§45Y — Clean electricity production credit
Statute Text — 26 U.S.C. §45Y
For purposes of section 38, the clean electricity production credit for any taxable year is an amount equal to the product of—
the kilowatt hours of electricity—
produced by the taxpayer at a qualified facility, and
sold by the taxpayer to an unrelated person during the taxable year, or
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, multiplied by
the applicable amount with respect to such qualified facility.
Subject to subsection (g)(7), in the case of any qualified facility which is not described in clause (i) or (ii) of subparagraph (B) and does not satisfy the requirements described in clause (iii) of such subparagraph, the applicable amount shall be 0.3 cents.
Subject to subsection (g)(7), in the case of any qualified facility—
with a maximum net output of less than 1 megawatt (as measured in alternating current),
the construction of which begins prior to the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (9) and (10) of subsection (g), or
which—
satisfies the requirements under paragraph (9) of subsection (g), and
with respect to the construction of such facility, satisfies the requirements under paragraph (10) of subsection (g),
the applicable amount shall be 1.5 cents.
Subject to subparagraphs (B), (C), and (D), the term “qualified facility” means a facility owned by the taxpayer—
which is used for the generation of electricity,
which is placed in service after
December 31, 2024
, and
for which the greenhouse gas emissions rate (as determined under paragraph (2)) is not greater than zero.
For purposes of this section, a facility shall only be treated as a qualified facility during the 10-year period beginning on the date the facility was originally placed in service.
The term “qualified facility” shall include either of the following in connection with a facility described in subparagraph (A) (without regard to clause (ii) of such subparagraph) which was placed in service before
January 1, 2025
, but only to the extent of the increased amount of electricity produced at the facility by reason of the following:
A new unit which is placed in service after
December 31, 2024
.
Any additions of capacity which are placed in service after
December 31, 2024
.
For purposes of subparagraph (C), additions of capacity of a facility shall be determined in any reasonable manner, including based on—
determinations by, or reports to, the Federal Energy Regulatory Commission (including interconnection agreements), the Nuclear Regulatory Commission, or any similar entity, reflecting additions of capacity,
determinations or reports reflecting additions of capacity made by an independent professional engineer,
reports to, or issued by, regional transmission organizations or independent system operators reflecting additions of capacity, or
any other method or manner provided by the Secretary.
The term “qualified facility” shall not include any facility for which a credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 for the taxable year or any prior taxable year.
The term “qualified facility” shall not include any facility for which construction begins after December 31, 2025, if the construction of such facility includes any material assistance from a prohibited foreign entity (as defined in section 7701(a)(52)).
For purposes of this section, the term “greenhouse gas emissions rate” means the amount of greenhouse gases emitted into the atmosphere by a facility in the production of electricity, expressed as grams of CO2e per KWh.
In the case of a facility which produces electricity through combustion or gasification, the greenhouse gas emissions rate for such facility shall be equal to the net rate of greenhouse gases 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 (42 U.S.C. 7545(o)(1)(H))) in the production of electricity, expressed as grams of CO2e per KWh.
The Secretary shall annually publish a table that sets forth the greenhouse gas emissions rates for types or categories of facilities, which a taxpayer shall use for purposes of this section.
In the case of any facility for which an emissions rate has not been established by the Secretary, a taxpayer which owns such facility may file a petition with the Secretary for determination of the emissions rate with respect to such facility.
For purposes of clause (i), in determining greenhouse gas emissions rates for types or categories of facilities for the purpose of determining whether a facility satisfies the requirements under paragraph (1), the Secretary shall consider studies published on or before the date of enactment of this clause which demonstrate a net lifecycle greenhouse gas emissions rate which is not greater than zero using widely accepted lifecycle assessment concepts, such as concepts described in standards developed by the International Organization for Standardization.
For purposes of this subsection, the amount of greenhouse gases emitted into the atmosphere by a facility in the production of electricity shall not include any qualified carbon dioxide that is captured by the taxpayer and—
pursuant to any regulations established under paragraph (2) of section 45Q(f), disposed of by the taxpayer in secure geological storage, or
utilized by the taxpayer in a manner described in paragraph (5) of such section.
In the case of a calendar year beginning after 2024, the 0.3 cent amount in paragraph (2)(A) of subsection (a) and the 1.5 cent amount in paragraph (2)(B) of such subsection shall each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale, consumption, or storage of the electricity occurs. If the 0.3 cent amount as increased under this paragraph is not a multiple of 0.05 cent, such amount shall be rounded to the nearest multiple of 0.05 cent. If the 1.5 cent amount as increased under this paragraph is not a multiple of 0.1 cent, such amount shall be rounded to the nearest multiple of 0.1 cent.
The Secretary shall, not later than April 1 of each calendar year, determine and publish in the Federal Register the inflation adjustment factor for such calendar year in accordance with this subsection.
The term “inflation adjustment factor” means, with respect to a calendar year, a fraction the numerator of which is the GDP implicit price deflator for the preceding calendar year and the denominator of which is the GDP implicit price deflator for the calendar year 1992. The term “GDP implicit price deflator” means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.
Subject to paragraph (4), the amount of the clean electricity production credit under subsection (a) for any qualified facility the construction of which begins during a calendar year described in paragraph (2) shall be equal to the product of—
the amount of the credit determined under subsection (a) without regard to this subsection, multiplied by
the phase-out percentage under paragraph (2).
The phase-out percentage under this paragraph is equal to—
for a facility the construction of which begins during the first calendar year following the applicable year, 100 percent,
for a facility the construction of which begins during the second calendar year following the applicable year, 75 percent,
for a facility the construction of which begins during the third calendar year following the applicable year, 50 percent, and
for a facility the construction of which begins during any calendar year subsequent to the calendar year described in subparagraph (C), 0 percent.
For purposes of this subsection, the term “applicable year” means calendar year 2032.
This section shall not apply with respect to any applicable facility placed in service after December 31, 2027.
For purposes of this paragraph, the term “applicable facility” means a qualified facility which—
uses wind to produce electricity (within the meaning of such term as used in section 45(d)(1), as determined without regard to any requirement under such section with respect to the date on which construction of property begins), or
uses solar energy to produce electricity (within the meaning of such term as used in section 45(d)(4), as determined without regard to any requirement under such section with respect to the date on which construction of property begins).
For purposes of this section:
The term “CO2e per KWh” means, with respect to any greenhouse gas, the equivalent carbon dioxide (as determined based on global warming potential) per kilowatt hour of electricity produced.
The term “greenhouse gas” has the same meaning given such term under section 211(o)(1)(G) of the Clean Air Act (42 U.S.C. 7545(o)(1)(G)), as in effect on the date of the enactment of this section.
The term “qualified carbon dioxide” means carbon dioxide captured from an industrial source which—
would otherwise be released into the atmosphere as industrial emission of greenhouse gas,
is measured at the source of capture and verified at the point of disposal or utilization, and
is captured and disposed or utilized within the United States (within the meaning of section 638(1)) or a possession of the United States (within the meaning of section 638(2)).
Not later than January 1, 2025, the Secretary shall issue guidance regarding implementation of this section, including calculation of greenhouse gas emission rates for qualified facilities and determination of clean electricity production credits under this section.
Consumption, sales, or storage shall be taken into account under this section only with respect to electricity the production of which is within—
the United States (within the meaning of section 638(1)), or
a possession of the United States (within the meaning of section 638(2)).
For purposes of subsection (a)—
the kilowatt hours of electricity produced by a taxpayer at a qualified facility shall include any production in the form of useful thermal energy by any combined heat and power system property within such facility, and
the amount of greenhouse gases emitted into the atmosphere by such facility in the production of such useful thermal energy shall be included for purposes of determining the greenhouse gas emissions rate for such facility.
