IRS Guidelines Proposed for Clean Electricity Tax Credits Requirements

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TL/DR –

The US Treasury Department and IRS have proposed guidance on how facilities can qualify for clean electricity tax credits under the Inflation Reduction Act. The guidance details specific technologies that would be eligible for these credits, including wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property. The proposal also includes a process by which taxpayers can request a Provisional Emissions Rate, and provides clarity on the inclusion of costs of interconnection-related property for lower-output clean energy facilities.


Proposed Clean Electricity Tax Credits to Support Net-Zero Emissions

New guidance from the Treasury Department and IRS outlines eligibility for clean electricity tax credits under the Inflation Reduction Act.

Existing Production Tax Credit (Section 45) and Investment Tax Credit (Section 48) will sunset in 2024, replaced by the Clean Electricity Production Credit (Section 45Y) and the Clean Electricity Investment Credit (Section 48E).

These tech-neutral tax credits, targeting net-zero greenhouse gas emissions, encourage new zero-emissions technologies and provide long-term certainty to clean energy project investors, according to the Treasury Department.

Specific Technologies Qualifying for Clean Electricity Credits

Treasury Secretary Janet Yellen believes these credits will drive growth and reduce utility bills. The guidance includes specific technologies like wind, solar, hydropower, marine and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property.

It also details how energy storage technologies can qualify for the Clean Electricity Investment Credit. Technologies that rely on combustion or gasification for electricity production must undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions.

Guidelines for Clean Energy Production

The Treasury Department is seeking comments on lifecycle analysis for combustion and gasification technologies. The current rules follow those from the existing Production and Investment Tax Credits. Any future updates must be accompanied by an analysis prepared by the U.S. Department of Energy’s National Labs.

Developers have the opportunity to request a Provisional Emissions Rate, which the Energy Department would administer with the National Labs. The rules also provide guidance on the inclusion of interconnection-related property costs for lower-output clean energy facilities.

Anticipated Impacts of Clean Electricity Tax Credits

Ray Long, CEO of the American Council on Renewable Energy, describes the guidance as a game-changing policy. He anticipates the technology-neutral tax credit to reduce the average annual electric bill by up to $95 by 2035 and increase clean energy capacity by up to 50%.

Public comments on the proposed guidance will be accepted for 60 days following publication, with a public hearing scheduled on Aug. 12 and 13.

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