The U.S. Treasury Department has released further proposed guidance on IRAs, detailing a path to support a broad range of technologies, including solar photovoltaics, with tax credits and clarifying a number of additional tax-related topics in the updated guidance.
The U.S. Treasury Department and Internal Revenue Service (IRS) have issued proposed guidance to eliminate the existing Investment Tax Credit (Section 45) and Production Tax Credit (Section 48) of the Inflation Control Act. This transition will consolidate all clean energy generation projects, including wind and solar, into the technology-neutral Clean Electricity Production Tax Credit (Section 45Y) and Clean Electricity Investment Tax Credit (Section 48E). These new tax credit sections will apply to all projects that come into operation after December 31, 2024.
The IRS said in a press release that the goal of this new structure is to create a consistent framework for all clean energy technologies.
Technologies permitted in today's Notice of Proposed Rulemaking (NPRM) include wind, solar, hydroelectric, marine and hydroelectric, nuclear fission and fusion, geothermal, and certain types of waste-to-energy recovery assets (WERPs). The proposed guidance also clarifies the conditions under which energy storage technologies are eligible for the Clean Electricity Investment Credit.
While the document acknowledges technologies that may be dependent on fossil fuels for part of their life cycle, the IRS specifies that these products must include a life cycle greenhouse gas analysis and demonstrate net-zero emissions.
According to the American Council on Renewable Energy (ACORE), the tax credit is projected to “lower the average annual electricity bill per household by $29.74 by 2030 and $42.95 by 2035.”
Ray Long, president and CEO of ACORE, called the policy “groundbreaking,” saying, “This tax credit will increase America's energy security and reliability by deploying new, clean generation from wind, solar, battery storage and other zero-carbon technologies. Analysis shows that clean energy capacity is expected to increase by up to 50 percent by 2035.”
The IRS noted that the NPRM also outlined how the tax credit would apply to interconnection costs for projects less than 5 MWac. These costs incurred by solar projects to upgrade regional electric transmission and distribution grids are currently eligible for the investment tax credit under section 48, which the IRA has amended to include eligible interconnection costs.
It also details the cost structure, with the IRS noting, for example, that a qualifying facility requires roads, so the cost of roads is tax deductible.
Proposed §1.45Y-2(b)(3)(iii) would provide that a road that is an integral part of a qualified facility is a road that is essential to the intended function of the qualified facility, such as roads on the site used for the operation and maintenance of the qualified facility. Proposed §1.45Y–2(b)(3)(iii) would also clarify that roads used primarily for access to the site or roads used primarily for employee or visitor vehicles are not essential to the intended function of the qualified facility and therefore are not an integral part of the qualified facility.
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