Wind

US clarifies offshore wind eligible for 10% 'energy community' tax credit boost

Projects with substations in districts impacted by fossil fuel activities will benefit, but scarce points of interconnection may limit application

Treasury. The US Treasury Department in Washington, DC.
Treasury. The US Treasury Department in Washington, DC.Foto: PINGNews
  • Tim Ferry

US government draft guidance issued Tuesday on application of federal tax credits in the Inflation Reduction Act (IRA) confirms that offshore wind farms are eligible for a 10% adder if their onshore substations are located in “energy communities”.

IRA, the nation's landmark climate law that took effect last August, defines energy communities as districts that have been impacted by industrial activities particularly related to fossil fuel usage, including power generation.

Assuming prevailing wage and apprenticeship requirements are met, an offshore wind project located within a recognised energy community could benefit beyond a 30% investment tax credit (ITC).

US Department of Treasury guidance confirms that while wind turbines would be offshore, if the substation nearest the point of interconnection is within a qualified area, “the taxpayer may claim an increased credit rate”.

“We welcome Treasury’s clarification in defining a path for offshore wind projects to qualify for the energy community bonus by interconnecting to a substation located within a qualified community,” said Jose Zayas, executive vice president of policy and programmes for American Council on Renewable Energy.

“This is an important recognition that the emerging offshore wind sector will not only play a critical role in decarbonising our nation’s electricity mix, but also be critical in revitalizing coastal communities through economic development and the creation of high-paying jobs,” he added.

Inclusion of substations into Treasury's guidance would benefit offshore wind projects that are already leveraging shuttered fossil fuel assets for points of interconnection (POI).

The Shell-Ocean Winds joint venture (JV) of SouthCoast Wind will deploy substations at the now defunct Brayton Point coal fired power station in Somerset, Massachusetts. It is located within the confines of an energy community district, per the mapping tool released along with the guidance by Treasury. This would enable the 1.2GW project to take advantage of the energy community tax credit adder.
Orsted’s 1.1GW Ocean Wind 1 project will use a substation at the shuttered BL England coal fired generating station in Marmora, New Jersey, also in a qualified district.

Limited impact?

Wood Mackenzie’s Samantha Woodworth said that the energy community adder will likely have limited impact on the offshore wind sector, though, noting that projects are already constrained by the limited POI options.

“I think the industry is treating that as a nice coincidence instead of targeting to interconnect in those areas specifically, since interconnection points for these massive projects are limited to begin with,” she told Recharge.

Sam Salustro, vice president for communications with trade group Business Network for Offshore Wind lauded inclusion of onshore substations for offshore wind projects into Treasury’s guidance while warning “more will be needed to unlock our transmission bottleneck”.

Transmission concerns are top of mind for the nation's offshore wind industry, with 30GW of capacity targeted by the Biden White House for interconnection by 2030, and the industry is urging action on coordinated multi-project transmission.

“Our tax code should further incentivise the development of shared transmission projects that stretch across states or regions, not just project by project,” he said.

Treasury's guidance on energy communities is open to comment until 4 May.

(Copyright)
Published 6 April 2023, 16:57Updated 6 April 2023, 16:58
AmericasUSSouthCoast WindOrstedDepartment of Treasury