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Latest IRA guidance to spur construction

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The US’ Internal Revenue Service (IRS) has started the clock for construction on new renewable projects before the new wage and apprentice requirements under the Inflation Reduction Act (IRA) take effect.

Construction is likely to be spurred as the guidance issued today stated new renewable energy, storage, hydrogen, biogas and carbon capture projects and electric vehicle charging infrastructure must be under construction by January 28, 2023, to be exempted from the new requirements. Meaning a developer must either start “physical work of a significant nature” or else “incur” at least 5% of the total project cost before the new deadline.

The IRA was signed into law by President Joe Biden in August and according to the Department of Energy “represents a historic, $369 billion investment in the modernization of the American energy system.”

David Burton, partner at law firm Norton Rose Fulbright, said the guidance – Notice 2022-61 – was “favorable” but the IRS rejected one industry request for a longer “continuity” safe harbor, which is the period from when construction is deemed to have begun to when the project is operational. Notice 2022-61 did not extend the 4 full calendar year period that generally applied under prior guidance. It did confirm, consistent with previous guidance, that offshore wind, projects on federal land and projects on Indian land have 10 full calendar years.

The Notice also left some questions unanswered, with the industry still seeking greater clarity on some fine print, which will need to be defined by labor law or be provided by the Department of Labor.

Developers had been wondering whether the wage and apprentice requirements apply not only to construction contracts, but also to operations and maintenance agreements.

For instance, after a project is complete the wage and apprentice rules, if the project is not grandfathered, apply to alterations and repairs.

“The Notice provides that alterations and repairs are defined by reference to labor law federal regulations,” said Burton. “However, those regulations are generic and refer to tasks like ‘painting and decorating’, so power project specific guidance is needed to provide clarity to project owners of their obligations during the operating life of a project."

Prevailing wages can be found at www.Sam.gov, according to the Notice, but the categories of construction listed are “heavy, highway and residential”, with the industry left presuming that power projects are “heavy.”

The Notice provides an email address, IRAprevailingwage@dol.gov, that taxpayers can use to request prevailing wages for jobs and locations not specified in www.Sam.gov.