Reg. § 1.45Y-1 Clean electricity production credit.
(a) Overview
(1) In general For purposes of section of the Internal Revenue Code (Code), the section credit (defined in of this section) is determined under section 45Y of the Code and the section regulations (defined in of this section). This provides definitions of terms that, unless otherwise specified, apply for purposes of section , the section regulations, and any provision of the Code or this chapter that expressly refers to any provision of section or the section regulations. of this section provides rules for determining the amount of the section credit for any taxable year. of this section provides rules regarding the phase-out of the section credit. of this section provides rules regarding combined heat and power system (CHP) property. See for rules relating to qualified facilities for purposes of the section credit. See for rules of general application for the section credit. See for rules to determine greenhouse gas emissions rates for qualified facilities.
(2) CHP property
(i) In general For purposes of section and 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 , the term metering device means equipment that is owned and operated by an unrelated person (as defined in 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 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 provides examples illustrating the application of 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 through 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 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 through 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 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 credit has the meaning provided in .
(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 ), 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 credit means the clean electricity production credit determined under section 45Y of the Code and the section regulations.
(10) Section 45Y regulations The term section regulations means this section and through .
(11) Unrelated person For purposes of section , the term unrelated person means a person who is not a related person as defined in section and 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 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 prescribed under section . Therefore, Consumer Y is not treated as a single employer with Taxpayer X under section , 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 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 of this section) that is owned and operated by an unrelated person, the section 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 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 and of this section in the case of a qualified facility that satisfies the domestic content requirements of section .
(2) Applicable amount
(i) In general The term applicable amount means the base amount described in of this section or the alternative amount described in of this section. The applicable amount is subject to the inflation adjustment as provided in section and of this section. The applicable amount may also be increased as provided in section and of this section in the case of a qualified facility that is located in an energy community.
(ii) Base amount Under section , in the case of any qualified facility that does not satisfy the requirements provided in section , the applicable amount is the base amount, which is 0.3 cents.
(iii) Alternative amount Under section , in the case of any qualified facility that satisfies the prevailing wage and apprenticeship requirements provided in section , the applicable amount is the alternative amount, which is 1.5 cents.
(3) Inflation adjustment
(i) In general Pursuant to section , 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 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 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 , 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 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 , 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 , 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 ), for purposes of determining the amount of the section 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 . The 10 percent increase under this applies after the inflation adjustment under of this section.
(5) Domestic content bonus credit amount In the case of any qualified facility that satisfies the requirements of section (domestic content requirement), for purposes of determining the amount of the section 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 , without application of of this section (related to energy communities), is increased by 10 percent.
(c) Credit phase-out
(1) In general The amount of the section credit for any qualified facility, the construction of which begins during a calendar year provided in section and described in of this section, is equal to the product of—
(i) The amount of the credit determined under section and described in of this section, without regard to section and this ; multiplied by
(ii) The phase-out percentage provided under section and described in of this section.
(2) Phase-out percentage The phase-out percentage described in this 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 of this section, 0 percent.
(3) Applicable year For purposes of this , 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 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 and 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 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 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 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 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 ).
(3) Special rule for calculating electricity produced by CHP property
(i) In general For purposes of section and 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 and this , 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 , 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 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 ).
(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.
[T.D. 10024, 90 FR 4096, Jan. 15, 2025]