US Releases New Rule To Incentivise Clean Energy Production Under IRA

US Releases New Rule To Incentivize Clean Electricity Production Under IRA

The US Department of the Treasury and Internal Revenue Service (IRS) released proposed guidance on the Clean Electricity Production Credit and Clean Electricity Investment Credit under the Inflation Reduction Act (IRA).

This guideline was established by President Biden’s Inflation Reduction Act (IRA), to provide clarity to developers of clean electricity projects. This guidance is expected to support President Biden’s Investing in America Agenda, support American jobs, and bolster energy production and energy security while reducing energy costs for American consumer

The Inflation Reduction Act sunsets the existing Production Tax Credit (section 45 of the tax code) and Investment Tax Credit (section 48 of the tax code). This limits their availability to projects beginning construction before 2025 and transitioning to the clean electricity production credit (section 45Y of the tax code) and the clean electricity investment credit (section 48E of the tax code) for projects placed in service after December 31, 2024.

These new clean electricity credits are claimed to be one of the significant reforms that provide incentives for the first time to any clean energy facility that achieves net zero greenhouse gas emissions. These credits provide the ability for new zero greenhouse gas emissions technologies to develop over time, while also providing long-term clarity and certainty to investors and developers of clean energy projects.

The technologies recognized in today’s NPRM include wind, solar, hydropower, marine, and hydrokinetic, nuclear fission and fusion, geothermal, and certain types of waste energy recovery property (WERP). The proposed guidance also clarifies how energy storage technologies qualify for the Clean Electricity Investment Credit. The statute requires that clean energy technologies that rely on combustion or gasification to produce electricity undergo a lifecycle greenhouse gas analysis to demonstrate net-zero emissions.

These proposed rules generally follow rules from the existing production and investment tax credits, which should provide clarity and certainty to developers as they move forward with clean energy production projects. This guidance proposed that any future changes to the set of technologies that are designated as zero greenhouse gas emissions or the designation of lifecycle analysis models that may be used to determine greenhouse gas emissions rates must be accompanied by an analysis prepared by the U.S. Department of Energy (DOE)’s National Labs, in consultation with agency technical experts and other experts.

Additionally, the NPRM includes proposed rules that provide clarity on the inclusion of costs of interconnection-related property for lower-output clean energy facilities that take the Clean Electricity Investment Tax Credit. Eligible costs, which are a major barrier to faster clean energy deployment, include the costs of upgrades to local transmission and distribution networks that are necessary to connect the facility to the grid. The proposed rules continue the approach taken in the proposed rules for the Section 48 Investment Tax Credit, which was modified by the IRA to cover qualified interconnection costs.

Outside studies have shown that the Clean Electricity Production and Investment Credits are key to accelerating US emissions reductions and achieving President Biden’s climate and clean energy goals. A recent Rhodium Group study found that by 2035, the credits will reduce power sector carbon emissions by 43-73% below 2022 levels, save American consumers up to $34 billion in annual electricity costs, and add nearly 650 gigawatts of clean electricity to the grid.