The Inflation Reduction Act permits certain smaller energy projects, those projects under 5 megawatts, to claim the Section 48 Credit with respect to interconnection costs. Previously, interconnection costs were ineligible for the Section 48 Credit. Under the IRA, energy projects under 5 megawatts can include the cost of qualified interconnection property in the project’s basis eligible for the ITC.
For this purpose, “qualified interconnection property” is defined as tangible property, excluding microgrid controllers, that is part of an addition, modification, or upgrade to a transmission or distribution system to facilitate interconnection, which is constructed, reconstructed, erected, or financed by a taxpayer and originally used by a utility under an interconnection agreement.
The rule applies to various types of energy projects listed in Section 48 and the IRA amendments to Section 48, e.g., wind, solar, qualified fuel cell, qualified biogas property, combined heat and power system, energy storage technology, etc.
