§ 48. Energy credit

§ 48. Energy credit

(a) Energy credit

(1) In general For purposes of section 46, except as provided in paragraphs (1)(B), (2)(B), and (3)(B) of subsection (c), the energy credit for any taxable year is the energy percentage of the basis of each energy property placed in service during such taxable year.

(2) Energy percentage

(A) In general Except as provided in paragraphs (6) and (7), the energy percentage is—

(i) 6 percent in the case of—

(I) qualified fuel cell property,

(II) energy property described in clause (i) or (iii) of paragraph (3)(A) but only with respect to property the construction of which begins before January 1, 2025,

(III) energy property described in paragraph (3)(A)(ii),

(IV) qualified small wind energy property,

(V) waste energy recovery property,

(VI) energy storage technology,

(VII) qualified biogas property,

(VIII) microgrid controllers, and

(IX) energy property described in clauses (v) and (vii) of paragraph (3)(A), and

(ii) in the case of any energy property to which clause (i) does not apply, 0 percent.

(B) Coordination with rehabilitation credit The energy percentage shall not apply to that portion of the basis of any property which is attributable to qualified rehabilitation expenditures.

(C) Nonapplication of increases to energy percentage For purposes of energy property described in subparagraph (A)(ii), the energy percentage applicable to such property pursuant to such subparagraph shall not be increased or otherwise adjusted by any provision of this section.

(3) Energy property For purposes of this subpart, the term “energy property” means any property—

Such term shall not include any property which is part of a facility the production from which is allowed as a credit under section 45 for the taxable year or any prior taxable year.

(A) which is—

(i) equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, excepting property used to generate energy for the purposes of heating a swimming pool,

(ii) equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight, or electrochromic glass which uses electricity to change its light transmittance properties in order to heat or cool a structure, but only with respect to property the construction of which begins before January 1, 2025,

(iii) equipment used to produce, distribute, or use energy derived from a geothermal deposit (within the meaning of section 613(e)(2)), but only, in the case of electricity generated by geothermal power, up to (but not including) the electrical transmission stage,

(iv) qualified fuel cell property or qualified microturbine property,

(v) combined heat and power system property,

(vi) qualified small wind energy property,

(vii) equipment which uses the ground or ground water as a thermal energy source to heat a structure or as a thermal energy sink to cool a structure, but only with respect to property the construction of which begins before January 1, 2035,

(viii) waste energy recovery property,

(ix) energy storage technology,

(x) qualified biogas property, or

(xi) microgrid controllers,

(B)

(i) the construction, reconstruction, or erection of which is completed by the taxpayer, or

(ii) which is acquired by the taxpayer if the original use of such property commences with the taxpayer,

(C) with respect to which depreciation (or amortization in lieu of depreciation) is allowable, and

(D) which meets the performance and quality standards (if any) which—

(i) have been prescribed by the Secretary by regulations (after consultation with the Secretary of Energy), and

(ii) are in effect at the time of the acquisition of the property.

(4) Special rule for property financed by tax-exempt bonds Rules similar to the rule under section 45(b)(3) shall apply for purposes of this section.

(5) Election to treat qualified facilities as energy property

(A) In general In the case of any qualified property which is part of a qualified investment credit facility—

(i) such property shall be treated as energy property for purposes of this section, and

(ii) the energy percentage with respect to such property shall be 6 percent.

(B) Denial of production credit No credit shall be allowed under section 45 for any taxable year with respect to any qualified investment credit facility.

(C) Qualified investment credit facility For purposes of this paragraph, the term “qualified investment credit facility” means any facility—

(i) which is a qualified facility (within the meaning of section 45) described in paragraph (1), (2), (3), (4), (6), (7), (9), or (11) of section 45(d),

(ii) which is placed in service after 2008 and the construction of which begins before January 1, 2025, and

(iii) with respect to which—

(I) no credit has been allowed under section 45, and

(II) the taxpayer makes an irrevocable election to have this paragraph apply.

(D) Qualified property For purposes of this paragraph, the term “qualified property” means property—

(i) which is—

(I) tangible personal property, or

(II) other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the qualified investment credit facility,

(ii) with respect to which depreciation (or amortization in lieu of depreciation) is allowable,

(iii) which is constructed, reconstructed, erected, or acquired by the taxpayer, and

(iv) the original use of which commences with the taxpayer.

(E) Phaseout of credit for wind facilities In the case of any facility using wind to produce electricity which is placed in service before January 1, 2022, and treated as energy property by reason of this paragraph, the amount of the credit determined under this section (determined after the application of paragraphs (1) and (2) and without regard to this subparagraph) shall be reduced by—

(i) in the case of any facility the construction of which begins after December 31, 2016, and before January 1, 2018, 20 percent,

(ii) in the case of any facility the construction of which begins after December 31, 2017, and before January 1, 2019, 40 percent,

(iii) in the case of any facility the construction of which begins after December 31, 2018, and before January 1, 2020, 60 percent, and

(iv) in the case of any facility the construction of which begins after December 31, 2019, and before January 1, 2022, 40 percent.

