New Rules for Renewable Energy Credits


The U.S. Department of Treasury and the Internal Revenue Service recently released a notice of proposed regulations to update the investment tax credit (ITC) rules to encompass various forms of renewable energy, that haven’t been changed since year 1987. Notice 2023-25539.pdf outlines the various kinds of energy properties eligible for the Section 48 investment tax credit to modify changes in the energy industry, specifically updates to technological advances on renewable energy, as well as any updates stemming from last year’s passing of the Inflation Reduction Act (IRA).

The notice offers definitions of energy properties for which the ITC was available before the passing of the Inflation Reduction Act (IRA), including, but not limited to: solar process heat, fiber-optic solar property, qualified fuel cell property, qualified microturbine property, combined heat and power system property. Certain technologies that were added to the investment tax credit as energy property by the IRA, include: electrochromic glass, energy storage technology, microgrid controllers, and biogas property. New provisions were added to the credit permitting smaller projects to include the cost of some kinds of interconnection property.

Additionally, it contains general rules for the ITC, including the adoption of the “80/20” rule to retrofitted energy property, dual use property, and issues related to multiple owners of an energy property. Notably, under this “80/20” rule, an existing project is considered to be newly placed in service as long as the retrofitted energy property used in the project doesn’t represent more than 20% of the total fair market value of the project after its refurbishment, with 80% or more of that fair market value represented by costs included in the depreciable basis of the new property.
The latest set of proposed regula

tions could have the effect of expanding the ITC from a base of 6% up to a staggering 70% for qualifying projects. The IRA has already fueled a clean energy investment boom; therefore with these latest proposed regulations, it will provide clarity for clean energy developers to continue their momentum and further their pursuit of renewable energy implementation.

For outlining purposes, the linked notice provides clarification on the topics below; including, but not limited to:

  • Clarification for offshore wind and battery storage projects, as well as small-scale projects that need to connect to the grid.
  • Clarification around the eligibility of power conditioning and transfer equipment like subsea export cables used in offshore wind projects, as well as certain power conditioning equipment located in onshore substations.
  • Clarification on the eligibility of standalone battery storage, reflecting a provision in the IRA to help support the development of long-duration energy storage to help utilities transition to renewable sources like wind and solar.
  • Clarification to the inclusion of costs of interconnection-related property for lower-output clean energy installations, including the costs of upgrades to local transmission and distribution networks. The goal is to lessen the costs and delays for new, smaller clean energy installations to connect to the grid and start producing power.

By continuing their efforts, The Department of Treasury is aiming to provide companies with the clarity and certainty needed to secure proper financing and advance clean energy projects nationwide. They have been diligent in rolling out a stream of guidance and regulations over the past year pertaining to the IRA as well as its provisions related to the renewable energy industry, even further including guidance on electric vehicles, solar and wind credits. The Department of Treasure and IRS stated they will accept comments/feedback on the proposed regulations until January 21, 2024 and all comments will carefully be considered as part of their rulemaking process.

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