Final rules for the Section 48 Energy Credit, which is also known as the Investment Tax Credit (ITC), have been released by the U.S. Department of the Treasury and the IRS. Doing this will provide clean energy project developers both clarity and certainty when it comes to conducting large investments around producing more clean power. Plus these rules will also significantly strengthen America’s clean energy economy.

For a long time now the ITC has fueled U.S. clean energy development and they have done this through providing a tax credit when it comes to investments in qualifying clean energy property. Normally these investments focus on an estimated 30% of the cost of the project, however due to time and technology the credit has varied slightly in the past.

Although the ITC has been effective in advancing clean energy projects, a lot of the time its effectiveness was unfortunately limited by the necessity for recurring short-term and retroactive legislative extensions. These issues led to uncertainty and therefore this made it harder for clean energy developers to both make investments and to secure financing for projects.

Whilst the finalised rules retain the core framework of the proposed rules and guidance Treasury and the IRS, which were issued in November of 2023, they now also clarify general rules for the ITC, along with its definitions of property which is eligible for the credit. These rules were informed by 350 written comments provided by stakeholders.

The stakeholders that participated in this decision brought up several different concerns, these include, offshore wind, geothermal heat pumps, definition of ‘energy project,’ biogas, hydrogen storage and finally, co-located energy storage.

These came up as concerns for assorted reasons, for example, offshore wind was specified as a concern and therefore, ‘the final rules retain the clarification made in the proposed rules that owners of offshore wind farms can claim the credit for power conditioning and transfer equipment (e.g., subsea cables) that they own.’ Furthermore, when it comes to geothermal heat pumps, ‘the final rules clarify that the owner of underground coils can claim the ITC if they own at least one heat pump used in conjunction with the coils.’

On top of these concerns, when it comes to biogas, ‘the final rules clarify what property is qualified biogas property and what is an integral part of qualified biogas property.’ Finally, looking at hydrogen storage, ‘the final rules clarify that hydrogen energy storage property does not need to store hydrogen that is solely used as energy and not for other purposes.’

U.S. Deputy Secretary of the Treasury, Wally Adeyemo, commented, “By ending short-term legislative extensions for the Investment Tax Credit, the Inflation Reduction Act has given clean energy project developers clarity and certainty to undertake major investments and produce new clean power to meet growing electricity demand. Today’s announcement will help lower consumers’ utility bills, strengthen U.S. energy security, and create good-paying jobs.”