Executive Summary
The Investment Tax Credit (ITC) under Section 48 of the Internal Revenue Code provides significant incentives for solar energy development, including a base credit and bonus adders for meeting criteria such as prevailing wage and apprenticeship (PWA) requirements, domestic content, and location in energy communities. A key consideration for developers and owners is whether multiple solar sites—each qualifying as separate “energy properties”—should be aggregated into a single “energy project” for purposes of these bonuses. Aggregation does not impact the base ITC, which is calculated per energy property, but requires the entire grouped project to satisfy bonus requirements uniformly.
This white paper examines the IRS’s final regulations (TD 9993, published December 12, 2024) on when multiple sites owned by a common taxpayer may be combined. Grouping occurs if the sites share at least four of seven specified factors, such as contiguous land or shared agreements. We explore scenarios involving self-consumption of generated energy and power purchase agreements (PPAs) structured to either avoid or trigger aggregation. These insights aim to guide taxpayers in structuring projects to optimize ITC benefits while ensuring compliance.
Introduction
The Inflation Reduction Act (IRA) of 2022 expanded the ITC for renewable energy, introducing bonus credits that can increase the credit rate from 6% to 30% or more. However, these bonuses apply at the “energy project” level, potentially aggregating multiple sites into one unit for compliance purposes. This aggregation rule, finalized in Treasury regulations under §1.48-13, balances administrative efficiency with flexibility for developers.
For common owners—such as corporations, governmental entities, or related taxpayers under common control—multiple solar sites may be treated as a single energy project if they exhibit sufficient operational, contractual, or infrastructural integration. This paper draws on IRS guidance to outline the criteria and provides practical scenarios, focusing on self-consumption and PPA structures.
Background on the ITC and Energy Project Definition
The ITC allows taxpayers to claim a credit based on the qualified basis of “energy property,” such as solar photovoltaic systems. The base credit is generally 6% of basis (or 30% if PWA requirements are met), with adders up to 10-20% for domestic content or energy community location.
An “energy project” is defined as one or more energy properties that are part of a single project (§1.48-13(d)). Aggregation affects only the bonuses: the base ITC is computed separately per property, but bonuses require project-wide compliance. For instance, if sites are grouped, the entire project must meet domestic content thresholds; partial compliance disqualifies the bonuses for all.
The final regulations, building on proposed rules and prior “begun construction” notices (e.g., Notice 2013-29 and 2018-59), adopt a facts-and-circumstances test with a numerical threshold for clarity.
Ownership and Grouping Criteria
Ownership Requirement
Aggregation applies only if the sites are owned by a single taxpayer or related taxpayers treated as one (e.g., under common control per §1.52-1(b)). Ownership must be direct, based on the taxpayer’s basis in the property (§1.48-14(e)). For tax-exempt entities like school districts, elective payment under §6417 allows ITC eligibility.
The determination can be made at any point during construction or in the taxable year the last site is placed in service (§1.48-13(d)(2)).
Factors and Threshold
Multiple sites are grouped if at least four of the following seven factors are present (§1.48-13(d)(1)):
- Constructed on contiguous pieces of land.
- Described in a common power purchase agreement (PPA), thermal energy contract, or other off-take agreement.
- Have a common intertie.
- Share a common substation or thermal energy off-take point.
- Described in one or more common environmental or regulatory permits.
- Constructed pursuant to a single master construction contract.
- Financed pursuant to the same loan agreement.
This threshold was raised from two factors in the proposed regulations to four in the final rules, providing more flexibility and reducing unintended aggregations. No special threshold applies for projects under 5 MW; that limit relates only to qualified interconnection costs (§1.48-14(h)(3)).
Scenarios Involving Self-Consumption and PPA Agreements
Self-Consumption Scenarios
Self-consumption occurs when the owner uses the generated energy on-site (e.g., behind-the-meter systems), treating the owner as the common off-taker. This can contribute to the “common off-take agreement” factor if formalized, or imply integration via other shared elements.
- Scenario 1: School District Rooftop Solar (Aggregation Likely) A public school district installs solar arrays on three non-contiguous schools and an administrative building. The district self-consumes the energy for its operations, finances all sites via a single municipal bond issuance, uses one construction contractor under a master contract, and obtains unified environmental permits. No third-party PPA is involved. Factors met: Common permits (5), single master contract (6), same financing (7), and implied common off-taker via self-consumption (2). With four factors, the sites aggregate into one energy project. Bonuses apply project-wide, simplifying compliance but requiring uniform adherence (e.g., all sites must meet PWA). This mirrors an IRS example where a school district’s non-contiguous installations were grouped due to shared financing and construction.
- Scenario 2: Corporate Campus Microgrids (Avoiding Aggregation) A corporation deploys solar systems across five separate office buildings in different cities, each for on-site self-consumption. Sites are financed individually via separate loans, constructed under distinct contracts with different vendors, and permitted independently. No shared infrastructure exists. Factors met: Only the implied common off-taker via self-consumption (2). With fewer than four factors, sites remain separate energy properties. This allows tailored bonus claims (e.g., one site in an energy community qualifies independently) but increases administrative burden.
PPA Scenarios
PPAs involve selling energy to a third-party off-taker, often a utility. A common PPA can trigger factor 2, while shared infrastructure may add others.
- Scenario 3: Utility-Scale Solar Farms with Unified PPA (Aggregation Likely) A developer owns four solar farms on non-contiguous land but sells output to one utility under a single PPA. Sites share a common substation, are permitted together, and financed via one loan facility. Factors met: Common PPA/off-take (2), common substation (4), common permits (5), same financing (7). With four factors, aggregation occurs. The entire project must comply with bonuses uniformly, beneficial if all sites qualify but risky if one fails (e.g., domestic content shortfall).
- Scenario 4: Community Solar Projects with Separate PPAs (Avoiding Aggregation) The same developer structures five community solar sites, each with its own PPA to different local utilities or subscribers. Sites are on non-contiguous land, use separate interties and substations, have individual permits and construction contracts, and are financed independently. Factors met: None consistently (no common PPA, infrastructure, etc.). Sites avoid aggregation, enabling separate bonus claims. This structure suits diverse locations but may forgo economies of scale in contracting.
Conclusion
Aggregating multiple solar sites into one energy project under the ITC hinges on common ownership and at least four shared factors, impacting bonus credit eligibility while leaving the base credit unaffected. Self-consumption scenarios, like those for school districts or corporations, often lead to aggregation when paired with unified financing or contracts, as seen in IRS examples. PPA structures can be designed to trigger grouping for streamlined compliance or avoid it for flexibility.
Taxpayers should evaluate factors early and consult professionals, as determinations are fact-specific. Future IRS guidance may refine these rules, but the current framework promotes renewable deployment while ensuring equitable bonus application.
References
- U.S. Department of the Treasury and Internal Revenue Service. “Definition of Energy Property and Rules Applicable to the Energy Credit.” Federal Register, Vol. 89, No. 240 (December 12, 2024), pp. 100598–100665.
- IRS Notice 2013-29 and Notice 2018-59 (foundational “begun construction” guidance adapted in final regulations).
