By Carly Shannon, LEED AP BD+C, ENV SP, TRUE Advisor

Airports in the US have seen a flurry of sustainability and resilience grants over the past few years and have diligently competed for and secured critical funding. Still, many are missing out on opportunities available through the Inflation Reduction Act (IRA) – or at least those not managed by our friends at the Federal Aviation Administration (FAA). (A huge shout-out to the recent Fueling Aviation’s Sustainable Transition – Sustainable Aviation Fuels [FAST-SAF] awardees!)

One of the major gaps relates to the Section 48 Investment Tax Credit (ITC) covering a range of renewable and clean energy technologies, which was extended and expanded upon as part of the 2022 legislation. This oversight makes sense; historically, airports and other non-taxable entities were exempt from these tax credits and could only benefit indirectly from these through partnerships like Power Purchase Agreements (PPAs) with developers who monetized the credits. This is no longer the case – the IRA’s elective pay provision (commonly referred to as “direct pay”) changes the game. Airport sponsors can now achieve a base credit of 6%[2] on their investment in renewable energy projects and potentially 30% if prevailing wage and apprenticeship (PWA) requirements are met.[3] Further, 40% is within reach if you meet domestic content requirements – easier said than done for some technologies, but increasingly attainable as the IRA achieves its objectives of onshoring energy manufacturing and jobs. (There are two other bonus credits available to get to 50% and 60%, but these are not going to apply to all airports.)

So, where to start?

• Review your capital program – or your wish list – and identify eligible projects. Think solar, geothermal, combined heat and power (CHP) systems, battery storage, and more. The following link is a good resource for up-to-date guidance on the IRA’s credits including Section 48’s list of eligible projects: IRA-Related Tax Guidance | U.S. Department of the Treasury[4]
• Act quick. Beginning this year, the direct pay provision phases out for non-taxable entities if the domestic content requirements are not met. Projects that begin construction in 2024 and do not meet the requirements are only eligible for 90% of the credit, 85% if they begin in 2025, and 0 (yes, 0!) if they begin in 2026 or after. That “begin construction” caveat should be noted. You do not necessarily need to put the project in service this year or next to maintain eligibility, but there are certain conditions that come with this (e.g., a continuity requirement whereby you must show continuous work on the project from the date construction is deemed to begin until it is put in service).
  • Moving quickly will help you in other ways as well. For instance, the domestic content threshold for manufactured products rises incrementally from 40% to 55% between 2023 and 2026. In addition, you may be interested in certain technologies or equipment eligible under the current Section 48 ITC that will no longer be eligible under the Section 48E Clean Electricity ITC, which comes into effect in 2025. (There is, however, a small window within which you can choose to file for the existing tax credit or the new one.)
• Enhance your resilience of existing assets. Have solar already? Maybe you were one of the lucky airports who installed a PV array with federal funding. The IRA expanded tax credits to include stand-alone battery storage, which can enable continuous use of an otherwise-intermittent resource and mitigate your facilities’ risks from grid outages.
• Find your grant a dance partner. Unlike many federal grants, there is – so far – no restriction on pairing IRA tax credits with federal grants, as long as you do not “make money” from this stacking. As an example, if you have a $100 project (wouldn’t that be nice if we could get anything done with that amount?!) and receive a 75% grant but are eligible for a 30% tax credit, you can only receive $25 from the IRS.
• Think about your options. Not every airport wants the responsibility of owning their own energy generation system and dealing with potential operations and maintenance hassles. However, there are ways to mitigate these concerns, including dedicated O&M contracts.
• Understand the documentation and filing requirements. These will be different than your typical process for securing and monitoring grants, particularly if striving for that desirable 30% or 40% credit. The good news is that following many of the FAA’s grant requirements like those related to Davis-Bacon and Buy America will help, but there are important contrasts and gaps that will need to be filled. And since you will be filing IRA paperwork after the project is put in service, make sure you have all the boxes checked throughout development.
• Looking to show off a bit? Have some unique assets or partnerships at your airport? Broaden your aperture to other provisions within the IRA like those related to hydrogen, carbon capture, and SAF production.

This is all exciting, but admittedly a lot to navigate. Approach with enthusiasm, open eyes, and the right information to make sure you don’t leave money on the table.

[1] Information herein focuses on Investment Tax Credits (ITC), which are calculated based on the upfront cost of a project’s development; Production Tax Credits (PTC) have many similarities, but the payout is based on the annual generation amounts of the energy property.

[2] Ibid.

[3] Not required for projects less than one Megawatt (MW), which would be eligible for the full 30%.

[4] https://home.treasury.gov/policy-issues/inflation-reduction-act/ira-related-tax-guidance#:~:text=IRA-Related%20Tax%20Guidance.%20Last%20updated%20September

DISCLAIMER

This article was provided by a third party and, as such, the views expressed therein and/or presented are their own and may not represent or reflect the views of Airports Council International-North America (ACI-NA), its management, Board, or members. Readers should not act on the basis of any information contained in the blog without referring to applicable laws and regulations and/or without appropriate professional advice.