For purposes of this paragraph, the term “combined heat and power system property” has the same meaning given such term by section 48(c)(3) (without regard to subparagraphs (A)(iv), (B), and (D) thereof).
For purposes of subparagraph (A)(i), the amount of kilowatt hours of electricity produced in the form of useful thermal energy shall be equal to the quotient of—
the total useful thermal energy produced by the combined heat and power system property within the qualified facility, divided by
the heat rate for such facility.
For purposes of this subparagraph, the term “heat rate” means the amount of energy used by the qualified facility to generate 1 kilowatt hour of electricity, expressed as British thermal units per net kilowatt hour generated.
In the case of a qualified facility in which more than 1 person has an ownership interest, except to the extent provided in regulations prescribed by the Secretary, production from the facility shall be allocated among such persons in proportion to their respective ownership interests in the gross sales from such facility.
Persons shall be treated as related to each other if such persons would be treated as a single employer under the regulations prescribed under section 52(b). In the case of a corporation which is a member of an affiliated group of corporations filing a consolidated return, such corporation shall be treated as selling electricity to an unrelated person if such electricity is sold to such a person by another member of such group.
Under regulations prescribed by the Secretary, rules similar to the rules of subsection (d) of section 52 shall apply.
In the case of an eligible cooperative organization, any portion of the credit determined under subsection (a) for the taxable year may, at the election of the organization, be apportioned among patrons of the organization on the basis of the amount of business done by the patrons during the taxable year.
An election under clause (i) for any taxable year shall be made on a timely filed return for such year. Such election, once made, shall be irrevocable for such taxable year. Such election shall not take effect unless the organization designates the apportionment as such in a written notice mailed to its patrons during the payment period described in section 1382(d).
The amount of the credit apportioned to any patrons under subparagraph (A)—
shall not be included in the amount determined under subsection (a) with respect to the organization for the taxable year, and
shall be included in the amount determined under subsection (a) for the first taxable year of each patron ending on or after the last day of the payment period (as defined in section 1382(d)) for the taxable year of the organization or, if earlier, for the taxable year of each patron ending on or after the date on which the patron receives notice from the cooperative of the apportionment.
If the amount of the credit of a cooperative organization determined under subsection (a) for a taxable year is less than the amount of such credit shown on the return of the cooperative organization for such year, an amount equal to the excess of—
such reduction, over
the amount not apportioned to such patrons under subparagraph (A) for the taxable year,
shall be treated as an increase in tax imposed by this chapter on the organization. Such increase shall not be treated as tax imposed by this chapter for purposes of determining the amount of any credit under this chapter.
For purposes of this section, the term “eligible cooperative” means a cooperative organization described in section 1381(a) which is owned more than 50 percent by agricultural producers or by entities owned by agricultural producers. For this purpose an entity owned by an agricultural producer is one that is more than 50 percent owned by agricultural producers.
In the case of any qualified facility which is located in an energy community (as defined in section 45(b)(11)(B)), for purposes of determining the amount of the credit under subsection (a) with respect to any electricity produced by the taxpayer at such facility during the taxable year, the applicable amount under paragraph (2) of such subsection shall be increased by an amount equal to 10 percent of the amount otherwise in effect under such paragraph.
Rules similar to the rules of section 45(b)(3) shall apply.
Rules similar to the rules of section 45(b)(7) shall apply.
Rules similar to the rules of section 45(b)(8) shall apply.
In the case of any qualified facility which satisfies the requirement under subparagraph (B)(i), the amount of the credit determined under subsection (a) shall be increased by an amount equal to 10 percent of the amount so determined (as determined without application of paragraph (7)).
The requirement described in this subclause is satisfied with respect to any qualified facility if the taxpayer certifies to the Secretary (at such time, and in such form and manner, as the Secretary may prescribe) that any steel, iron, or manufactured product which is a component of such facility (upon completion of construction) was produced in the United States (as determined under section 661 of title 49, Code of Federal Regulations).
In the case of steel or iron, clause (i) shall be applied in a manner consistent with section 661.5 of title 49, Code of Federal Regulations.
For purposes of clause (i), the manufactured products which are components of a qualified facility upon completion of construction shall be deemed to have been produced in the United States if not less than the adjusted percentage (as determined under subparagraph (C)) of the total costs of all such manufactured products of such facility are attributable to manufactured products (including components) which are mined, produced, or manufactured in the United States.
Subject to subclause (ii), for purposes of subparagraph (B)(iii), the adjusted percentage shall be—
in the case of a facility the construction of which begins before
January 1, 2025
, 40 percent,
in the case of a facility the construction of which begins after
December 31, 2024
, and before
January 1, 2026
, 45 percent,
in the case of a facility the construction of which begins after
December 31, 2025
, and before
January 1, 2027
, 50 percent, and
in the case of a facility the construction of which begins after
December 31, 2026
, 55 percent.
For purposes of subparagraph (B)(iii), in the case of a qualified facility which is an offshore wind facility, the adjusted percentage shall be—
in the case of a facility the construction of which begins before
January 1, 2025
, 20 percent,
in the case of a facility the construction of which begins after
December 31, 2024
, and before
January 1, 2026
, 27.5 percent,
in the case of a facility the construction of which begins after
December 31, 2025
, and before
January 1, 2027
, 35 percent,
in the case of a facility the construction of which begins after
December 31, 2026
, and before
January 1, 2028
, 45 percent, and
in the case of a facility the construction of which begins after
December 31, 2027
, 55 percent.
In the case of a taxpayer making an election under section 6417 with respect to a credit under this section, the amount of such credit shall be replaced with—
the value of such credit (determined without regard to this paragraph), multiplied by
the applicable percentage.
In the case of any qualified facility—
which satisfies the requirements under paragraph (11)(B), or
with a maximum net output of less than 1 megawatt (as measured in alternating current),
the applicable percentage shall be 100 percent.
Subject to subparagraph (D), in the case of any qualified facility which is not described in subparagraph (B), the applicable percentage shall be—
if construction of such facility began before
January 1, 2024
, 100 percent,
if construction of such facility began in calendar year 2024, 90 percent,
if construction of such facility began in calendar year 2025, 85 percent, and
if construction of such facility began after
December 31, 2025
, 0 percent.
For purposes of this paragraph, the Secretary shall provide exceptions to the requirements under this paragraph if—
the inclusion of steel, iron, or manufactured products which are produced in the United States increases the overall costs of construction of qualified facilities by more than 25 percent, or
relevant steel, iron, or manufactured products are not produced in the United States in sufficient and reasonably available quantities or of a satisfactory quality.
In any case in which the Secretary provides an exception pursuant to clause (i), the applicable percentage shall be 100 percent.
No credit shall be determined under subsection (a) for any taxable year if the taxpayer is—
a specified foreign entity (as defined in section 7701(a)(51)(B)), or
a foreign-influenced entity (as defined in section 7701(a)(51)(D), without regard to clause (i)(II) thereof).
In the case of a taxpayer for which section 7701(a)(51)(D)(i)(II) is determined to apply for any taxable year, no credit shall be determined under subsection (a) for such taxable year if such determination relates to a qualified facility described in subsection (b)(1).
No credit shall be determined under this section with respect to any production of electricity during the taxable year with respect to property described in paragraph (1) or (4) of section 25D(d) (as applied by substituting “lessee” for “taxpayer”) if the taxpayer rents or leases such property to a third party during such taxable year.
Treasury Regulations
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Treas. Reg. §1.45Y-0Table of contents
This section lists the captions contained in §§ 1.45Y-1 through 1.45Y-5.
(a) Overview.
(1) In general.
(2) CHP property.
(i) In general.
(ii) Components excluded.
(3) Code.
(4) kWh.
(5) Metering device.
(i) In general.
(ii) Standards for maintaining and operating a metering device.
(iii) Network equipment.
(iv) Examples.
(6) Qualified facility.
(7) Related person.
(i) In general.
