Understanding Energy Communities: Exploring Location-Based Categories under the IRA

When it comes to promoting clean energy investments and production, the U.S. Treasury Department, the U.S. Department of Energy, and the Internal Revenue Service issued guidance on the Inflation Reduction Act (IRA). The IRA includes a bonus tax credit of up to 10 percentage points for qualifying clean energy investments or a bonus credit of 10% for qualifying clear energy production if the projects are within an “energy community. ”However, to qualify for these incentives, projects must be within an "energy community." But what actually is an energy community? There are three types of location-based categories under the IRA, each with its own qualifying criteria. The first two are straightforward, while the third is more complex. Understanding these categories is crucial for businesses and developers looking to take advantage of the available tax credits and contribute to a sustainable future.

BROWNFIELDS

Designated by the US Environmental Protection Agency, brownfields are parcels of pollution-contaminated land, whose designation enables eligibility for funding that supports clean-up and redevelopment. 

These locations may be attractive to developers of all sizes - utility or community-scale solar, energy storage, and even manufacturing facilities.  While not all brownfield sites are suitable for energy development, there are over 25,000 brownfields distributed across the U.S. You’ll find the highest concentrations in the Midwest and Northeast.

COAL CLOSURES

You’re likely familiar with coal communities, arguably the most targeted of the three types of energy communities.  These communities are defined as “any census tract where a coal-fired power plant has closed since 2010, or a coal mine has closed since 2000, qualifies for additional incentives in the IRA, along with any adjacent tracts.”

STATISTICAL AREA

This area is more complex and subject to change as unemployment numbers are released on an annual basis. A metropolitan (MSA) or non-metropolitan statistical area (non-MSA) is defined by the Office of Management and Budget:

• Has or had at any time after 2009:

•  0.17 percent or greater direct employment related to the extraction, processing, transport, or storage of coal, oil, or natural gas; or 

• 25 percent or greater local tax revenues related to extraction, processing, transport, or storage of coal, oil, or natural gas

• AND unemployment is at or above the national average in the previous year.

Energy communities play a significant role in the promotion of clean energy investments and production. The brownfields, coal closures, and statistical areas outlined in the IRA offer unique opportunities for businesses to benefit from tax incentives while contributing to environmental and economic revitalization. These layers can be found in AO Prospect to help simplify your land siting when working on projects adhering to the IRA Guidelines.

If you are interested in taking advantage of the incentives in place for renewable development, it's essential to stay informed about the evolving landscape of energy communities and their qualifying criteria. By exploring these opportunities and making informed decisions, we can collectively accelerate the transition to a cleaner and more sustainable energy future. Book a demo with us to see how you can use AO Prospect to find energy communities and take your renewable development to the next level.