The Definition of a Brownfield Site

Almost 18 months have passed since the implementation of the Inflation Reduction Act (IRA) by Congress. One significant provision of the IRA is the inclusion of an adder to the Investment Tax Credit (ITC) for renewable energy projects situated in an “energy community”. To be considered part of an energy community, a site can be classified as a brownfield. According to the IRA, a brownfield is simply a facility that meets the definition of a brownfield under the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA).

To put it simply, a brownfield site is one where hazardous substances, pollutants, or contaminants are present or potentially present. However, it cannot be classified as a Superfund site, a Resource Conservation and Recovery Act (RCRA) site, or a Toxic Substances Control Act (TSCA) site, among others. The details of this classification can be found in our blog post titled “It’s good to be a brownfield site – as long as it’s not too brown.“

IRS Guidance and Safe Harbors for Brownfield Sites

Since the enactment of the IRA, the Internal Revenue Service (IRS) has issued three guidance documents: IRS Notice 2023-29, IRS Notice 2023-45, and IRS Notice 2023-47. These documents not only provide valuable information but also establish “safe harbors” for qualifying brownfield sites. However, it’s important to note that these safe harbors are subject to certain statutory exclusions.

• Sites listed on federal or state brownfield lists
• Projects that have undergone an ASTM Phase II assessment, confirming the presence of hazardous substances, pollutants, or contaminants
• Projects with a nameplate capacity of not greater than 5MW (AC), which have undergone an ASTM Phase I assessment, identifying the presence or potential presence of hazardous substances, pollutants, or contaminants

The Impact of the IRA on the Market

1. Renewable energy developers are increasingly drawn towards brownfield sites due to the effectiveness of the IRA provisions. The level of activity in this area has significantly increased since the IRA’s implementation, demonstrating its success in driving renewable energy development.
2. Determining the applicability of exclusions can be more challenging than identifying the presence of hazardous substances. Unfortunately, the IRS has not provided any guidance on the exclusions, which is disappointing.
3. While the safe harbors were intended to be sufficient conditions for qualifying for the ITC adder, they have become necessary conditions in the market. In some cases, project financing parties are hesitant to proceed with projects that do not meet the safe harbor criteria, even if the facts support the applicability of the brownfield adder provision. Unintended consequences should be considered.
4. The practice of ASTM Phase I and Phase II site assessments is evolving to accommodate the brownfield adder and IRS safe harbor guidance. Previously, developers aimed for clean Phase I reports. Now, for renewable energy projects, developers prefer reports that identify minor contamination, as long as it doesn’t exceed certain thresholds. Additionally, more developers are opting for Phase II assessments to address any minor contamination flagged in the Phase I report.
5. Insurance companies are playing a crucial role in bridging the gap between project developers and financial partners. They offer insurance coverage against the risk of the IRS rejecting the availability of the brownfield adder.

The Future of Renewable Energy and Brownfield Sites

Overall, the IRA has successfully encouraged renewable energy development and directed it towards brownfield sites. However, there is still work to be done to address uncertainties regarding the definition of a brownfield and to streamline the application process. The impact of the IRA on the market is undeniable, and it continues to shape the future of renewable energy.