(ii) Member of a consolidated group.
(8) Secretary.
(9) Section 45Y credit.
(10) Section 45Y regulations.
(11) Unrelated person.
(12) Waste energy recovery property (WERP).
(b) Credit amount.
(1) In general.
(2) Applicable amount.
(i) In general.
(ii) Base amount.
(iii) Alternative amount.
(3) Inflation adjustment.
(i) In general.
(ii) Annual computation.
(iii) Inflation adjustment factor.
(iv) GDP implicit price deflator.
(4) Energy communities increase in credit.
(5) Domestic content bonus credit amount.
(c) Credit phase-out.
(1) In general.
(2) Phase-out percentage.
(3) Applicable year.
(4) Phase-out data.
(5) Determination of phase-out.
(d) Requirements for CHP property.
(1) In general.
(2) Energy efficiency percentage.
(3) Special rule for calculating electricity produced by CHP property.
(i) In general.
(ii) Conversion from Btu to kWh.
(e) Applicability date.
(a) Qualified facility.
(b) Property included in qualified facility.
(1) In general.
(2) Unit of qualified facility.
(i) In general.
(ii) Functionally interdependent.
(3) Integral part.
(i) In general.
(ii) Power conditioning and transfer equipment.
(iii) Roads.
(iv) Fences.
(v) Buildings.
(vi) Shared integral property.
(vii) Examples.
(c) Coordination with other credits.
(1) In general.
(2) Allowed.
(3) Examples.
(d) Applicability date.
(a) In general.
(b) Qualified facility requirements.
(c) Nameplate capacity for purposes of the One Megawatt Exception.
(1) In general.
(2) Nameplate capacity for qualified facilities that generate in direct current for purposes of the One Megawatt Exception.
(3) Integrated operations.
(4) Related taxpayers.
(i) Definition.
(ii) Related taxpayer rule.
(d) Applicability date.
(a) Only production in the United States taken into account for purposes of section 45Y.
(b) Production attributable to the taxpayer.
(1) In general.
(2) Example of gross sales.
(3) Section 761(a) election.
(c) Expansion of facility; Incremental production (Incremental Production Rule).
(1) In general.
(2) Measurement standard.
(3) Special rule for restarted facilities.
(4) Computation of increased amount of electricity produced.
(5) Examples.
(d) Retrofit of an existing facility (80/20 Rule).
(1) In general.
(2) Cost of new components of property.
(3) Examples.
(e) Applicability date.
(a) In general.
(b) Definitions.
(1) CO2e per kWh.
(2) Combustion.
(3) Gasification.
(4) Facility that produces electricity through combustion or gasification (C&G Facility).
(5) Greenhouse gas emissions rate.
(6) Greenhouse gases emitted into the atmosphere by a facility in the production of electricity.
(7) Non-C&G Facility.
(8) Fuel.
(9) Feedstock.
(10) Market-mediated effects.
(c) Non-C&G Facilities.
(1) Determining a greenhouse gas emissions rate for Non-C&G Facilities.
(i) Excluded emissions.
(ii) Emissions assessment process.
(iii) Example of greenhouse gas emissions rate determination for a Non-C&G Facility.
(2) Non-C&G Facilities with a greenhouse gas emissions rate that is not greater than zero.
(d) C&G Facilities.
(1) Determining a greenhouse gas emissions rate for C&G Facilities.
(2) LCA requirements.
(i) Starting boundary.
(ii) Ending boundary.
(iii) Baseline.
(iv) Offsets and offsetting activities.
(v) Principles for included emissions.
(vi) Principles for excluded emissions.
(vii) Alternative fates and avoided emissions.
(viii) Temporal scales.
(ix) Spatial scales.
(x) Categorization of products.
(e) Use of methane from certain sources to produce electricity.
(1) In general.
(2) Definitions.
(i) Biogas.
(ii) Coal mine methane.
(iii) Fugitive methane.
(iv) Renewable natural gas.
(3) Considerations regarding the lifecycle greenhouse gas emissions associated with the production of electricity using methane from certain sources.
(i) In general.
(ii) Methane from landfill sources.
(iii) Methane from wastewater sources.
(iv) Coal mine methane.
(v) Methane from animal waste.
(vi) Fugitive methane other than coal mine methane.
(4) Book and claim.
(f) Carbon capture and sequestration.
(1) In general.
(2) Substantiation.
(g) Annual publication of emissions rates.
(1) In general.
(2) Publication of analysis required for changes to the Annual Table.
(h) Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G Facilities.
(7) Effect of PER.
(i) Reliance on Annual Table or Provisional Emissions Rate.
(j) Substantiation.
(1) In general.
(2) Sufficient substantiation.
(k) Applicability date.
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Treas. Reg. §1.45Y-0(a)In general.
In general.
-
Treas. Reg. §1.45Y-0(b)Definitions.
Definitions.
(1) CO2e per kWh.
(2) Combustion.
(3) Gasification.
(4) Facility that produces electricity through combustion or gasification (C&G Facility).
(5) Greenhouse gas emissions rate.
(6) Greenhouse gases emitted into the atmosphere by a facility in the production of electricity.
(7) Non-C&G Facility.
(8) Fuel.
(9) Feedstock.
(10) Market-mediated effects.
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Treas. Reg. §1.45Y-0(c)Non-C&G Facilities.
Non-C&G Facilities.
(1) Determining a greenhouse gas emissions rate for Non-C&G Facilities.
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Treas. Reg. §1.45Y-0(d)C&G Facilities.
C&G Facilities.
(1) Determining a greenhouse gas emissions rate for C&G Facilities.
(2) LCA requirements.
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Treas. Reg. §1.45Y-0(e)Use of methane from certain sources to produce electricity.
Use of methane from certain sources to produce electricity.
(1) In general.
(2) Definitions.
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Treas. Reg. §1.45Y-0(f)Carbon capture and sequestration.
Carbon capture and sequestration.
(1) In general.
(2) Substantiation.
-
Treas. Reg. §1.45Y-0(g)Annual publication of emissions rates.
Annual publication of emissions rates.
(1) In general.
(2) Publication of analysis required for changes to the Annual Table.
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Treas. Reg. §1.45Y-0(h)Provisional emissions rates.
Provisional emissions rates.
(1) In general.
(2) Rate not established.
(3) Process for filing a PER petition.
(4) PER determination.
(5) Emissions value request process.
(6) LCA model for determining an emissions value for C&G Facilities.
(7) Effect of PER.
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Treas. Reg. §1.45Y-0(i)Reliance on Annual Table or Provisional Emissions Rate.
Reliance on Annual Table or Provisional Emissions Rate.
-
Treas. Reg. §1.45Y-0(j)Substantiation.
Substantiation.
(1) In general.
(2) Sufficient substantiation.
-
Treas. Reg. §1.45Y-0(k)Applicability date.
Applicability date.
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Treas. Reg. §1.45Y-0(v)Methane from animal waste.
Methane from animal waste.
(vi) Fugitive methane other than coal mine methane.
(4) Book and claim.
-
Treas. Reg. §1.45Y-0(x)Categorization of products.
Categorization of products.
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Treas. Reg. §1.45Y-1Clean electricity production credit
(a) Overview—(1) In general. For purposes of section 38 of the Internal Revenue Code (Code), the section 45Y credit (defined in paragraph (a)(9) of this section) is determined under section 45Y of the Code and the section 45Y regulations (defined in paragraph (a)(10) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 45Y, the section 45Y regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45Y or the section 45Y regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45Y credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 45Y credit. Paragraph (d) of this section provides rules regarding combined heat and power system (CHP) property. See § 1.45Y-2 for rules relating to qualified facilities for purposes of the section 45Y credit. See § 1.45Y-4 for rules of general application for the section 45Y credit. See § 1.45Y-5 for rules to determine greenhouse gas emissions rates for qualified facilities.
