December 11, 2023

Section 48 Investment Tax Credit for Offshore Wind and Energy Storage

At a Glance

  • Offshore wind and energy storage developers will see more aspects of their infrastructure projects qualify for Section 48 tax credits.
  • The guidance clarifies that every owner of a project can receive Section 48 tax credits.
  • Comments are due January 21, 2024.
  • In the run-up to the 2024 elections, we expect to see additional guidance and federal funding released by the Biden administration as they race to implement the Inflation Reduction Act (IRA).

The Department of the Treasury (DOT), through the Internal Revenue Service (IRS) and in consultation with the Department of Energy (DOE), released new draft guidance on Section 48 tax credits, as well as updated guidance in relation to prevailing wage and apprenticeship requirements. This notice of proposed rulemaking (NPRM) specifically targets the Investment Tax Credit (ITC) under Section 48 of the Internal Revenue Code and clarifies guidance on offshore wind and stand-alone battery storage projects, in addition to small scale projects that connect to the larger grid. This guidance builds on past announcements regarding the rollout of the Inflation Reduction Act (IRA), and focuses on clarifying existing regulations.


The proposed changes to the Section 48 ITC are targeted, but are particularly important for the offshore wind industry. The guidance comes at a critical time for the offshore wind sector as several northeastern governors warn the administration that the industry is in peril. The concern follows a decision earlier this month by Danish offshore wind developer Ørsted to cancel its Ocean Wind project off the coast of New Jersey, and as nearly a quarter of offshore-wind powered contracts have been canceled. The Section 48 ITC was first created in 1978, but was amended as part of the IRA to increase investments in renewable energy projects. The overall amount of the ITC changes are based on certain metrics that developers achieve, such as meeting domestic content thresholds, utilization of prevailing wage and meeting apprenticeship requirements.

What Changed?

The Section 48 investment tax credit would provide a base credit of 6% to qualifying projects under the guidance, and would expand the eligibility to energy storage projects, and more components of offshore-wind infrastructure. Specifically, the NPRM identifies subsea export cables and voltage transformers as two aspects of the project infrastructure that now qualify under Section 48.

The guidance also clarifies eligibility for projects where there are multiple owners, a common practice on larger energy projects. The guidance specifies that “a taxpayer that owns an energy property is eligible for the section 48 credit only to the extent of the taxpayer’s eligible basis in the energy property. In the case of multiple parties that hold ownership shares in an energy property, each party is eligible for the section 48 credit to the extent of the party’s fractional ownership interest.”

On top of the expanded eligibility under Section 48, the guidance makes certain changes to the bonus energy credit system established under prior guidance. The draft guidance amends proposed regulations released in June 2023 and addresses the clawback mechanisms for failing to satisfy the prevailing wage and apprenticeship requirements, in addition to the “statutory exception energy projects with a maximum output of less than 1 MW in section 48(a)(9)(B)(i).”

What Didn’t Change?

One top remaining priority is the amendment of the definition of an energy community in relation to offshore wind. Energy communities, or areas that have historically depended upon oil and gas or coal production and have higher than average unemployment, can provide a bonus credit to qualifying projects. The problem is that it is difficult to meet those requirements for offshore wind projects under the current rules. Expect continued efforts by stakeholders to have that, amid other priorities, addressed in subsequent guidance and the anticipated final rule.

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