and managing risk for renewable, storage, and other assets. From real-time to 30-year horizons, their forecasts and insights are at the foundation of over $50 billion in project financing assessments. Ascend provides energy market stakeholders with the clarity and confidence to successfully navigate the rapidly shifting energy landscape.