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Ext. PublicationEnergy Evolution – Updates to 48 ITC
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In this episode of Energy Evolution, hosts Dawn Rhea and Jon Pezzi revisit the Investment Tax Credit (ITC) and emphasize the importance of maintaining ownership of a facility for five years to avoid credit recapture. They also discuss the implications of prevailing wage and apprenticeship rules on both traditional and new technology-agnostic ITC structures, highlighting critical compliance factors for facilities and deal transfers.
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Detailed Description of Energy Evolution – Updates to 48 ITC
00:00:00
Dawn: Thank you so much for joining us. We wanted to check back in with our energy evolution audience and talk about something that we think folks may have forgotten about, and that is those folks that took a traditional 48 ITC on a facility, on the equipment of that facility.
00:00:21
Dawn: Something that we’re getting a lot of questions about, largely because a lot of deals closed in the fourth quarter is “hey, you know, I took that ITC last year. But I’m ready to sell this stupid thing, what do we do?”
00:00:31
Jon: Yeah, so the ITC is more than just you know, placing a facility in service and taking credit in the first year.
There’s two things that you need to consider: so, the first, as Dawn mentioned, is for the five-year period after the facility is placed in service, you cannot sell it. Otherwise, there is a recapture of the credit. I cannot stress that enough.
00:00:52
Jon: The facility has to remain not sold for a five-year period. That includes if it’s in a partnership solution that if you sell the partnership interest that could trigger recapture.
So, again for five years, you have to keep ownership of the facility the same.
00:01:10
Jon: The second thing is, and we kind of talked at length about this, but for repairs and alterations of that facility for that five-year period you must continue to follow the prevailing wage requirements in order to keep that max credit that you claimed in the first year.
00:01:26
Dawn: And so, Jon, what I think we also tell people for those longer run credits, just like we’re talking about here, you have to do prevailing wage and apprenticeship depending on whether or not you’re adding to the facility.
You have to do it for the life of the credit or for the recapture period.
00:01:43
Dawn: So, we see the prevailing wage in 45Z for the production. We see it in 45Q which people aren’t thinking about. Remember, that’s a 12-year credit, so you have to really think about monitoring prevailing wage over the term of that credit.
We also get the question on well, hey, you know, there’s these new technology agnostic credits that replace the ITC.
00:02:07
Dawn: Well, a couple of points. This is different from a traditional ITC in that you must produce electricity, right Jon?
00:02:13
Jon: Correct. Yeah, so, the switch from the traditional ITC, which was defined technologies to this technology agnostic, you know again, Dawn mentioned must generate electricity.
00:02:20
Dawn: Or store it, in fairness to the battery sector.
00:02:29
Jon: Right, so again technology agnostic means any kind of technology as long as you’re generating electricity.
00:02:34
Dawn: And have a zero CI score.
00:02:36
Jon: Yes, a zero CI score.
00:02:37
Dawn: So, it did aim to change, if you will, back to that zero CI scoring and of course, you have to have if you are going for a new ITC.
Not only as Jon talked about, you can’t transfer it, etc. You have to track prevailing wage for repairs and alterations, but remember for that new ITC you have to have apprenticeship as well, correct?
00:03:03
Dawn: So prevailing wage and apprenticeship before those things that are placed in service under the new ITC rules.
00:03:10
Jon: Correct. Yeah, I mean apprenticeship rules still apply. Not only for new builds, but if you have an existing facility and again going back to that recapture period if you’re adding to capacity to that facility then all of a sudden, you’re outside of the original rules and you’re back to the prevailing wage and apprenticeship to claim a credit on that build out of the existing facility.
00:03:29
Dawn: Perfect. So, I’m glad that we’ve covered kind of what you need to think about as far as recapture.
Transferring the facility especially in the fourth quarter with these older, if you will, put in service last year and placed in service last year, thinking about moving the chair decks of ownership. It matters.
00:03:51
Jon: Yeah. And I mean a lot of these facilities, especially with the old ITC, have been in service for a couple years now if they’re owned by you know, PE groups or something, they’re looking to likely move that within the five-year period and again not going to be able to do it with these rules.
00:04:07
Dawn: Absent bearing the burden of recapture.
00:04:11
Jon: Yep, and if you transfer the credit, that’s likely in a transfer agreement that you can’t sell.
And again, that includes potentially sale of partnership interest depending on how much you’re looking to sell, which could breach that agreement and generate recapture.
00:04:21
Dawn: Yep. So, look at when that thing was placed in service if you took an ITC. Did you transfer the credit? Review the transfer documents and really think long and hard before you want to transfer a facility.
00:04:38
Jon: Absolutely.
00:04:39
Dawn: Awesome. Thank you so much. We appreciate all of our energy evolution viewers, and we’ll be back soon.
