It’s not very often that investors appreciate the IRS, so this is a moment that we should celebrate!!!! Earlier this month the IRS issued Notice 2023-29 which provides guidance for energy projects to help investors understand whether or not they will qualify for various tax incentives. Like many of the press releases that come out of the IRS, this one comes with a lot of accounting jargon and tax code information, but the good news is, this Notice also comes with real clarity for investment in green energy projects. That might not be riveting news for everyone, but for investors with any history with investing in power generation, this could not be bigger news.
For decades, The United States has underinvested in power production and tax code was very much to blame. One of the struggles was that Congress loved having control so they could vote one way or another to impress their constituencies. But another was that the tax code never matched the duration of project life. When investing in big projects, it is critically important that investors are able to estimate significant inputs, and when investing in a highly regulated industry like energy it is even more critical.
Notice 2023-19 is far from a panacea, but for the first time ever, investors can now invest with the certainty that brownfield energy projects will qualify as part of the Energy Community in perpetuity, statistical areas using fossil fuels will be effective on a 12-month rolling basis and areas using coal will qualify in perpetuity. This new guidance opens these generally unusable spaces for cleaner energy investment and assures investors of the inputs put forth at the time of investment. One less uncertainty will allow incremental investment going forward. Sometimes just getting out of the way is the best option. Bravo IRS! This is great progress.
Sources: Allen & Overy, Pitchbook