Electric cooperatives can more easily harness the value of federal energy tax incentives in the coming years under new rules from the Treasury Department.

The Nov. 22 guidance ensures that co-ops breaking ground on qualifying projects before 2027 can get waivers on domestic content requirements for the direct-pay credits in certain circumstances, or until further guidance is issued. The flexibility provided by the new domestic content rules will relieve supply chain challenges for co-ops pursuing projects that can utilize the incentives.

Treasury's guidance comes after NRECA had pressed for clarity around the domestic content requirements.

“We appreciate the Treasury Department and IRS extending the domestic content wavier provision allowed by statute," said Paul Gutierrez, legislative affairs director for NRECA.

Congress gave electric co-ops direct access to energy innovation tax incentives under a provision championed by NRECA in the Inflation Reduction Act of 2022. To obtain full direct-pay credits, co-ops and other qualifying entities must source a certain portion of project materials from domestic suppliers.

Treasury's Nov. 22 guidance states that developers of applicable projects breaking ground before Jan. 1, 2027, can get a waiver from the domestic content requirements. To do so, they must attest that they qualify for exceptions due to lack of available domestic products or if the inclusion of U.S.-made steel, iron or manufactured products would raise facility construction costs by more than 25%.

The guidance gives co-ops some certainty that they can get a waiver if they cannot satisfy the IRA's domestic content requirements, Gutierrez said.

“Our members want to buy American-made products and will do their best to find manufactured products here in the U.S.," Gutierrez said. “But if they cannot find enough products, they should not be penalized and lose 100% of the direct-pay tax credits."

Projects that start construction in 2025 will see the value of their direct-pay credits reduced by 15% if they do not satisfy the domestic content standards or receive a waiver. Projects starting construction in 2026 or later will be ineligible for the incentives if they do not comply with the requirements or get a waiver.

Visit the direct-pay page on cooperative.com for more information.