SECTION 2. BACKGROUND

.01 Renewable Electricity Production Credit (§ 45) .

For purposes of computing the general business credit under § 38 of the Code, § 45(a) allows a credit for any taxable year for electricity produced by the taxpayer from qualified energy resources at a qualified facility and sold to an unrelated person during the taxable year. The § 45 credit has been amended many times since its enactment on October 24, 1992. Most recently, §§ 13101(a) to (c), (e)(1) and (2)(A), (f) through (j), 13102(f)(4), and 13204(b)(1) of the IRA made amendments to § 45. These amendments include,

but are not limited to: changing the credit rate (and associated rounding convention) for electricity produced by certain facilities; extending the beginning of construction and placed in service deadlines for certain facilities; adding a special rule for electricity used at a clean hydrogen facility; amending the definition of marine and hydrokinetic renewable energy; and providing the Secretary of the Treasury or her delegate (Secretary) with the authority to issue regulations or other guidance as necessary to carry out the purposes of § 45(b), including regulations or other guidance which provides requirements for recordkeeping or information reporting for purposes of administering the requirements of § 45(b). ¹

.02 Energy Investment Credit (§ 48) . For purposes of the investment credit under § 46, § 48(a)(1) provides, in part, that the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year. Congress has repeatedly amended § 48, including repealing and suspending the credit, changing the amount of the credit and rules for eligibility.

Most recently, §§ 13101(d), (e)(2) (B) and (3), 13102(a) through (f)(3), (g), (h), (j) through (m), (o), (p), 13103(a), and 13204(c)(1) and (2) of the IRA made amendments to § 48. These amendments include, but are not limited to: changing the energy percentage used to calculate the credit; amending the definitions of certain types of energy property; extending the beginning of construction and placed in service deadlines for certain types of energy property; adding a new rule for interconnection property; adding an election to treat clean hydrogen production facilities as energy property; expanding the definition of “energy property” to include certain electrochromic glass, energy storage technology, qualified biogas property, and microgrid controllers; modifying eligibility dates regarding the election to treat as energy property certain types of qualified facilities referred to as

1 Other amendments made by the IRA to § 45 increase the credit amount if certain prevailing wage, apprenticeship, domestic content, and energy communities requirements are satisfied. The IRA also provides an election for a taxpayer to receive a direct payment or to transfer the credit. Another amendment made by the IRA addresses the credit phaseout for a taxpayer that makes an election for direct payment. Similar provisions were added by the IRA to several other provisions of the Code discussed in this notice. See Notice 2022-51 requesting comments on prevailing wage, energy communities, and apprenticeship requirements related to several Code sections and Notice 2022-50 requesting comments on direct payment and transferability issues related to several Code sections.

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a “qualified investment credit facility”; establishing a special program to encourage the placement of certain facilities in connection with low-income communities (discussed in section 2.06 of this notice); and providing the Secretary with the authority to issue regulations or other guidance as necessary to carry out the purposes of § 48, including regulations or other guidance providing for recapture of the credit in certain situations and the recordkeeping or information reporting for purposes of administering the requirements of § 48(a).

.03 Zero-Emission Nuclear Power Pro- duction Credit (§ 45U) .

Section 13105 of the IRA added new § 45U, the zero-emission nuclear power production credit, to provide an income tax credit for electricity produced at a qualified nuclear power facility and sold by the taxpayer to an unrelated person in taxable years beginning after December 31, 2023, and before January 1, 2033. A qualified nuclear power facility is a facility owned by the taxpayer that was placed in service before the enactment of § 45U and uses nuclear energy to produce electricity. A facility that is an advanced nuclear power facility as defined in § 45J(d)(1) is not a qualified nuclear power facility under § 45U.

The credit under § 45U(a) is calculated by multiplying the kilowatt hours of electricity produced and sold during the taxable year by 0.3 cents (adjusted for inflation), and then subtracting the “reduction amount” for such taxable year. Section 45U(b)(2)(A) defines the term “reduction amount” as the lesser of (1) the credit amount determined before application of the reduction amount or (2) the amount equal to 16 percent of the excess of (a) the gross receipts from any electricity produced by the facility and sold to an unrelated person during the taxable year, over (b) the amount equal to the product of 2.5 cents (adjusted for inflation) multiplied by the kilowatt hours of electricity produced by the facility and sold to an unrelated person during the taxable year. Section 45U(b)(2)(B) provides rules regarding the treatment of gross receipts. The credit amount determined under § 45U(a) is multiplied by 5 if certain prevailing wage requirements are met. Section 45U(d)(3) grants the Secretary authority to issue

regulations or other guidance to administer the wage requirements of § 45U.

.04 Clean Electricity Production Credit (§ 45Y) .

Section 13701 of the IRA added new § 45Y, the clean electricity production credit, to provide a tax credit for electricity produced by the taxpayer at a qualified facility and either (1) sold by the taxpayer to an unrelated person during the taxable year, or (2) in the case of a qualified facility which is equipped with a metering device which is owned and operated by an unrelated person, sold, consumed, or stored by the taxpayer during the taxable year. Section 45Y(b)(1)(A) defines a “qualified facility” as a facility owned by the taxpayer that is used for the production of electricity, placed in service after 2024, and has a greenhouse gas emissions rate of not greater than zero. A facility will be considered a qualified facility for a period of ten years beginning on the date it is placed in service. A facility placed in service before January 1, 2025, also can be considered a qualified facility to the extent of the increased amount of electricity produced at the facility by reason of a new unit placed in service after December 31, 2024, or additions of capacity placed in service after December 31, 2024.

