Article
Biogas IRA tax credit changes for municipal utilities in 2025
Feb. 27, 2025 · Authored by Doug Baldessari
The Inflation Reduction Act (IRA) has opened significant opportunities for municipal utilities to capitalize on biogas projects through substantial Investment Tax Credits (ITCs). These biogas investment tax credits, under the section 48 tax regime, have provided financial incentives for biogas energy properties, including digesters and biogas cleaning equipment. With the transition to the new section 48E tax regime for projects that begin construction on or after Jan. 1, 2025, the focus has shifted to electricity production and net-zero requirements. This change has important implications for municipal utilities, but the continued availability of direct pay provisions and the importance of timely project initiation remain crucial for maximizing these benefits.
Municipal utilities have had the ability to get very large tax credit incentives for eligible biogas projects through the IRA in the form of ITCs which can range from a few hundred thousand dollars to tens of millions of dollars. The base ITC percentage for eligible biogas energy property is 6% with the total ITC percentage normally ends up ranging from 30% - 50% of eligible biogas energy property costs when the prevailing wage and apprenticeship, domestic content and energy community requirements are met.
ITC Eligible projects that began construction by Dec. 31, 2024
These ITCs have been under the section 48 tax regime which is energy property based for projects which began construction (meeting IRS “begun construction” rules) by Dec. 31, 2024. Under section 48 these biogas-eligible assets for the ITC include all assets integral to the production of biogas, including digesters, biogas cleaning equipment and other improvements. Qualifying biogas assets under section 48 which could be used in the treatment process, produce energy, and be piped and sold to a nearby gas utility resulting in significant additional revenues for municipal utilities for the foreseeable future. Baker Tilly has been assisting with many municipal utilities to maximize ITCs for these and other qualifying ITC projects.
