- The Biden administration has finalized key rules for clean energy tax credits under the Inflation Reduction Act of 2022 (IRA).
- The final regulations provide detailed guidance on eligibility, compliance requirements, and benefits of clean energy credits.
Background
The IRA introduced historic clean energy subsidies, including Investment Tax Credits (ITC) and Production Tax Credits (PTC), to promote renewable energy production and reduce greenhouse gas (GHG) emissions. After extensive deliberation, the Biden administration has finalized critical rules for many of the legislation’s clean energy tax incentives.
The U.S. Department of Energy estimates the new and updated incentives, combined with other provisions from the IRA and Bipartisan Infrastructure Law, could save Americans up to $38 billion on utility bills by 2030.
Read on to learn about key considerations and how energy producers can prepare to take advantage of the tax credits.
Sections 48E & 45Y: Clean Electricity Investment & PTC
The Clean Electricity Investment and PTC under §§48E and 45Y, respectively, replace the former energy tax credits (§§48 and 45) phased out in 2024. The updated credits aim to encourage a wider range of clean energy investments.
The final regulations released on January 7 offer energy producers guidance on determining GHG emissions rates for electricity production, assessing eligibility, and petitioning for temporary or provisional emissions rates.
Key Considerations
- Eligibility: Unlike the former credits, the clean electricity credits are technology-neutral, focusing on emissions rather than specific technologies like solar, wind, geothermal, and fuel cells. The new credits expand eligibility to any technology (including hydropower, marine, hydrokinetic, nuclear, and waste energy) that meets GHG emissions thresholds.
- Timing: Projects starting after December 31, 2024 may qualify for the clean electricity credits, whereas projects that began prior to January 1, 2025 may be eligible for their original counterparts.
- Claiming the credit: Entities, including tax-exempt and governmental organizations, can now claim the credits through elective pay (also known as “direct payment”).
§45V: Clean Hydrogen Production Tax Credit
Section 45V’s clean hydrogen PTC aims to promote the development of low-carbon hydrogen production technologies for various applications, including industrial, transportation, and energy storage.
The final rules released by the Biden administration on January 3, 2025 define four tiers of credits based on lifecycle GHG emissions, with credits available for up to $3 per kilogram of clean hydrogen produced. Incentives are most generous for production methods with minimal emissions, such as electrolysis powered by renewables or nuclear sources.
Key Considerations
- Eligibility: To qualify, clean hydrogen must have lifecycle GHG emissions no greater than 4 kilograms of carbon dioxide equivalents per kilogram of hydrogen produced.
- Timing: Projects commencing before January 1, 2033 may be eligible for the clean hydrogen PTC.
- Prevailing wage and apprenticeship (PWA) requirements: Developers must meet specific labor standards, including PWA requirements, to claim the full credit amount.
What Energy Producers Can Do Now
Conduct a Full Project Inventory
Energy manufacturers and businesses should consider reviewing existing and planned projects to identify potential eligibility and opportunities under the IRA. In addition to emissions-based criteria, producers should assess a project’s ability to claim additional bonus credits, such as the domestic content and low-income community credits.
Note: Having an accurate lifecycle tracking system for GHG emissions is critical to determine if projects meet emissions-based qualification criteria.
Develop an In-Depth Tax Strategy
Certain projects may qualify for both PTC and ITC, allowing energy producers to boost tax savings. Consulting a tax advisor to conduct detailed analyses can help determine which credit opportunity is ideal for a given project. In general, PTC would be favorable for high-output renewable projects, while ITC may be advantageous for capital-intensive installations.
The IRS offers a detailed chart that can help identify applicable tax credit(s) for producers and investors.
Prepare for Tax Credit Transfers
The IRA allows for direct transferability of certain credits, allowing producers to monetize credits upfront rather than waiting for tax filings. The project finance industry is an exciting and rapidly growing sector that can play a significant role in funding large-scale infrastructure projects. Building relationships with potential credit buyers can help producers prepare for beneficial transfers in the future.
How Forvis Mazars Can Help
Forvis Mazars has a dedicated team focused on the evolving energy industry and its tax implications. Our advisors can help identify opportunities for tax credits, navigate compliance with eligibility requirements, and enhance tax credit benefits.