Alert
Navigate Tech-Neutral Credits for Clean Energy Investments Under Final Rule
With the release of final regulations (TD 10024, RIN 1545-BR17) by the Treasury and IRS, taxpayers taking advantage of tech-neutral production and investment tax credits have more certainty surrounding their eligibility for and use of these credits.
Background
As part of the Inflation Reduction Act of 2022, the Section 45Y Clean Electricity Production Credit (PTC) and the Section 48E Clean Electricity Investment Credit (ITC), commonly called the tech-neutral credits, were enacted. The Section 45Y PTC and Section 48E ITC are available for electricity produced at a facility for which the greenhouse gas (GHG) emissions rate is zero or less.
Taxpayers have been awaiting detailed regulations for these new tech-neutral credits. Proposed regulations were published in June 2024 and final regulations have now been released, providing more certainty and clarity around the requirements for clean electricity technologies to qualify for the credits.
What Changes with the Final Regulations
The final rules largely adopt the proposed regulations without substantive change, including but not limited to the placed-in-service rules, the definition of qualified property, the 80/20 rule for existing facilities, and ownership requirements.
Notably, one of the items that stayed the same in the final version was the short list of facility categories that may be treated as having an emissions rate of not greater than zero, which includes: solar, wind, hydropower, marine and hydrokinetic, geothermal, nuclear fission, fusion energy, and certain waste energy recovery property.
There were, however, some modifications and additional details provided based on the comments received on the proposed regulations. While a full list of changes is out of scope for this alert, below are a few highlights.
Annual Table
The final rules retain the provision from the proposed rules dividing clean energy technologies into two buckets: those that use combustion and gasification (C&G facilities), and those that don’t (Non-C&G facilities). C&G facilities are required to complete a lifecycle analysis of GHG emissions, while Non-C&G facilities, such as solar and wind, are assumed to have a net-zero GHG emissions rate.
The Treasury and IRS will publish an annual table of qualifying zero-emissions technologies that don’t have to undergo the additional analysis. The first annual table was released on January 15, 2025 in Rev. Proc 2025-14 which confirms that the short list of facility categories listed above can be treated as having a net-zero GHG emissions rate.
The final rules also describe the process for future changes to these lists, including an analysis by the US Department of Energy’s national labs.
Hybrid Projects
Several commenters had concerns about claiming credits for co-located or hybrid projects that combine qualified facilities, such as solar generation facilities, and energy storage technologies. While the final regulations adopt the proposed rules, they also provide additional clarity on how taxpayers can handle hybrid systems in terms of credit eligibility and registration requirements.
Incremental Cost Rule
The final regulations introduce the Incremental Cost Rule from Section 48, which had been left out of the proposed regulations. Under this rule, if a component of qualified property under section 48E serves both qualified and non-qualified purposes, only the incremental cost of such component is included in the basis of the qualified facility or energy storage technology (EST).
The IRS declined, however, to include the Dual Use Rule, which historically was used in section 48 to address the treatment of EST that stored energy from a qualified source and a non-qualified source. This rule was determined to not be applicable to 45Y or 48E given that EST is now considered a separate type of energy property.
Emissions above Zero During a Credit Period
The final regulations declined commenters’ requests for a de minimis exception for periods in a tax year during which a facility has a GHG emissions rate greater than zero, even if for a limited time or in a limited amount. However, the final rules clarify that if a facility’s emissions go above zero in a taxable year, this does not prevent them from qualifying for the credit in any other taxable years in the credit period.
Effective Dates
- These regulations are effective as of January 15, 2025, and generally applicable to qualified facilities placed in service after December 31, 2024.
- Rules relating to the one megawatt exception have a delayed effective date of 60 days after the final regulations are published, or March 16, 2025.
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If you have questions about this guidance or other related concerns, contact your Moss Adams professional.