Internal Revenue Service Releases Proposed Guidance to Continue Investment Boom in Green Energy Production

On May 29, 2024, the Internal Revenue Service (IRS) released proposed guidance on the Clean Electricity Production Credit and Clean Electricity Investment Tax established by the Inflation Reduction Act (IRA) of 2022, to provide clarity to developers of clean electricity projects. This guidance will further President Biden’s Investing in America agenda, support American jobs, and bolster energy production and energy security while reducing energy costs for American consumers. 

For context, the vast majority of technologies currently available under the Section 45 production tax credit (PTC) and the Section 48 investment tax credit (ITC) will sunset on December 31, 2024. The only exception is geothermal technologies that will continue on under Section 45/48 into the 2030s. On January 1, 2025, the new technology neutral standard of Sections 45Y and 48E will come into play.

Instead of specifically listed technologies, the new standard utilizes an open standard of whether the facility generates electricity with less than zero greenhouse gas emissions or certain thermal energy storage technologies. “This is the first glimpse we will get of the new PTC and ITC regime that will come into play next year,” states Ian Boccaccio, Principal and Income Tax Practice Leader at Ryan.

The proposed regulations provide rules clarifying the following:

• the determination of greenhouse gas emissions rates resulting from the production of electricity,
• the petitioning for provisional emissions rates from the Department of Energy (DOE) for certain technologies, and
• the determination of eligibility for these credits in various circumstances.

However, the IRS is requesting comment on seven different areas, including feedback on:

• the utilization of biogas, renewable natural gas (RNG), and fugitive methane;
• the life-cycle-analysis (LCA), including the spatial and temporal scaling of the greenhouse gas assessment horizon;
• combustion or gasification facility (C&G) feedstock, co-products, and waste products in determining lifetime greenhouse gas emissions;
• combined heat-power (CHP) and the LCA modeling methods to assess greenhouse gas emissions;
• methods to determine the estimate net greenhouse gas emissions for C&G facilities;
• carbon capture and sequestration technologies; and
• books and records to substantiation, contemporaneously the levels of greenhouse gas emissions.

Scott Stogsdill, Director of Green Incentives at Ryan, finds that “overall, the proposed regulations are in keeping with the previously proposed energy property rules for Sections 45 and 48. While the proposed rules for 45Y and 48E provide clarity on a few expected issues, the IRS is asking about 45 open questions to industry regarding the various technologies that should be eligible under the new tech-neutral standard. Therefore, we still have a long way to go. The public hearings in August should be interesting.

The proposed regulations would affect all taxpayers who produce clean electricity and claim the clean electricity production credit with respect to a facility or the clean electricity investment credit with respect to a facility or energy storage technology, as applicable, that is placed in service after 2024. The proposed regulations also provide notice of a public hearing on the proposed regulations to be held on August 12 and August 13, 2024.

Please contact our Ryan tax professionals listed below for additional information on how these proposed regulations impact your business.

TECHNICAL INFORMATION CONTACTS:

Ian Boccaccio
Principal
Ryan
469.399.4545
ian.boccaccio@ryan.com

Scott Stogsdill
Director
Ryan
469.399.4496
scott.stogsdill@ryan.com

The material presented in this communication is intended to provide general information only and should solely be seen as broad guidance and not directed to the particular facts or circumstances of any individual who may read this publication. No liability is accepted for acts or omissions taken in reliance upon the content of this piece. Before taking (or not taking) any action, readers should seek professional advice specific to their situation from Ryan, LLC or other tax professionals. For additional information about this topic, please contact us at info@ryan.com.