(F) Qualified offshore wind facilities

(i) In general In the case of any qualified offshore wind facility, subparagraph (E) shall not apply.

(ii) Qualified offshore wind facility For purposes of this subparagraph, the term “qualified offshore wind facility” means a qualified facility (within the meaning of section 45) described in paragraph (1) of section 45(d) (determined without regard to any date by which the construction of the facility is required to begin) which is located in the inland navigable waters of the United States or in the coastal waters of the United States.

(6) Phaseout for certain energy property In the case of any qualified fuel cell property, qualified small wind property, or energy property described in clause (i) or clause (ii) of paragraph (3)(A) the construction of which begins after December 31, 2019, and which is placed in service before January 1, 2022, the energy percentage determined under paragraph (2) shall be equal to 26 percent.

(7) Phaseout for certain energy property In the case of any energy property described in clause (vii) of paragraph (3)(A), the energy percentage determined under paragraph (2) shall be equal to—

(A) in the case of any property the construction of which begins before January 1, 2033, and which is placed in service after December 31, 2021, 6 percent,

(B) in the case of any property the construction of which begins after December 31, 2032, and before January 1, 2034, 5.2 percent, and

(C) in the case of any property the construction of which begins after December 31, 2033, and before January 1, 2035, 4.4 percent.

(8) Interconnection property

(A) In general For purposes of determining the credit under subsection (a), energy property shall include amounts paid or incurred by the taxpayer for qualified interconnection property in connection with the installation of energy property (as defined in paragraph (3)) which has a maximum net output of not greater than 5 megawatts (as measured in alternating current), to provide for the transmission or distribution of the electricity produced or stored by such property, and which are properly chargeable to the capital account of the taxpayer.

(B) Qualified interconnection property The term “qualified interconnection property” means, with respect to an energy project which is not a microgrid controller, any tangible property—

(i) which is part of an addition, modification, or upgrade to a transmission or distribution system which is required at or beyond the point at which the energy project interconnects to such transmission or distribution system in order to accommodate such interconnection,

(ii) either—

(I) which is constructed, reconstructed, or erected by the taxpayer, or

(II) for which the cost with respect to the construction, reconstruction, or erection of such property is paid or incurred by such taxpayer, and

(iii) the original use of which, pursuant to an interconnection agreement, commences with a utility.

(C) Interconnection agreement The term “interconnection agreement” means an agreement with a utility for the purposes of interconnecting the energy property owned by such taxpayer to the transmission or distribution system of such utility.

(D) Utility For purposes of this paragraph, the term “utility” means the owner or operator of an electrical transmission or distribution system which is subject to the regulatory authority of a State or political subdivision thereof, any agency or instrumentality of the United States, a public service or public utility commission or other similar body of any State or political subdivision thereof, or the governing or ratemaking body of an electric cooperative.

(E) Special rule for interconnection property In the case of expenses paid or incurred for interconnection property, amounts otherwise chargeable to capital account with respect to such expenses shall be reduced under rules similar to the rules of section 50(c).

(9) Increased credit amount for energy projects

(A) In general

(i) Rule In the case of any energy project which satisfies the requirements of subparagraph (B), the amount of the credit determined under this subsection (determined after the application of paragraphs (1) through (8) and paragraph (15) and without regard to this clause) shall be equal to such amount multiplied by 5.

(ii) Energy project defined For purposes of this subsection, the term “energy project” means a project consisting of one or more energy properties that are part of a single project.

(B) Project requirements A project meets the requirements of this subparagraph if it is one of the following:

(i) A project with a maximum net output of less than 1 megawatt of electrical (as measured in alternating current) or thermal energy.

(ii) A project the construction of which begins before the date that is 60 days after the Secretary publishes guidance with respect to the requirements of paragraphs (10)(A) and (11).

(iii) A project which satisfies the requirements of paragraphs (10)(A) and (11).

(10) Prevailing wage requirements

(A) In general The requirements described in this subparagraph with respect to any energy project are that the taxpayer shall ensure that any laborers and mechanics employed by the taxpayer or any contractor or subcontractor in—

shall be paid wages at rates not less than the prevailing rates for construction, alteration, or repair of a similar character in the locality in which such project is located as most recently determined by the Secretary of Labor, in accordance with subchapter IV of chapter 31 of title 40, United States Code. Subject to subparagraph (C), for purposes of any determination under paragraph (9)(A)(i) for the taxable year in which the energy project is placed in service, the taxpayer shall be deemed to satisfy the requirement under clause (ii) at the time such project is placed in service.

(i) the construction of such energy project, and

(ii) for the 5-year period beginning on the date such project is originally placed in service, the alteration or repair of such project,

(B) Correction and penalty related to failure to satisfy wage requirements Rules similar to the rules of section 45(b)(7)(B) shall apply.

