The Inflation Reduction Act (IRA) provides a 10% tax credit bonus to solar projects located in “energy communities”. Low-income communities, Communities of Color, and Indigenous communities have long been forced to live near pipelines, coal plants, and refineries associated with the production of dirty fuels. These communities have historically relied on this industry to make a living but have also suffered severe health problems. A just energy transition thus requires public investments to provide geographically targeted economic benefits to regions that face challenges associated with a reduction or cessation of fossil fuel activities. This is the intent of the Energy Community Tax Credit Bonus.

How does the Federal Government define an Energy Community?

1. Established Brownfield Community

The site was previously determined by federal, state, territory, or federally recognized Indian tribal brownfield resources to meet the definition of a brownfield site: property “complicated by the presence or potential release of hazardous substances, pollutants or contaminants”.
A Phase II Environmental Site Assessment (Phase II) has been conducted at the site and confirmed the presence of a CERCLA pollutant, contaminant or hazardous substance.
For projects with a nameplate capacity of less than 5 megawatts of AC current, a Phase I Environmental Site Assessment (Phase I) has been completed at the site, (but does not explicitly require that a pollutant, contaminant, or hazardous substance be found during the Phase I.)

2. Fossil Fuel Employment Area

An area where 0.17% or greater direct employment or 25% or greater local tax revenues are related to the extraction, processing, transport, or storage of coal, oil, or natural gas and;
Has an unemployment rate at or above the national average unemployment rate for the previous year.

3. Coal Closure Communities

Has had a coal mine closed after 1999 or;
A coal-fired electric generating unit has been retired after 2009.

Is my Property in an Energy Community?

The federal government has developed two different maps to determine whether your property has already been assessed as a brownfield community or if it is located in one of the two remaining categories (Fossil Fuel Employment and Coal Closure communities). The process is straightforward: you only need to fall into one of these three criteria to be eligible for that tax credit bonus which is stackable with other tax credits.

For example, let’s take a look at New York State. This energy community tax credit bonus is most prevalent in the northern portions of upstate NY as seen in Syracuse, Ithaca, and Niagara County. All three of these communities suffer economic impacts due to coal closures making them eligible for this tax credit bonus.

When can I claim the Energy Community tax credit bonus?

If a solar project begins construction in a location that is an Energy Community as of the beginning of construction date, the location will be considered an Energy Community on the placed in-service date. This ensures that if you decide to invest in one of these communities, you will not be affected by census tract changes between the beginning of your construction and when the project is placed in service. Once your project is placed in service, then you can claim your tax credit bonus during your annual tax return.

Finally, don’t forget that this tax credit bonus is stackable with other tax credit bonuses such as the Low-Income Community tax credit bonus. If you need more information about this specific program, check out one of our latest blogposts.