(2) CHP property—(i) In general. For purposes of section 45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property means property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including for heating and cooling applications).
(ii) Components excluded. CHP property does not include property used to transport the energy source to the generating facility or to distribute energy produced by the facility.
(3) Code. The term Code means the Internal Revenue Code.
(4) kWh. The term kWh means kilowatt hours.
(5) Metering device—(i) In general. For purposes of section 45Y(a)(1)(A)(ii)(II), the term metering device means equipment that is owned and operated by an unrelated person (as defined in paragraph (a)(11) of this section) for energy revenue metering to measure and register the continuous summation of an electricity quantity with respect to time.
(ii) Standards for maintaining and operating a metering device. For purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering device must—
(A) Be maintained in proper working order in accordance with the instructions of its manufacturer;
(B) Be certified as meeting generally accepted industry performance standards, such as the American National Standards Institute C12.1-2022 standard, or subsequent revisions;
(C) Be revenue grade with a ±0.5 percent accuracy; and
(D) Be properly calibrated.
(iii) Network equipment. For purposes of operating the metering device, the unrelated person may share network equipment, such as spare fiber optic cable owned by the taxpayer that produces the electricity, and may co-locate network equipment in the taxpayer's facilities.
(iv) Examples. This paragraph (a)(5)(iv) provides examples illustrating the application of paragraph (a)(5) of this section.
(A) Example 1. Qualified facility equipped with a metering device owned and operated by an unrelated person. X owns a qualified facility equipped with a metering device that is owned and operated by Y, an unrelated person. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. X sells electricity produced at the qualified facility to Z, a related person during the taxable year. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and meets the requirements of paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit based on the electricity produced by X and sold to Z during the taxable year.
(B) Example 2. Electricity produced by the taxpayer at a qualified facility sold, consumed, or stored by the taxpayer during the taxable year. X owns a qualified facility equipped with a metering device that is owned and operated by an unrelated person, Y. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and the metering device meets the requirements of paragraphs (a)(5)(i) through (iii), X may sell electricity produced at the qualified facility during the taxable year to a related or unrelated person. X may also consume the electricity produced at the qualified facility during the taxable year onsite. Additionally, X may store the electricity produced at the qualified facility during the taxable year in energy storage technology owned by X. In any of these three situations, X may claim a section 45Y credit for the taxable year for the kWh of electricity produced at the qualified facility measured by the metering device and sold, consumed, or stored by X during the taxable year.
(6) Qualified facility. The term qualified facility for purposes of the section 45Y credit has the meaning provided in § 1.45Y-2(a).
(7) Related person—(i) In general. The term related person means a person that is related to another person if such persons would be treated as a single employer under the regulations in this chapter under section 52(b) of the Code.
(ii) Member of a consolidated group. In the case of a corporation that is a member of a consolidated group (as defined in § 1.1502-1(h)), such member will be treated as selling electricity to an unrelated person if such electricity is sold to an unrelated person by another member of such group.
(8) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.
(9) Section 45Y credit. The term section 45Y credit means the clean electricity production credit determined under section 45Y of the Code and the section 45Y regulations.
(10) Section 45Y regulations. The term section 45Y regulations means this section and §§ 1.45Y-2 through 1.45Y-5.
(11) Unrelated person. For purposes of section 45Y(a), the term unrelated person means a person who is not a related person as defined in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case of sales of electricity to an individual consumer, such sales will be treated as sales to an unrelated party for purposes of the section 45Y credit. For example, assume Taxpayer X produces electricity at a qualified facility and sells it to Consumer Y. Consumer Y is an individual consumer and is not subject to aggregation under the regulations at 26 CFR 1.52-1 prescribed under section 52(b). Therefore, Consumer Y is not treated as a single employer with Taxpayer X under section 52(b), and a sale to Consumer Y is treated as a sale to an unrelated person. The result is the same if Consumer Y is an individual consumer who is a member of a cooperative or Indian tribe that owns or controls, directly or indirectly, Taxpayer X. The result is also the same if Consumer Y is an individual consumer who is a resident of a State or municipality that owns or controls, directly or indirectly, Taxpayer X.
(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.
(b) Credit amount—(1) In general. The section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced at a qualified facility and sold by the taxpayer to an unrelated person during the taxable year, multiplied by the applicable amount with respect to such qualified facility. In the case of a qualified facility equipped with a metering device (as defined in paragraph (a)(5) of this section) that is owned and operated by an unrelated person, the section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced, as measured by the metering device, at such qualified facility and sold, consumed, or stored by the taxpayer during the taxable year, multiplied by the applicable amount with respect to such qualified facility. Only one section 45Y credit can be claimed for each kWh of electricity produced by the taxpayer at a qualified facility. The credit amount may also be increased as provided in section 45Y(g)(11) and paragraph (b)(5) of this section in the case of a qualified facility that satisfies the domestic content requirements of section 45Y(g)(11)(B).
(2) Applicable amount—(i) In general. The term applicable amount means the base amount described in paragraph (b)(2)(ii) of this section or the alternative amount described in paragraph (b)(2)(iii) of this section. The applicable amount is subject to the inflation adjustment as provided in section 45Y(c)(1) and paragraph (b)(3) of this section. The applicable amount may also be increased as provided in section 45Y(g)(7) and paragraph (b)(4) of this section in the case of a qualified facility that is located in an energy community.
(ii) Base amount. Under section 45Y(a)(2)(A), in the case of any qualified facility that does not satisfy the requirements provided in section 45Y(a)(2)(B), the applicable amount is the base amount, which is 0.3 cents.
(iii) Alternative amount. Under section 45Y(a)(2)(B), in the case of any qualified facility that satisfies the prevailing wage and apprenticeship requirements provided in section 45Y(a)(2)(B), the applicable amount is the alternative amount, which is 1.5 cents.
(3) Inflation adjustment—(i) In general. Pursuant to section 45Y(c)(1), in the case of a calendar year beginning after 2024, the base amount and the alternative amount will each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale, consumption, or storage of the electricity occurs. If the base amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.05 cent, such amount will be rounded to the nearest multiple of 0.05 cent. If the alternative amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.1 cent, such amount will be rounded to the nearest multiple of 0.1 cent.
(ii) Annual computation. Pursuant to section 45Y(c)(2), the inflation adjustment factor for each calendar year will be published in the Federal Register not later than April 1 of that calendar year. The base amount and the alternative amount, as adjusted under paragraph (b)(3)(i) of this section, will also be published in the Federal Register not later than April 1 of each calendar year.
(iii) Inflation adjustment factor. Under section 45Y(c)(3), the term inflation adjustment factor means, with respect to a calendar year, a fraction—
(A) The numerator of which is the GDP implicit price deflator for the preceding calendar year; and
(B) The denominator of which is the GDP implicit price deflator for the calendar year 1992.
(iv) GDP implicit price deflator. Under section 45Y(c)(3), the term GDP implicit price deflator means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.
(4) Energy communities increase in credit. In the case of any qualified facility that is located in an energy community (as defined in section 45(b)(11)(B)), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the applicable amount will be increased by an amount equal to 10 percent of the applicable amount that would otherwise be in effect before application of this paragraph (b)(4). The 10 percent increase under this paragraph (b)(4) applies after the inflation adjustment under paragraph (b)(3) of this section.
(5) Domestic content bonus credit amount. In the case of any qualified facility that satisfies the requirements of section 45Y(g)(11)(B)(i) (domestic content requirement), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the amount of the credit otherwise determined under this paragraph (b), without application of paragraph (b)(4) of this section (related to energy communities), is increased by 10 percent.