(C) Recapture The Secretary shall, by regulations or other guidance, provide for recapturing the benefit of any increase in the credit allowed under this subsection by reason of this paragraph with respect to any project which does not satisfy the requirements under subparagraph (A) (after application of subparagraph (B)) for the period described in clause (ii) of subparagraph (A) (but which does not cease to be investment credit property within the meaning of section 50(a)). The period and percentage of such recapture shall be determined under rules similar to the rules of section 50(a).

(11) Apprenticeship requirements Rules similar to the rules of section 45(b)(8) shall apply.

(12) Domestic content bonus credit amount

(A) In general In the case of any energy project which satisfies the requirement under subparagraph (B), for purposes of applying paragraph (2) with respect to such property, the energy percentage shall be increased by the applicable credit rate increase.

(B) Requirement Rules similar to the rules of section 45(b)(9)(B) shall apply.

(C) Applicable credit rate increase For purposes of subparagraph (A), the applicable credit rate increase shall be—

(i) in the case of an energy project which does not satisfy the requirements of paragraph (9)(B), 2 percentage points, and

(ii) in the case of an energy project which satisfies the requirements of paragraph (9)(B), 10 percentage points.

(13) Phaseout for elective payment In the case of a taxpayer making an election under section 6417 with respect to a credit under this section, rules similar to the rules of section 45(b)(10) shall apply.

(14) Increase in credit rate for energy communities

(A) In general In the case of any energy project that is placed in service within an energy community (as defined in section 45(b)(11)(B), as applied by substituting “energy project” for “qualified facility” each place it appears), for purposes of applying paragraph (2) with respect to energy property which is part of such project, the energy percentage shall be increased by the applicable credit rate increase.

(B) Applicable credit rate increase For purposes of subparagraph (A), the applicable credit rate increase shall be equal to—

(i) in the case of any energy project which does not satisfy the requirements of paragraph (9)(B), 2 percentage points, and

(ii) in the case of any energy project which satisfies the requirements of paragraph (9)(B), 10 percentage points.

(15) Election to treat clean hydrogen production facilities as energy property

(A) In general In the case of any qualified property (as defined in paragraph (5)(D)) which is part of a specified clean hydrogen production facility—

(i) such property shall be treated as energy property for purposes of this section, and

(ii) the energy percentage with respect to such property is—

(I) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (A) of section 45V(b)(2), 1.2 percent,

(II) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (B) of such section, 1.5 percent,

(III) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in a subparagraph (C) of such section, 2 percent, and

(IV) in the case of a facility which is designed and reasonably expected to produce qualified clean hydrogen which is described in subparagraph (D) of such section, 6 percent.

(B) Denial of production credit No credit shall be allowed under section 45V or section 45Q for any taxable year with respect to any specified clean hydrogen production facility or any carbon capture equipment included at such facility.

(C) Specified clean hydrogen production facility For purposes of this paragraph, the term “specified clean hydrogen production facility” means any qualified clean hydrogen production facility (as defined in section 45V(c)(3))—

(i) which is placed in service after December 31, 2022,

(ii) with respect to which—

(I) no credit has been allowed under section 45V or 45Q, and

(II) the taxpayer makes an irrevocable election to have this paragraph apply, and

(iii) for which an unrelated third party has verified (in such form or manner as the Secretary may prescribe) that such facility produces hydrogen through a process which results in lifecycle greenhouse gas emissions which are consistent with the hydrogen that such facility was designed and expected to produce under subparagraph (A)(ii).

(D) Qualified clean hydrogen For purposes of this paragraph, the term “qualified clean hydrogen” has the meaning given such term by section 45V(c)(2).

(E) Regulations The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this section, including regulations or other guidance which recaptures so much of any credit allowed under this section as exceeds the amount of the credit which would have been allowed if the expected production were consistent with the actual verified production (or all of the credit so allowed in the absence of such verification).

(16) Regulations and guidance The Secretary shall issue such regulations or other guidance as the Secretary determines necessary to carry out the purposes of this subsection, including regulations or other guidance which provides for requirements for recordkeeping or information reporting for purposes of administering the requirements of this subsection.

(b) Certain progress expenditure rules made applicable Rules similar to the rules of subsections (c)(4) and (d) of section 46 (as in effect on the day before the date of the enactment of the Revenue Reconciliation Act of 1990) shall apply for purposes of subsection (a).

(c) Definitions For purposes of this section—

(1) Qualified fuel cell property

(A) In general The term “qualified fuel cell property” means a fuel cell power plant which—

(i) has a nameplate capacity of at least 0.5 kilowatt (1 kilowatt in the case of a fuel cell power plant with a linear generator assembly) of electricity using an electrochemical or electromechanical process, and

(ii) has an electricity-only generation efficiency greater than 30 percent.