What Is the Qualifying Advanced Energy Project Credit?

The Qualifying Advanced Energy Project Credit, or 48C, is a federal tax incentive expanded by the Inflation Reduction Act to bolster the nation’s clean energy supply chain. The program’s goal is to encourage investment in domestic manufacturing, reduce industrial greenhouse gas emissions, and produce critical materials.

This incentive was structured as a competitive credit with a total of $10 billion available. Businesses had to apply to the Department of Energy (DOE) for an allocation. Successful applicants were awarded a portion of the total, which they can use to offset their federal tax liability once their project is completed and operational.

Project and Taxpayer Eligibility

The credit is available to the taxpayer who owns and will operate the qualifying advanced energy project. This entity is responsible for placing the facility in service and formally applies for the credit allocation. The program is not limited to specific types of business structures, as corporations, partnerships, and other entities that make a qualified investment are eligible.

A project must fall into one of three specific categories to be considered a “qualifying advanced energy project.”

• Facilities that produce or recycle specified advanced energy property. This includes equipment for solar, wind, and geothermal power generation, as well as manufacturing for fuel cells, energy storage systems, electric vehicles and their charging infrastructure, and equipment for modernizing the electric grid.
• Projects that re-equip an existing industrial or manufacturing facility with technology to reduce its greenhouse gas emissions by at least 20%. This can be achieved through low- or zero-carbon process heat systems, carbon capture technology, or other technologies that improve energy efficiency.
• Projects that re-equip, expand, or establish an industrial facility to process, refine, or recycle materials deemed critical for clean energy technologies. This addresses key vulnerabilities in the global supply chain for components like magnets and batteries.

Calculating the Credit Amount

The value of the Qualifying Advanced Energy Project Credit is determined by a two-tiered system based on labor standards. The base credit amount is 6% of the taxpayer’s qualified investment in the eligible project. This investment includes the costs of tangible property, such as buildings and equipment, that are integral to the project.

A higher credit rate of 30% is available for projects that meet specific prevailing wage and apprenticeship requirements. To secure the 30% rate, taxpayers must ensure that laborers and mechanics involved in the facility’s construction are paid at least the prevailing local wage as determined by the Department of Labor.

The apprenticeship requirement mandates that a certain percentage of total construction labor hours are performed by qualified apprentices from a registered program. To provide a targeted boost to regions historically dependent on traditional energy economies, the Inflation Reduction Act required that at least $4 billion of the total $10 billion in 48C credits be allocated to projects in designated energy communities.

Information and Documents for the Application

The application process for the 48C credit required extensive technical and financial documentation to support a project’s viability. Applicants were required to submit detailed technical review information, data supporting the project’s commercial readiness, and robust financial projections.

A workforce and community engagement plan was also necessary. This document outlined the project’s expected impact on the local community, including job creation, and detailed the applicant’s strategy for engaging with local stakeholders. All necessary forms and templates were available through the Department of Energy’s (DOE) 48C Portal.

The Application and Allocation Process

The $10 billion in credits was allocated across competitive funding rounds that concluded in early 2025. The process required applicants to first submit a Concept Paper to the Department of Energy through the official 48C Portal. After review, the DOE issued either a “letter of encouragement” or a “letter of discouragement” as an initial assessment.

Receiving a letter of encouragement signaled that the project appeared promising, and the applicant was invited to submit a Full Application. A letter of discouragement indicated that the project might be less competitive but did not prohibit an applicant from moving forward. Following the Full Application submission, the DOE conducted its review and provided allocation recommendations to the Internal Revenue Service (IRS), which made the final decisions.

Claiming the Credit After Allocation

Receiving a credit allocation from the IRS is conditional upon the taxpayer meeting subsequent requirements. The primary requirement is that the taxpayer must place the qualifying advanced energy project into service, meaning the facility must be completed and fully operational for its intended purpose.

The project must be placed in service within two years of the date the allocation letter was issued. Within this timeframe, the taxpayer must also formally notify the DOE that the project has met all certification requirements. The IRS then issues a final certification letter.

After the project is placed in service and the IRS has issued the certification, the taxpayer can claim the credit. The credit is claimed by filing IRS Form 3468, Investment Credit, with the taxpayer’s annual federal income tax return for the year the project was placed in service. Failure to meet the two-year deadline results in the forfeiture of the credit allocation.