(c) Credit phase-out—(1) In general. The amount of the section 45Y credit for any qualified facility, the construction of which begins during a calendar year provided in section 45Y(d)(2) and described in paragraph (c)(2) of this section, is equal to the product of—
(i) The amount of the credit determined under section 45Y(a) and described in paragraph (b) of this section, without regard to section 45Y(d) and this paragraph (c); multiplied by
(ii) The phase-out percentage provided under section 45Y(d)(2) and described in paragraph (c)(2) of this section.
(2) Phase-out percentage. The phase-out percentage described in this paragraph (c)(2) is equal to—
(i) For a facility the construction of which begins during the first calendar year following the applicable year, 100 percent;
(ii) For a facility the construction of which begins during the second calendar year following the applicable year, 75 percent;
(iii) For a facility the construction of which begins during the third calendar year following the applicable year, 50 percent; and
(iv) For a facility the construction of which begins during any calendar year subsequent to the calendar year described in paragraph (c)(2)(iii) of this section, 0 percent.
(3) Applicable year. For purposes of this paragraph (c), the term applicable year means the later of—
(i) The calendar year in which the Secretary makes the determination that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022; or
(ii) 2032.
(4) Phase-out data. For purposes of paragraph (c)(3)(i) of this section, the annual greenhouse gas emissions from the production of electricity in the United States for any calendar year must be assessed separately using both of the data sources described in paragraphs (c)(4)(i) and (ii) of this section:
(i) The U.S. Energy Information Administration's Electric Power Annual, summing the annual carbon dioxide emissions data from conventional power plants and combined heat and power plants and the Monthly Energy Review annual carbon dioxide emissions from the combustion of biomass to produce electricity in the Electric Power Sector; and
(ii) The U.S. Environmental Protection Agency (EPA) Inventory of U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual electric power-related carbon dioxide, methane, and nitrous oxide emissions data including carbon dioxide emissions from the combustion of biomass to produce electricity.
(5) Determination of phase-out. For purposes of paragraph (c)(3)(i) of this section, the Secretary will determine that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022 only if the annual greenhouse gas emissions from the production of electricity in the United States, as determined separately under both of the data sources described in paragraph (c)(4) of this section, are each equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022. If a data source described in paragraph (c)(4) of this section becomes unavailable (for example, it is no longer published or does not provide the specified data), the Secretary must designate a similar data source to replace the unavailable data source.
(d) Requirements for CHP property—(1) In general. To be eligible for the section 45Y credit, a CHP property must produce at least 20 percent of its total useful energy in the form of useful thermal energy that is not used to produce electrical or mechanical power (or combination thereof), and at least 20 percent of its total useful energy in the form of electrical or mechanical power (or combination thereof). The energy efficiency percentage of CHP property must exceed 60 percent. These percentages are determined on a British thermal unit (Btu) basis.
(2) Energy efficiency percentage. The energy efficiency percentage of a CHP property is the fraction the numerator of which is the total useful electrical, thermal, and mechanical power produced by the system at normal operating rates, and expected to be consumed in its normal application, and the denominator of which is the lower heating value of the fuel sources for the system. In the case of a qualified facility using nuclear energy, which does not involve combustion, the denominator is the reactor's maximum power level in megawatts thermal listed on the Nuclear Regulatory Commission (NRC) operating license, converted to Btus using 3,412,140 Btus per hour per megawatt. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(3) Special rule for calculating electricity produced by CHP property—(i) In general. For purposes of section 45Y(a) and paragraph (b) of this section, the kWh of electricity produced by a taxpayer at a qualified facility includes any production in the form of useful thermal energy by any CHP property within such facility, and the amount of greenhouse gases emitted into the atmosphere by such facility in the production of such useful thermal energy is included for purposes of determining the greenhouse gas emissions rate for such facility.
(ii) Conversion from Btu to kWh—(A) In general. For purposes of section 45Y(g)(2)(A)(i) and this paragraph (d)(3), the amount of kWh of electricity produced in the form of useful thermal energy is equal to the quotient of the total useful thermal energy produced by the CHP property within the qualified facility, divided by the heat rate for such facility.
(B) Heat rate. For purposes of this paragraph (d)(3), the term heat rate means the amount of energy used by the qualified facility to generate 1 kWh of electricity, expressed as Btus per net kWh generated. In calculating the heat rate of a qualified facility that includes CHP property that uses combustion, a taxpayer must use the annual average heat rate, defined as the total annual fuel consumption of the CHP property (in Btus, using the lower heating value of the fuel) during the taxable year for which the section 45Y credit is claimed, divided by the annual net electricity generation (in kWh) of the CHP property during such taxable year. In the case of a qualified facility using nuclear energy, which does not involve combustion, the facility's reactor's total annual thermal output (in Btus, using a conversion rate of 3,412,140 Btus per megawatt hour thermal) shall be used in place of the total annual fuel consumption of the CHP property. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(e) Applicability date. This section applies to qualified facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.45Y-1(a)Overview—(1) In general.
Overview—(1) In general. For purposes of section 38 of the Internal Revenue Code (Code), the section 45Y credit (defined in paragraph (a)(9) of this section) is determined under section 45Y of the Code and the section 45Y regulations (defined in paragraph (a)(10) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 45Y, the section 45Y regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45Y or the section 45Y regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45Y credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 45Y credit. Paragraph (d) of this section provides rules regarding combined heat and power system (CHP) property. See § 1.45Y-2 for rules relating to qualified facilities for purposes of the section 45Y credit. See § 1.45Y-4 for rules of general application for the section 45Y credit. See § 1.45Y-5 for rules to determine greenhouse gas emissions rates for qualified facilities.
(2) CHP property—(i) In general. For purposes of section 45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property means property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including for heating and cooling applications).
(ii) Components excluded. CHP property does not include property used to transport the energy source to the generating facility or to distribute energy produced by the facility.
(3) Code. The term Code means the Internal Revenue Code.
(4) kWh. The term kWh means kilowatt hours.
(5) Metering device—(i) In general. For purposes of section 45Y(a)(1)(A)(ii)(II), the term metering device means equipment that is owned and operated by an unrelated person (as defined in paragraph (a)(11) of this section) for energy revenue metering to measure and register the continuous summation of an electricity quantity with respect to time.
(ii) Standards for maintaining and operating a metering device. For purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering device must—
(A) Be maintained in proper working order in accordance with the instructions of its manufacturer;
(B) Be certified as meeting generally accepted industry performance standards, such as the American National Standards Institute C12.1-2022 standard, or subsequent revisions;
(C) Be revenue grade with a ±0.5 percent accuracy; and
(D) Be properly calibrated.
(iii) Network equipment. For purposes of operating the metering device, the unrelated person may share network equipment, such as spare fiber optic cable owned by the taxpayer that produces the electricity, and may co-locate network equipment in the taxpayer's facilities.
(iv) Examples. This paragraph (a)(5)(iv) provides examples illustrating the application of paragraph (a)(5) of this section.
(A) Example 1. Qualified facility equipped with a metering device owned and operated by an unrelated person. X owns a qualified facility equipped with a metering device that is owned and operated by Y, an unrelated person. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. X sells electricity produced at the qualified facility to Z, a related person during the taxable year. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and meets the requirements of paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit based on the electricity produced by X and sold to Z during the taxable year.
(B) Example 2. Electricity produced by the taxpayer at a qualified facility sold, consumed, or stored by the taxpayer during the taxable year. X owns a qualified facility equipped with a metering device that is owned and operated by an unrelated person, Y. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and the metering device meets the requirements of paragraphs (a)(5)(i) through (iii), X may sell electricity produced at the qualified facility during the taxable year to a related or unrelated person. X may also consume the electricity produced at the qualified facility during the taxable year onsite. Additionally, X may store the electricity produced at the qualified facility during the taxable year in energy storage technology owned by X. In any of these three situations, X may claim a section 45Y credit for the taxable year for the kWh of electricity produced at the qualified facility measured by the metering device and sold, consumed, or stored by X during the taxable year.
