The U.S. Treasury and IRS have finalized rules for the Section 48 Energy Credit (Investment Tax Credit, or ITC), providing clean energy project developers with greater investment clarity. Historically, the ITC has supported clean energy development by offering a 30% tax credit for qualifying clean energy property investments.
The Inflation Reduction Act addressed previous limitations by extending the ITC until 2025 and transitioning to a tech-neutral approach with credits available through 2033. This change eliminates the past pattern of short-term, retroactive legislative extensions that created uncertainty for developers.
U.S. Deputy Secretary of the Treasury Wally Adeyemo highlighted the significance of these new rules, emphasizing potential benefits including:
- Lower consumer utility bills
- Enhanced U.S. energy security
- Job creation in the clean energy sector
The updated framework aims to accelerate clean energy investments and support the growth of America's clean energy economy.
Although the final rules retain the core framework of the proposed rules and guidance Treasury and the IRS issued in November 2023, the final rules clarify general rules for the ITC and its definitions of property eligible for the credit, informed by 350 written comments from stakeholders. Specific issues raised by commenters that the final rules address include:
- Offshore wind: The final rules retain the clarification made in the proposed rules that owners of offshore wind farms can claim the credit for power conditioning and transfer equipment (e.g., subsea cables) that they own.
- Geothermal heat pumps: The final rules clarify that the owner of underground coils can claim the ITC if they own at least one heat pump used in conjunction with the coils.
- Biogas: The final rules clarify what property is qualified biogas property and what is an integral part of qualified biogas property.
- Definition of “energy project”: The final rules revise the definition of energy project to require ownership of the energy properties plus four or more factors from a list of seven factors and clarify that taxpayers can assess the factors at any point during construction or during the taxable year energy properties are placed in service.
- Co-located energy storage: The final rules clarify that a section 48 credit may be claimed for energy storage technology that is co-located with and shares power conditioning equipment with a qualified facility for which a section 45 credit is claimed.
- Hydrogen storage: The final rules clarify that hydrogen energy storage property does not need to store hydrogen that is solely used as energy and not for other purposes.
