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Key Takeaways | Guidance on the Wage and Apprenticeship Provisions

The Navigating the New Energy Landscape webinar series came back last week for a special bonus session that focused on the just-released Internal Revenue Service (IRS) guidance on the wage and apprenticeship provisions included in the Inflation Reduction Act of 2022 (IRA).

During this webinar, McDermott Partners Heather Cooper and Philip Tingle walk through the new guidance, covering key issues and drilling down into the impact of the 60-day countdown clock for which developers have to implement these provisions or face the loss of critical tax benefits for their renewable energy projects.

Below are key takeaways from the discussion:

1. IRS Notice 2022-61 provides additional guidance on the prevailing wage and apprenticeship requirements included in the IRA, which apply to a broad range of energy tax credits. Projects that do not meet these requirements potentially face an 80% reduction to any applicable energy tax credits. However, due to the 60-day delay between the release of the guidance and when the rules take effect, projects that begin construction before January 30, 2023, will not be subject to the requirements.

2. Notice 2022-61 also provides clarification (largely by reference) to existing US Department of Labor (DOL) regulations and prior IRS guidance. For example, it clarified that the existing IRS framework for determining the beginning of construction will be preserved. Other developments include a contemporaneous recordkeeping requirement necessary to establish compliance with the prevailing wage and apprenticeship requirements, clarification on the good faith effort exception to the apprenticeship requirements, and a new DOL email address for questions regarding prevailing wage determinations.

3. Despite this guidance, many questions remain unanswered. While many key definitions and rules are clarified by reference to DOL rules, this has not eliminated uncertainty regarding their implementation. McDermott’s energy & project finance team is working closely with the Firm’s employment team to tap into their vast experience with the DOL.

4. These developments raise many new considerations for developers. Those that can start construction before January 30 may wish to determine how to meet the beginning of construction requirements promptly and effectively before the guidance takes effect. Those that cannot start construction before January 30 will need to consider how to manage potential risks that arise from the new rules. This could require additional transactional scrutiny when drafting and negotiating around compliance.

To access past webinars in the Navigating the New Energy Landscape series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




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Key Takeaways | In the Room Where It Happened

On August 25, McDermott Will & Emery kicked off its latest 10-part weekly webinar series focused on navigating the new energy landscape following the enactment of the Inflation Reduction Act of 2022 (the Act)—the largest and most important climate action in US history.

During the first webinar, McDermott Partners Carl Fleming and Edward Zaelke hosted Greg Wetstone, president and CEO of the American Council on Renewable Energy (ACORE), for a discussion on the conversations leading up to this historic legislation and its future impact on the renewable energy industry.

Below are key takeaways from the discussion:

1. The Act represents a major win for the renewable energy industry, particularly its extension of tax credits up to a 10-year (or potentially longer) period, allowing businesses in the energy sector to plan on stable tax platforms for longer than a couple of years—something that is truly unprecedented for the renewables industry. Other major highlights include the introduction of tax credits for energy storage and new technologies, such as hydrogen, programs to encourage domestic manufacturing and the monetization of tax credits. The McDermott Energy & Project Finance team has already seen a spike in standalone energy storage mergers and acquisitions (M&A) activity and a heightened interest in financing structures.

2. Of further noteworthy importance is the Act’s introduction of the ability to transfer tax credits. Although the direct pay provisions of the Act were not as broad as hoped for by many, Greg believes that the transferability provisions will have a significant impact on the renewable energy market. In his view, the constraints on transferability are minimal and allow for the monetization of credits without partnership flips or sale-leasebacks, although there may still be a role for these types of transactions. According to Greg, the market will likely see a mix of tax equity structures and other kinds of financing as there is now more latitude as to how to monetize these credits. The Energy & Project Finance team is currently advising on a number of innovative structures to allow clients to capitalize on this new game changer for tax credits.

3. Another notable feature of the Act is the ability to stack credits related to domestic content, energy communities and wage and apprenticeship requirements. Although further regulations and guidance are needed in these areas, it is agreed amongst industry specialists that appropriately stacking these incentives could make renewable energy projects much more lucrative while creating beneficial societal impacts, such as building a domestic workforce and supply chain and transitioning away from fossil fuel-driven economies. The Energy & Project Finance team is working with various clients to narrow down such requirements and to help properly “stack” these credits.

4. Reducing greenhouse gas emissions was a true driving force behind the Act and is a meaningful step toward addressing climate issues. However, the devil will be in the details regarding how [...]

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