(6) Qualified facility. The term qualified facility for purposes of the section 45Y credit has the meaning provided in § 1.45Y-2(a).
(7) Related person—(i) In general. The term related person means a person that is related to another person if such persons would be treated as a single employer under the regulations in this chapter under section 52(b) of the Code.
(ii) Member of a consolidated group. In the case of a corporation that is a member of a consolidated group (as defined in § 1.1502-1(h)), such member will be treated as selling electricity to an unrelated person if such electricity is sold to an unrelated person by another member of such group.
(8) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.
(9) Section 45Y credit. The term section 45Y credit means the clean electricity production credit determined under section 45Y of the Code and the section 45Y regulations.
(10) Section 45Y regulations. The term section 45Y regulations means this section and §§ 1.45Y-2 through 1.45Y-5.
(11) Unrelated person. For purposes of section 45Y(a), the term unrelated person means a person who is not a related person as defined in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case of sales of electricity to an individual consumer, such sales will be treated as sales to an unrelated party for purposes of the section 45Y credit. For example, assume Taxpayer X produces electricity at a qualified facility and sells it to Consumer Y. Consumer Y is an individual consumer and is not subject to aggregation under the regulations at 26 CFR 1.52-1 prescribed under section 52(b). Therefore, Consumer Y is not treated as a single employer with Taxpayer X under section 52(b), and a sale to Consumer Y is treated as a sale to an unrelated person. The result is the same if Consumer Y is an individual consumer who is a member of a cooperative or Indian tribe that owns or controls, directly or indirectly, Taxpayer X. The result is also the same if Consumer Y is an individual consumer who is a resident of a State or municipality that owns or controls, directly or indirectly, Taxpayer X.
(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.
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Treas. Reg. §1.45Y-1(b)Credit amount—(1) In general.
Credit amount—(1) In general. The section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced at a qualified facility and sold by the taxpayer to an unrelated person during the taxable year, multiplied by the applicable amount with respect to such qualified facility. In the case of a qualified facility equipped with a metering device (as defined in paragraph (a)(5) of this section) that is owned and operated by an unrelated person, the section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced, as measured by the metering device, at such qualified facility and sold, consumed, or stored by the taxpayer during the taxable year, multiplied by the applicable amount with respect to such qualified facility. Only one section 45Y credit can be claimed for each kWh of electricity produced by the taxpayer at a qualified facility. The credit amount may also be increased as provided in section 45Y(g)(11) and paragraph (b)(5) of this section in the case of a qualified facility that satisfies the domestic content requirements of section 45Y(g)(11)(B).
(2) Applicable amount—(i) In general. The term applicable amount means the base amount described in paragraph (b)(2)(ii) of this section or the alternative amount described in paragraph (b)(2)(iii) of this section. The applicable amount is subject to the inflation adjustment as provided in section 45Y(c)(1) and paragraph (b)(3) of this section. The applicable amount may also be increased as provided in section 45Y(g)(7) and paragraph (b)(4) of this section in the case of a qualified facility that is located in an energy community.
(ii) Base amount. Under section 45Y(a)(2)(A), in the case of any qualified facility that does not satisfy the requirements provided in section 45Y(a)(2)(B), the applicable amount is the base amount, which is 0.3 cents.
(iii) Alternative amount. Under section 45Y(a)(2)(B), in the case of any qualified facility that satisfies the prevailing wage and apprenticeship requirements provided in section 45Y(a)(2)(B), the applicable amount is the alternative amount, which is 1.5 cents.
(3) Inflation adjustment—(i) In general. Pursuant to section 45Y(c)(1), in the case of a calendar year beginning after 2024, the base amount and the alternative amount will each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale, consumption, or storage of the electricity occurs. If the base amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.05 cent, such amount will be rounded to the nearest multiple of 0.05 cent. If the alternative amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.1 cent, such amount will be rounded to the nearest multiple of 0.1 cent.
(ii) Annual computation. Pursuant to section 45Y(c)(2), the inflation adjustment factor for each calendar year will be published in the Federal Register not later than April 1 of that calendar year. The base amount and the alternative amount, as adjusted under paragraph (b)(3)(i) of this section, will also be published in the Federal Register not later than April 1 of each calendar year.
(iii) Inflation adjustment factor. Under section 45Y(c)(3), the term inflation adjustment factor means, with respect to a calendar year, a fraction—
(A) The numerator of which is the GDP implicit price deflator for the preceding calendar year; and
(B) The denominator of which is the GDP implicit price deflator for the calendar year 1992.
(iv) GDP implicit price deflator. Under section 45Y(c)(3), the term GDP implicit price deflator means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.
(4) Energy communities increase in credit. In the case of any qualified facility that is located in an energy community (as defined in section 45(b)(11)(B)), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the applicable amount will be increased by an amount equal to 10 percent of the applicable amount that would otherwise be in effect before application of this paragraph (b)(4). The 10 percent increase under this paragraph (b)(4) applies after the inflation adjustment under paragraph (b)(3) of this section.
(5) Domestic content bonus credit amount. In the case of any qualified facility that satisfies the requirements of section 45Y(g)(11)(B)(i) (domestic content requirement), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the amount of the credit otherwise determined under this paragraph (b), without application of paragraph (b)(4) of this section (related to energy communities), is increased by 10 percent.
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Treas. Reg. §1.45Y-1(c)Credit phase-out—(1) In general.
Credit phase-out—(1) In general. The amount of the section 45Y credit for any qualified facility, the construction of which begins during a calendar year provided in section 45Y(d)(2) and described in paragraph (c)(2) of this section, is equal to the product of—
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Treas. Reg. §1.45Y-1(d)Requirements for CHP property—(1) In general.
Requirements for CHP property—(1) In general. To be eligible for the section 45Y credit, a CHP property must produce at least 20 percent of its total useful energy in the form of useful thermal energy that is not used to produce electrical or mechanical power (or combination thereof), and at least 20 percent of its total useful energy in the form of electrical or mechanical power (or combination thereof). The energy efficiency percentage of CHP property must exceed 60 percent. These percentages are determined on a British thermal unit (Btu) basis.
(2) Energy efficiency percentage. The energy efficiency percentage of a CHP property is the fraction the numerator of which is the total useful electrical, thermal, and mechanical power produced by the system at normal operating rates, and expected to be consumed in its normal application, and the denominator of which is the lower heating value of the fuel sources for the system. In the case of a qualified facility using nuclear energy, which does not involve combustion, the denominator is the reactor's maximum power level in megawatts thermal listed on the Nuclear Regulatory Commission (NRC) operating license, converted to Btus using 3,412,140 Btus per hour per megawatt. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
(3) Special rule for calculating electricity produced by CHP property—(i) In general. For purposes of section 45Y(a) and paragraph (b) of this section, the kWh of electricity produced by a taxpayer at a qualified facility includes any production in the form of useful thermal energy by any CHP property within such facility, and the amount of greenhouse gases emitted into the atmosphere by such facility in the production of such useful thermal energy is included for purposes of determining the greenhouse gas emissions rate for such facility.
(ii) Conversion from Btu to kWh—(A) In general. For purposes of section 45Y(g)(2)(A)(i) and this paragraph (d)(3), the amount of kWh of electricity produced in the form of useful thermal energy is equal to the quotient of the total useful thermal energy produced by the CHP property within the qualified facility, divided by the heat rate for such facility.
(B) Heat rate. For purposes of this paragraph (d)(3), the term heat rate means the amount of energy used by the qualified facility to generate 1 kWh of electricity, expressed as Btus per net kWh generated. In calculating the heat rate of a qualified facility that includes CHP property that uses combustion, a taxpayer must use the annual average heat rate, defined as the total annual fuel consumption of the CHP property (in Btus, using the lower heating value of the fuel) during the taxable year for which the section 45Y credit is claimed, divided by the annual net electricity generation (in kWh) of the CHP property during such taxable year. In the case of a qualified facility using nuclear energy, which does not involve combustion, the facility's reactor's total annual thermal output (in Btus, using a conversion rate of 3,412,140 Btus per megawatt hour thermal) shall be used in place of the total annual fuel consumption of the CHP property. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).
