The Treasury Department and the IRS released the notice final rules for the Sec. 48 Energy Credit – also known as the Federal Investment Tax Credit (ITC). For decades, the ITC has spurred U.S. clean energy development by providing a tax credit for investments in qualifying clean energy real estate – generally 30% of the cost of the project, although the level of the credit in varies over time and by technology.
Credit: Primoris Renewable Energy
While the ITC has promoted clean energy projects, its effectiveness has been limited by the need for recurring short-term and retroactive legislative extensions, creating uncertainty and making it more difficult for clean energy developers to make investments and finance secure projects.
The Inflation Reduction Act extended the ITC – as well as the closely related Production Tax Credit (PTC) – until 2025, after which the ITC and the PTC will transition to a technology-neutral approach with credits that will be fully available for projects that begin construction at least until 2033.
“By ending short-term extensions of the ITC legislation, the Inflation Reduction Act has given clean energy project developers clarity and certainty to make major investments and produce new clean energy to meet growing electricity demand,” said US Deputy Treasury Secretary Wally Adeyemo. . “Today’s announcement will help lower consumers’ energy bills, strengthen America’s energy security and create good-paying jobs.”
While the final rules retain the core framework of the proposed rules and guidance from the Treasury Department and the IRS issued in November 2023, the final rules clarify the general rules for the ITC and its definitions of property eligible for the credit, based on 350 written comments from interested parties. Specific issues raised by commenters and addressed in the final rules include:
- Offshore wind: The final rules retain the clarification from the proposed rules that owners of offshore wind farms can claim credit for power conditioning and transmission equipment (e.g., submarine cables) that they own.
- Geothermal heat pumps: The final rules clarify that the owner of underground batteries can claim the ITC if he owns at least one heat pump used in combination with the batteries.
- Biogas: The final rules clarify what properties are qualified biogas properties and what is an integral part of qualified biogas properties.
- Definition of “energy project”: The final rules revise the definition of an energy project to require ownership of the energy property, plus four or more factors from a list of seven factors, and clarify that taxpayers may assess the factors at any time during construction or during the tax year in which energy properties are placed. employ.
- Co-located energy storage: The final rules clarify that a Sec. 48 credit (ITC) may be claimed for energy storage technology that is co-located with and shares power conditioning equipment with a qualified facility for which a Sec. 45 credits (PTC) are claimed.
- Hydrogen storage: The final rules clarify that hydrogen energy storage does not have to store hydrogen that is used solely as energy and not for other purposes.
Projects can claim the Sec. 48 ITC on projects where construction started before January 1, 2025. After that date, the ITC and PTC will transition to the technology-neutral “Clean Electricity Production Credit” (Sec. 45Y) and the “Clean Electricity Investment Credit” (Sec. 48E). Recognized technologies include wind, solar, hydro, marine and hydrokinetic technologies, nuclear fission and fusion, geothermal energy and certain forms of waste energy recovery (WERP).