For companies looking to take advantage of the incentives available in the U.S. through the Inflation Reduction Act and the Bipartisan Infrastructure Law, areas designated as “energy communities” offer potential benefits from their legacy locations and increased incentives under the law.
These communities, often located in regions historically dependent on fossil fuels, have existing infrastructure that can be leveraged for new energy generation or manufacturing. And any investment in these locations comes with either a 10% bump on top of existing production or investment tax credits.
What’s more, under the requirements for the government’s 48c tax credit program, $2.5 billion in financing has been earmarked exclusively for projects developed in these energy communities.
Areas identified as “”energy communities eligible for these investment tax credits can be found in this map, provided by the Department of Energy.
Understanding Energy Communities
Energy communities are typically defined as areas that have been disproportionately affected by environmental pollution or economic dislocation due to the decline of the fossil fuel industry. These communities often include former coal mining regions, areas with high levels of pollution, and economically disadvantaged zones. The concept of energy communities is rooted in ensuring a just transition, where the move to clean energy does not leave behind those who have historically relied on fossil fuel industries.
For more information about where to find energy communities, refer to this resource from the Department of Energy.
Benefits for Companies Investing in Energy Communities
Investing in energy communities presents numerous benefits for companies:
- Access to Incentives and Funding: Both the BIL and IRA offer substantial financial incentives and funding opportunities for companies willing to invest in energy communities. These incentives can lower the overall cost of projects and improve the return on investment.
- Positive Community Impact: By investing in energy communities, companies can contribute to economic revitalization and job creation in regions that have faced economic challenges. This can enhance the company’s reputation and strengthen community relations.
- Strategic Location Advantages: Energy communities often have strategic advantages, such as proximity to natural resources, existing infrastructure, and a skilled workforce. These factors can reduce operational costs and improve efficiency.
- Compliance with ESG Goals: Many companies are increasingly focused on meeting environmental, social, and governance (ESG) goals. Investing in energy communities aligns with these goals by promoting sustainable development and social equity.
Key Considerations for Companies
While the opportunities are significant, companies need to consider several factors when investing in energy communities:
- Community Engagement: Successful projects in energy communities require meaningful engagement with local stakeholders. Companies should work closely with community leaders, workers, and residents to ensure that projects meet local needs and gain community support.
- Regulatory Compliance: Companies must navigate federal, state, and local regulations when developing projects in energy communities. Understanding the regulatory landscape and ensuring compliance is crucial for project success.
- Long-term Viability: Companies should assess the long-term viability of projects in energy communities, considering factors such as market demand, technological advancements, and potential changes in policy.
Energy communities offer an opportunity for companies to invest in the clean energy transition while promoting economic revitalization and social equity. And the existence of existing infrastructure and enhanced federal credits may make energy communities attractive sites for manufacturing and development.