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Treas. Reg. §1.45Y-1(e)Applicability date.
Applicability date. This section applies to qualified facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.45Y-1(i)The U.
The U.S. Energy Information Administration's Electric Power Annual, summing the annual carbon dioxide emissions data from conventional power plants and combined heat and power plants and the Monthly Energy Review annual carbon dioxide emissions from the combustion of biomass to produce electricity in the Electric Power Sector; and
(ii) The U.S. Environmental Protection Agency (EPA) Inventory of U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual electric power-related carbon dioxide, methane, and nitrous oxide emissions data including carbon dioxide emissions from the combustion of biomass to produce electricity.
(5) Determination of phase-out. For purposes of paragraph (c)(3)(i) of this section, the Secretary will determine that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022 only if the annual greenhouse gas emissions from the production of electricity in the United States, as determined separately under both of the data sources described in paragraph (c)(4) of this section, are each equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022. If a data source described in paragraph (c)(4) of this section becomes unavailable (for example, it is no longer published or does not provide the specified data), the Secretary must designate a similar data source to replace the unavailable data source.
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Treas. Reg. §1.45Y-2Qualified facility for purposes of section 45Y
(a) Qualified facility. For purposes of the section 45Y credit (defined in § 1.45Y-1(a)(9)), the term qualified facility means a facility owned by the taxpayer that meets the requirements of paragraphs (a)(1) through (3) of this section:
(1) The facility is used for the generation of electricity, meaning that it is a net generator of electricity taking into account any electricity consumed by the facility;
(2) The facility is placed in service after December 31, 2024; and
(3) The facility has a greenhouse gas emissions rate of not greater than zero (as determined under rules provided in § 1.45Y-5).
(b) Property included in qualified facility—(1) In general. A qualified facility includes a unit of qualified facility (as defined in paragraph (b)(2) of this section) that meets the requirements of paragraph (b)(2). A qualified facility also includes property owned by the taxpayer that is an integral part (as defined in paragraph (b)(3) of this section) of the qualified facility. Any component of property that meets the requirements of this paragraph (b) is part of a qualified facility regardless of where such component of property is located. A qualified facility generally does not include equipment that is an addition or modification to an existing qualified facility. However, see § 1.45Y-4(c) for rules regarding the Incremental Production Rule and § 1.45Y-4(d) for rules regarding a retrofitted qualified facility (80/20 Rule).
(2) Unit of qualified facility—(i) In general. For purposes of the section 45Y credit, the unit of qualified facility includes all functionally interdependent components of property (as defined in paragraph (b)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to produce electricity, or, in the case of CHP property, useful thermal energy and electricity. No provision of this section, § 1.45Y-1, or §§ 1.45Y-3 through 1.45Y-5 uses the term unit in respect of a qualified facility with any meaning other than that provided in this paragraph (b)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components to produce electricity.
(3) Integral part—(i) In general. For purposes of thesection 45Ycredit, a component of property owned by a taxpayer is an integral part of a qualified facility if it is used directly in the intended function of the qualified facility and is essential to the completeness of such function. Property that is an integral part of a qualified facility is part of the qualified facility.
(ii) Power conditioning and transfer equipment. Power conditioning equipment and transfer equipment are integral parts of a qualified facility. Power conditioning equipment includes, but is not limited to, transformers, inverters, and converters, which modify the characteristics of electricity or thermal energy into a form suitable for use, transmission, or distribution. Parts related to the functioning or protection of power conditioning equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit breakers, arrestors, and hardware used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes components of property that allow for the aggregation of electricity generated by a qualified facility and components of property that alter voltage to permit electricity to be transferred to a transmission or distribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electrical interrupters (such as circuit breakers, fuses, and other switches), and hardware used to monitor, operate, and protect transfer equipment.
(iii) Roads. Roads that are integral to the intended function of the qualified facility such as onsite roads that are used to operate and maintain the qualified facility are integral parts of a qualified facility. Roads used primarily for access to the site, or roads used primarily for employee or visitor vehicles, are not integral to the intended function of the qualified facility and thus are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified facility because it is not integral to the intended function of the qualified facility.
(v) Buildings. Generally, buildings are not integral parts of a qualified facility because they are not integral to the intended function of the qualified facility. However, the structures described in paragraphs (b)(3)(v)(A) and (B) of this section are not treated as buildings for this purpose and are an integral part of a qualified facility:
(A) A structure that is essentially an item of machinery or equipment; and
(B) A structure that houses components of property that are integral to the intended function of a qualified facility if the use of the structure is so closely related to the use of the components of property housed therein that the structure clearly can be expected to be replaced if the components of property it initially houses are replaced.
(vi) Shared integral property. Multiple qualified facilities (whether owned by one or more taxpayers), including qualified facilities with respect to which a taxpayer has claimed a credit under section 48E or another Federal income tax credit, may include shared property that may be considered an integral part of each qualified facility. In addition, a component of property that is shared by a qualified facility as defined in section 45Y(b) (45Y Qualified Facility) and a qualified facility as defined by section 48E(b)(3) (48E Qualified Facility) that is an integral part of both qualified facilities will not affect the eligibility of the 45Y Qualified Facility for the section 45Y credit or the 48E Qualified Facility for the section 48E credit (defined in § 1.48E-1(a)(10)).
(vii) Examples. This paragraph (b)(3)(vii) provides examples illustrating the rules of paragraphs (b)(3)(i) through (vi) of this section.
(A) Example 1. Co-located qualified facilities owned by the same taxpayer that share integral property. X constructs and owns a solar facility (Solar Facility) and nearby also constructs and owns a wind facility (Wind Facility) that are each a qualified facility. The Solar Facility and Wind Facility each connect to a shared transformer that steps up the electricity produced by each qualified facility to electrical grid voltage before it is transmitted to the electrical grid through an intertie. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X to claim a section 45Y credit for both qualified facilities.
(B) Example 2. Co-located qualified facilities owned by different taxpayers that share integral property. X constructs and owns a solar facility (Solar Facility), and nearby Y constructs and owns a wind facility (Wind Facility) that are each a qualified facility. X's Solar Facility and Y's Wind Facility each connect to a shared transformer that steps up the electricity produced by both qualified facilities to electrical grid voltage before it is transmitted to the electrical grid through an intertie. The fact that the Solar Facility and Wind Facility share property that is integral to both does not impact the ability of X or Y to claim a section 45Y credit for the electricity produced by their respective qualified facilities.
(C) Example 3. Co-located qualified facility and Energy Storage Technology (EST) owned by the same taxpayer that share integral property. X constructs and owns a wind facility that is a qualified facility (Wind Facility) that is co-located with an EST (as defined in § 1.48E-2(g)) that X also constructed and owns. The Wind Facility and EST share transfer equipment that is integral to both. The fact that the Wind Facility and EST share property that is integral to both does not impact the ability of X to claim a section 45Y credit for the electricity produced by the Wind Facility or to claim a section 48E credit for the EST.
(D) Example 4. Co-located wind qualified facility and Energy Storage Technology owned by different taxpayers that share integral property. X constructs and owns a solar facility that is a qualified facility (Solar Facility) that is co-located with an EST (as defined in § 1.48E-2(g)) constructed and owned by Y. The Wind Facility and EST share transfer equipment that is integral to both. The fact that the Wind Facility and EST share property that is integral to both does not impact the ability of X to claim a section 45Y credit for the electricity produced by the Wind Facility or the ability of Y to claim a section 48E credit for the EST.
