US to Shell Out $4B in First Round of Advanced Energy Tax Credit

The United States Department of Energy (DOE) has announced $4 billion in tax reductions for projects that grow the domestic supply chain for clean energy and critical minerals, as well as industrial decarbonization projects.

Over 100 projects across 35 states have been selected for the first round of the Advanced Energy Tax Credit, a $10 billion incentive created by the Biden administration’s Inflation Reduction Act (IRA).

The projects “span across large, medium, and small businesses and state and local governments, all of which must meet prevailing wage and apprenticeship requirements to receive a 30 percent investment tax credit”, the DOE said in a new release.

The bulk of the first-round credits at $2.7 billion has been set aside “for the buildout of U.S. manufacturing capabilities critical for clean energy deployment and span clean hydrogen (e.g., electrolyzers, fuel cells, and subcomponents), grid (e.g., cables, conductors, transformers, and energy storage), electric vehicles (e.g., battery components, power electronics), nuclear power, solar PV, and wind energy (including offshore wind components), among other industries and components critical to supporting secure and resilient domestic clean energy supply chains”, the announcement stated.

The DOE has allocated $800 million for projects involved “in multiple electrical steel applications, lithium-ion battery recycling, and rare earth projects, all critical areas for maintaining a secure, reliable energy system and advancing the clean energy transition”.

For industrial decarbonization, the department has earmarkedn $500 million. “Selected projects would implement decarbonization measures across diverse sectors, including chemicals, food and beverage, pulp and paper, biofuels, glass, ceramics, iron and steel, automotive manufacturing, and building materials”, the DOE said. “Low-carbon fuels, feedstocks, and energy sources are well-represented as a solution for decarbonization across these projects”.

The tax credit, created by the 2009 American Recovery and Reinvestment Act through Internal Revenue Service (IRS) Section 48C and expanded by the 2022 IRA, “will help to catalyze the nation’s equitable transition to a clean, secure, affordable, and resilient energy system, reduce industrial greenhouse gas emissions, and create high-quality jobs across the country”, the DOE said.

For the duration of the IRA-funded 48C, at least $4 billion must go to communities with closed coal mines or coal plants, as specified by the IRS.

In the first round, $1.5 billion has been allotted for projects in “historic energy communities”, the DOE said without elaborating.

Applicants that submitted proposals in the first round had sought a total of $42 billion. Those who went on to file full applications requested a total of $13.5 billion, according to the DOE.

“From direct grants to historic tax credits, the President’s Investing in America agenda is making the nation an irresistible place to invest in clean energy manufacturing”, Energy Secretary Jennifer M. Granholm said in a statement, referring to President Joe Biden’s umbrella campaign to boost the country’s infrastructure and manufacturing capacity. “The President’s agenda places direct emphasis on communities that have traditionally powered our nation for generations, helping ensure those communities reap the economic benefits of the clean energy transition and continue to play a leading role in building up the next wave of energy sources”.

Projects picked for the tax credit must start operating two years after certification, according to the DOE.

For the second round, the DOE and the IRS will issue a solicitation notice for project proposals “in the coming months”, the DOE said.

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