Section 45Y(a)(1) provides that the amount of the credit is equal to the product of (A) the kilowatt hours of electricity produced and sold to an unrelated person (or sold, consumed, or stored if the facility is equipped with a metering device) by the taxpayer during the taxable year, multiplied by (B) the applicable amount with respect to such qualified facility. Section 45Y(a)(2) provides that the applicable amount is generally 0.3 cents (adjusted for inflation), which can be increased to 1.5 cents (adjusted for inflation) if requirements for prevailing wage and apprenticeship are met.

Section 45Y(b)(2) provides that the greenhouse gas emissions rate is the amount of greenhouse gases emitted into the atmosphere by a facility that produces electricity, expressed as grams of CO2e per KWh. The emissions rate for different types or categories of facilities will be published annually by the Secretary, and to the extent not established by the Secretary, a taxpayer that owns the facility may file a petition for

determination of the rate. Section 45Y(b) (2) also provides special greenhouse gas accounting rules allowing calculation of a net greenhouse gas emissions rate for facilities producing electricity through combustion or gasification.

Section 45Y(d) provides a credit phaseout for projects the construction of which begins during the first, second, or third calendar year following the “applicable year,” which is the later of (i) the calendar year in which the Secretary determines that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of such emissions for calendar year 2022, or (ii) 2032.

Section 45Y(f) directs the Secretary to issue guidance regarding implementation of § 45Y not later than January 1, 2025, including calculation of greenhouse gas emission rates for qualified facilities and determination of clean electricity production credits under § 45Y.

.05 Clean Electricity Investment Credit (§ 48E) .

Section 13702 of the IRA added § 48E, the clean electricity investment credit, to provide an investment tax credit for qualified property. The credit amount for any taxable year is equal to the applicable percentage of the qualified investment for such taxable year with respect to any qualified facility and any energy storage technology. The applicable percentage for both qualified facilities and energy storage technology is generally 6 percent. The applicable percentage can be increased to 30 percent if prevailing wage and apprenticeship requirements are met.

A qualified facility is a facility used for the generation of electricity and placed in service after December 31, 2024, for which the anticipated greenhouse gas emissions rate is not greater than zero. Section 48E(b)(3) incorporates the special greenhouse gas accounting rules provided in § 45Y(b)(2) that allow the calculation of a net greenhouse gas emissions rate for facilities producing electricity through combustion or gasification and for facilities that include carbon capture and sequestration equipment.

A taxpayer’s qualified investment with respect to any qualified facility for any taxable year is the sum of: the basis of any qualified property placed in service by

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the taxpayer during a taxable year that is part of a qualified facility plus, for qualified facilities with a maximum net output of not greater than 5 megawatts, certain expenditures paid or incurred by the taxpayer for qualified interconnection property. A taxpayer’s qualified investment with respect to energy storage technology for any taxable year is the basis of the energy storage technology placed in service by the taxpayer during such taxable year.

Section 48E(h) provides a special program for certain facilities placed in service in connection with low-income communities. These rules are discussed in section 2.06 of this notice with the discussion of § 48(e). Section 48E(i) directs the Secretary to issue guidance regarding the implementation of § 48E not later than January 1, 2025.

.06 Special programs for certain facil- ities placed in service in connection with low-income communities (§§ 48(e) and 48E(h)). Section 13103 of the IRA amended § 48 to add new § 48(e), which establishes a special program for certain solar and wind facilities placed in service in connection with low-income communities, effective January 1, 2023. Section 13702(a) of the IRA also enacted § 48E(h), which provides a similar special program for certain facilities placed in service in connection with low-income communities in calendar years after 2024. These provisions increase the amount of the § 48 credit and § 48E credit for facilities with a maximum net output of less than 5 megawatts (as measured in alternating current) by providing a 10 percent increase in the energy percentage (in the case of § 48(e)) or the applicable percentage (in the case of § 48E(h)), used to calculate the credit amount, for certain facilities located in low-income communities (as defined in § 45D(e) of the Code) or on Indian land (as defined in § 2601(2) of the Energy Policy Act of 1992 (25 U.S.C. 3501(2))), or a 20 percent increase in the energy percentage or applicable percentage for certain facilities that are part of certain low-income residential building projects or low-income economic benefit projects. These increased credit amounts are limited by the facility’s environmental justice solar and wind capacity limitation

allocation (§ 48(e)) or its environmental justice capacity limitation allocation (§ 48E(h)).

Section 48(e)(4) directs the Secretary to establish a program to allocate amounts of environmental justice solar and wind capacity limitation to qualified solar and wind facilities within 180 days of enactment of the IRA. The total amount of environmental justice solar and wind capacity allocation available during any calendar year is limited to 1.8 gigawatts of direct current capacity for each of the years 2023 and 2024. If the 1.8-gigawatt capacity limitation for any calendar year exceeds the aggregate amount allocated for such year, the excess is carried forward to the next year, but not beyond a calendar year after 2024. After that, the excess from 2024 may be carried forward and applied to the capacity limitation for 2025 under § 48E(h).

Section 48E(h)(4)(A) directs the Secretary to establish a program to allocate amounts of environmental justice capacity limitation to applicable facilities not later than January 1, 2025. The total amount of environmental justice capacity limitation available during any calendar year is limited to 1.8 gigawatts of direct current capacity for each calendar year during the period beginning on January 1, 2025, and ending on December 31 of the Applicable Year (as defined in § 45Y(d) (3)), and zero thereafter. If the 1.8-gigawatt capacity limitation for any calendar year exceeds the aggregate amount allocated for such year, the excess increases the limitation for the next year. However, no amount may be carried forward to any calendar year after the third calendar year following the Applicable Year. To be eligible for the credit increase, the facility must be placed in service within 4 years after the date of the allocation of environmental justice capacity limitation to the facility.