Section 45Y Clean Electricity Production Credit and Section 48E Clean Electricity Investment Credit
Published Date: 1/15/2025
Rule
Summary
Starting January 15, 2025, new IRS rules make it easier for clean energy projects and energy storage to get tax credits. If you own or invest in clean electricity facilities placed in service after 2024, these rules help figure out emissions and credit eligibility. This means more money back for folks powering a greener future!
Analyzed Economic Effects
9 provisions identified: 3 benefits, 5 costs, 1 mixed.
Credit Phase-Out Trigger and Irreversible Determination
The applicable year that begins the section 45Y and 48E credit phase-out is the later of 2032 or the calendar year in which U.S. annual greenhouse gas (GHG) emissions from electricity production are equal to or less than 25 percent of 2022 emissions. The credit phases out over the four-year period after the applicable year, and the Treasury's determination of the applicable year cannot be reversed.
Final IRS Rules for Clean Electricity Credits
Starting January 15, 2025, final IRS regulations implement the clean electricity production credit (section 45Y) and clean electricity investment credit (section 48E). The rules apply to taxpayers claiming those credits with respect to qualified facilities or energy storage technologies placed in service after 2024.
Metering Standards for Credit Eligibility
The final rules require a metering device to meet the American National Standards Institute C12.1-2022 standard (or later revision), be revenue grade with +/-0.5% accuracy, and be properly calibrated and maintained. The regulations allow third-party operation (including remote operation) and do not require the meter to be located at the point of interconnection so long as it meets the standards.
Related-Party Sales Can't Bypass Metering Rule
The Treasury and IRS declined to adopt the Notice 2008-60 approach for section 45Y; a sale to a related person for resale does not count as a sale to an unrelated person for section 45Y purposes unless the qualified facility has a metering device owned and operated by an unrelated person as described in section 45Y(a)(1)(A)(ii).
10-Year Credit Period Tied to Original In-Service Date
A 'qualified facility' is treated as such only during the 10-year period beginning on the date the facility was originally placed in service. If a facility placed in service earlier later operates with zero GHG emissions, it may claim the section 45Y credit only for taxable years within that original 10-year window.
No De Minimis Emissions Exception Allowed
The final regulations do not create a de minimis exception: a facility must have a greenhouse gas emissions rate 'not greater than zero' to be a qualified facility for a taxable year. Temporary or limited periods of greater-than-zero emissions disqualify the facility for those taxable years, although the facility may qualify in other taxable years within its 10-year period if it meets the zero-emissions requirement then.
CHP and Nuclear Thermal Output Counting Toward Credits
For combined heat and power (CHP) property, thermal energy output is included when computing kilowatt-hours for the section 45Y credit (for example, 1 kWh electricity + 1 kWh thermal can count as 2 kWh). The final rules also permit using a nuclear reactor's thermal output as the functional equivalent of the 'lower heating value' for calculating CHP energy efficiency.
80/20 Rule Lets Some Retrofits Qualify as New
Under the 80/20 Rule a retrofitted qualified facility is treated as originally placed in service if the fair market value of used components in the unit of qualified facility is not more than 20 percent of the total value of that unit. The rule applies at the qualified facility level (not turbine-by-turbine for hydropower) and, if met, the facility may claim the full section 45Y credit rather than only credit for added capacity.
Energy Storage Technology (EST) Credit Clarifications
The final rules clarify that energy storage technology (EST) may include electrical or thermal storage (the provisions are disjunctive). An EST can be eligible for section 48E even if co-located with a qualified facility claiming section 45 or 45Y credits, but a unit of EST and a unit of qualified facility cannot share components for 48E. Electrical energy storage property must have a nameplate capacity of not less than 5 kWh, and the qualified investment for EST is the basis of the EST placed in service.
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