(E) Example 5. Qualified facility with integral property owned by a different taxpayer. X constructs and owns a hydropower production facility that is a qualified facility (Hydropower Facility). The Hydropower Facility connects to a dam owned by Y, a government entity, that is an integral part of the Hydropower Facility. The fact that X does not own the dam does not impact the ability of X to claim a section 45Y credit for the production of electricity by the Hydropower Facility.
(c) Coordination with other credits—(1) In general. The term qualified facility (as defined in section 45Y(b) and paragraph (a) of this section) does not include any facility for which a credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 of the Code for the taxable year or any prior taxable year. A taxpayer that directly owns a qualified facility (as defined in section 45Y(b)) that is eligible for both a section 45Y credit and a credit determined under one of section 45, 45J, 45Q, 45U, 48, 48A, or 48E is eligible for the section 45Y credit only if such other Federal income tax credit was not allowed with respect to the qualified facility. Nothing in this paragraph (c) precludes a taxpayer from claiming a section 45Y credit with respect to a qualified facility (as defined in section 45Y(b)) that is co-located with another facility for which a credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 for the taxable year or any prior taxable year.
(2) Allowed. For purposes of paragraph (c)(1) of this section, the term allowed only includes credits that a taxpayer has claimed on a Federal income tax return or Federal return, as appropriate, and that the Internal Revenue Service (IRS) has not challenged in terms of the taxpayer's eligibility.
(3) Examples. This paragraph (c)(3) provides examples illustrating the rules of paragraph (c) of this section.
(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm and section 48E credit on co-located EST. X owns a solar farm that is a qualifying facility (Solar Qualified Facility), and X owns a co-located EST (as defined in § 1.48E-2(g)) (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and, therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and X may also claim the section 48E credit based on its qualified investment in the Energy Storage.
(ii) Example 2. Different taxpayers claim a section 45Y credit for a solar farm and a section 48E credit for co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (Solar Qualified Facility), and Y owns a co-located EST (as defined in § 1.48E-2(g)) (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and Y may claim the section 48E credit based on its qualified investment in the Energy Storage.
(iii) Example 3. Taxpayer claiming another credit is not allowed a section 45Y credit. X owns a wind facility that satisfies the requirements of a qualified facility as well as the requirements of a qualified facility as defined in § 1.48E-2(a). X claims a section 48E credit with respect to the wind facility. While a credit may be available with regard to the wind facility under section 45Y, because X has already claimed a section 48E credit with respect to the wind facility, a section 45Y credit is not allowed.
(iv) Example 4. Interaction of section 45Y and section 45Q credits for single qualified facility. X owns a qualified facility (Facility A) that includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by Facility A. X used the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide and claimed a section 45Q credit in a prior taxable year. As a result, X cannot claim a credit for its Facility A because a qualified facility does not include a facility for which a credit determined under section 45Q is allowed.
(v) Example 5. Interaction of section 45Y and section 45Q credits for co-located qualified facilities. Assume the same facts as in paragraph (c)(3)(iv) of this section (Example 4), except that X owns a co-located qualified facility (Facility B) that also includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by Facility B. X used the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide, but has not claimed a section 45Q credit with respect to Facility B. While X claimed a section 45Q credit in a prior taxable year for Facility A (see paragraph (c)(3)(iv) of this section (Example 4)), Facility B is not part of Facility A, and, therefore, X may claim the section 45Y credit for Facility B.
(d) Applicability date. This section applies to qualified facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.
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Treas. Reg. §1.45Y-2(a)Qualified facility.
Qualified facility. For purposes of the section 45Y credit (defined in § 1.45Y-1(a)(9)), the term qualified facility means a facility owned by the taxpayer that meets the requirements of paragraphs (a)(1) through (3) of this section:
(1) The facility is used for the generation of electricity, meaning that it is a net generator of electricity taking into account any electricity consumed by the facility;
(2) The facility is placed in service after December 31, 2024; and
(3) The facility has a greenhouse gas emissions rate of not greater than zero (as determined under rules provided in § 1.45Y-5).
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Treas. Reg. §1.45Y-2(b)Property included in qualified facility—(1) In general.
Property included in qualified facility—(1) In general. A qualified facility includes a unit of qualified facility (as defined in paragraph (b)(2) of this section) that meets the requirements of paragraph (b)(2). A qualified facility also includes property owned by the taxpayer that is an integral part (as defined in paragraph (b)(3) of this section) of the qualified facility. Any component of property that meets the requirements of this paragraph (b) is part of a qualified facility regardless of where such component of property is located. A qualified facility generally does not include equipment that is an addition or modification to an existing qualified facility. However, see § 1.45Y-4(c) for rules regarding the Incremental Production Rule and § 1.45Y-4(d) for rules regarding a retrofitted qualified facility (80/20 Rule).
(2) Unit of qualified facility—(i) In general. For purposes of the section 45Y credit, the unit of qualified facility includes all functionally interdependent components of property (as defined in paragraph (b)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to produce electricity, or, in the case of CHP property, useful thermal energy and electricity. No provision of this section, § 1.45Y-1, or §§ 1.45Y-3 through 1.45Y-5 uses the term unit in respect of a qualified facility with any meaning other than that provided in this paragraph (b)(2)(i).
(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components to produce electricity.
(3) Integral part—(i) In general. For purposes of thesection 45Ycredit, a component of property owned by a taxpayer is an integral part of a qualified facility if it is used directly in the intended function of the qualified facility and is essential to the completeness of such function. Property that is an integral part of a qualified facility is part of the qualified facility.
(ii) Power conditioning and transfer equipment. Power conditioning equipment and transfer equipment are integral parts of a qualified facility. Power conditioning equipment includes, but is not limited to, transformers, inverters, and converters, which modify the characteristics of electricity or thermal energy into a form suitable for use, transmission, or distribution. Parts related to the functioning or protection of power conditioning equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit breakers, arrestors, and hardware used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes components of property that allow for the aggregation of electricity generated by a qualified facility and components of property that alter voltage to permit electricity to be transferred to a transmission or distribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electrical interrupters (such as circuit breakers, fuses, and other switches), and hardware used to monitor, operate, and protect transfer equipment.
(iii) Roads. Roads that are integral to the intended function of the qualified facility such as onsite roads that are used to operate and maintain the qualified facility are integral parts of a qualified facility. Roads used primarily for access to the site, or roads used primarily for employee or visitor vehicles, are not integral to the intended function of the qualified facility and thus are not an integral part of a qualified facility.
(iv) Fences. Fencing is not an integral part of a qualified facility because it is not integral to the intended function of the qualified facility.
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Treas. Reg. §1.45Y-2(c)Coordination with other credits—(1) In general.
Coordination with other credits—(1) In general. The term qualified facility (as defined in section 45Y(b) and paragraph (a) of this section) does not include any facility for which a credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 of the Code for the taxable year or any prior taxable year. A taxpayer that directly owns a qualified facility (as defined in section 45Y(b)) that is eligible for both a section 45Y credit and a credit determined under one of section 45, 45J, 45Q, 45U, 48, 48A, or 48E is eligible for the section 45Y credit only if such other Federal income tax credit was not allowed with respect to the qualified facility. Nothing in this paragraph (c) precludes a taxpayer from claiming a section 45Y credit with respect to a qualified facility (as defined in section 45Y(b)) that is co-located with another facility for which a credit determined under section 45, 45J, 45Q, 45U, 48, 48A, or 48E is allowed under section 38 for the taxable year or any prior taxable year.
(2) Allowed. For purposes of paragraph (c)(1) of this section, the term allowed only includes credits that a taxpayer has claimed on a Federal income tax return or Federal return, as appropriate, and that the Internal Revenue Service (IRS) has not challenged in terms of the taxpayer's eligibility.
(3) Examples. This paragraph (c)(3) provides examples illustrating the rules of paragraph (c) of this section.
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