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US Treasury releases final clean energy investment tax credit rules

They see you when you’re sleeping. They know when you’re awake. And they read all 350+ of your written public comments about the wonky intricacies of tax credits.

Today, the U.S. Department of the Treasury and the IRS unveiled their final rules for the “landmark” Section 48 Energy Credit, better known as the Investment Tax Credit (ITC), which will provide clarity and certainty for developers undertaking major project investments.

The final rules retain the core framework of the proposed rules and guidance issued in November 2023, tweaked and massaged via the aforementioned stakeholder input to clarify the general rules for the ITC and definitions of what is eligible for it.

Specific issues raised by commenters that the final rules address include: 

Offshore wind: 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.


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. 


Biogas: The final rules clarify what property is qualified biogas property and what is an integral part of qualified biogas property.  


Definition of “energy project”: The final rules revise the definition of energy project to require ownership of the energy properties plus four or more factors from a list of seven factors and clarify that taxpayers can assess the factors at any point during construction or during the taxable year energy properties are placed in service.


Co-located energy storage: The final rules clarify that a Section 48 credit may be claimed for energy storage technology that is co-located with and shares power conditioning equipment with a qualified facility for which a Section 45 credit is claimed.


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. 


The ITC has spurred U.S. clean energy development for decades by providing a tax credit for investments in qualifying clean energy property, usually 30% of the cost of the project, although it has varied over time. Its effectiveness has been limited by the need for recurring short-term and retroactive legislative extensions, Treasury and the IRS note, creating uncertainty and making it harder for clean energy developers to make investments and secure financing for projects.

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