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If you’ve got the tax rules down to determine whether your projects are available for an investment tax credit or a production tax credit and are looking for a new challenge, you’re in luck. The rules regarding those credits change for projects that start construction after 2024 and the government just released proposed regulations about the new rules.
This presents a good opportunity to take a step back and take stock of the basic differences between the current tax credit provisions and the new tax credit provisions.
While the results may often be the same, developers should consider whether the different regimes might yield different tax credit results for their projects. If there is a material difference, they may want to consider whether the construction date or the placed in service date can be changed so that they can qualify for the more advantageous regime.
Both the current investment tax credit (Section 48) and the current production tax credit (Section 45) do not apply to projects that begin construction after December 31, 2024. Therefore, for projects that begin in 2025, developers will no longer be able to look to these sections to qualify for a tax credit.
Yes. The are new credits that are available for projects placed in service after December 31, 2024. Sections 45 and 48 are effectively being replaced with the new credits, 45Y and 48E, respectively.
No. There are rules that prevent a developer from taking advantage of more than one of these credits for a particular project. However, in that case, a developer will have the option of choosing the old credit or the new credit.
While in many cases the amount of the credit may be the same, developers will want to consider whether there is a difference, particularly for projects that can begin construction in 2024 and can be placed in service after 2024 because developers may have the option of choosing to use either the current credit provisions or to use the new credit provisions.
Unlike the current credits rules, the new current credits are technology agnostic. For example, for the current 48 credits, the project must fall into a particular category of property such as solar, wind, geothermal, biogas, etc. Those requirements do not apply to the new credits.
Facilities that generate electricity may be eligible if their greenhouse gas emissions rate (or anticipated greenhouse gas emissions rate in the case of the 48E ITC) is not greater than zero. Energy storage property and thermal energy storage property, as those terms are used under the current ITC (48) continue to be eligible under the new ITC (48E).
The greenhouse gas emissions rate is generally defined as the amount of greenhouse gasses emitted into the atmosphere by a facility in the production of electricity. Greenhouse gas has the same meaning as under section 211(o)(1)(G) of the Clean Air Act (as in effect on August 16, 2022). In the case of a facility that produces electricity through combustion or gasification, it is equal to the net rate of greenhouse gasses emitted into the atmosphere by such facility (taking into account lifecycle greenhouse gas emissions, as described in section 211(o)(1)(H) of the Clean Air Act in the production of electricity.
These are just the basics. The new regulatory package came in at 194 pages, so there is a lot of detail to work through for a particular project. If you have particular questions, feel free to reach out and we’d be happy to share our thoughts.
