The US Department of the Treasury and Internal Revenue Service (IRS) have released the final rules for the Section 48 Energy Credit – also known as the Investment Tax Credit (ITC), on 4 December 2024.
The rules were scheduled to be published in the Federal Register on 12 December 2024.
The final rules will give clean energy project developers clarity and certainty to undertake major investments to produce more clean power and further strengthen America’s clean energy economy.
For decades, the ITC has fueled US clean energy development by providing a tax credit for investments in qualifying clean energy property – generally 30% of the cost of the project, although the level of the credit has varied over time and by technology.
While the ITC has advanced clean energy projects, its effectiveness was limited by the need for recurring short-term and retroactive legislative extensions, creating uncertainty and making it harder for clean energy developers to make investments and secure financing for projects.
The Inflation Reduction Act extended the ITC – as well as the closely related Production Tax Credit (PTC) – until 2025, at which point the ITC and PTC will switch to a tech-neutral approach with credits that will be available in full for projects beginning construction at least through 2033.
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.
