The long-standing §45 production tax credit (PTC) and the §48 investment tax credit (ITC) have catalyzed American clean energy development for decades. These long-running and effective tax credits have supported capital access and lowered the cost of development for clean energy technologies. This legacy structure, which establishes eligibility for a specific set of technologies, was officially replaced with a new tech-neutral regime as of January 1, 2025. The US Department of the Treasury released final guidance on these tech-neutral credits on January 7, 2025.
We are spotlighting five key takeaways from the updated guidance:
- The final guidance is broadly consistent with the draft guidance issued in May 2024. For instance, the Internal Revenue Service (IRS) affirmed that the most common clean electric generating technologies, such as solar, wind, battery storage, nuclear, and geothermal, are categorically zero-emission technology, which the IRS terms “non-combustion and gasification” technology (non C&G). The implication is that these facilities will automatically qualify for the ITC/PTC.
- Updates to the guidance appear intended to support workability for combustion and gasification (C&G) facilities that wish to demonstrate that they are zero-emission facilities. As a result, facilities such as natural gas generators with carbon capture, utilization, and storage (CCUS) or biogas-fired generation will likely be able to make better use of the new credits.
- The Treasury Department adopted several provisions related to restarting facilities, the use of offsets to achieve a zero-emission baseline, and proper accounting for long-term implications from feedstock production. These rules will help ensure that facilities qualify for tax credits in a transparent and durable manner and support confidence in the tech-neutral tax credits.
- Treasury sustained the long-standing begin construction and continuous construction safe harbors treatment for projects seeking to claim the technology-neutral credits. This is an important clarification for projects that were unable to start construction in 2024 and therefore are not eligible for a safe harbor for the legacy PTC or ITC.
- The final rules adopt a similar treatment for the inclusion of interconnection costs in the ITC cost basis as the IRS finalized in its §48 ITC guidance published on December 4, 2024. The harmonization of the legacy §48 and the new tech-neutral §48E ensures that projects have access to a consistent and stable regulatory treatment for interconnection costs, which can be a significant cost item for new infrastructure.
This new rule is likely the last one that will be produced by the outgoing Administration. Typically, rules are scheduled to go into effect 30 days after publication, which extends past the inauguration of President-elect Donald Trump. However, the Treasury Department finalized the rule using the “good-cause exemption,” set out in the Administrative Procedures Act, which permits the rule to go into effect immediately. That exemption is generally used when there is good cause to forgo the 30-day review period, including where the agency, as Treasury asserts here, believes that immediate effectiveness is consistent with congressional intent. The incoming administration may challenge the good-cause exemption. If successful, the preceding proposed rule would be expected to govern.
Ultimately, the market certainty afforded by the final regulations — including sustaining the applicability of the begin construction and continuous safe harbors, simplifying eligibility for C&G technologies, and ensuring transparency for new generating capacity — is likely to support sustained investment in new infrastructure. Investment certainty is a critical component to ensuring that energy remains affordable and available for American households.
About the tech-neutral tax credits
These transferable tech-neutral credits are designed to evolve with the energy industry over the long term. Historically, as clean energy technologies have reached commercial viability (e.g., biogas or energy storage), each technology had to obtain explicit access to tax credit support. This led to distinct tax credits, each defined by a specific section of the US code. Under the tech-neutral framework, new technologies can be included in the IRS’ annual determination of eligible technologies. This change is particularly welcome as energy demand continues to rise and newer technology categories such as enhanced geothermal and hydrogen are gaining momentum.
In addition to its flexibility, a recent study shows that the tech-neutral tax credit regime will attract significant investment in energy-generating technologies and help reduce costs for consumers. Aurora Energy Research, a leading power market analysis firm, published a study showing that the tech-neutral tax credits are helping drive an incremental $337 billion in investment in 237 gigawatts of new generation over the next 15 years. These facilities are reducing power bills for consumers by an average of 10% annually, and as much as 22% in states such as Texas where clean energy deployment is particularly robust.
The new guidance from the IRS cements a flexible, workable tax credit regime for electric generating capacity that meet the following criteria:
- It must be owned by the taxpayer and must enter service on or after January 1, 2025.
- It must not have claimed the legacy PTC or ITC (or meet the 80/20 threshold for repowering).
- It must generate electricity.
- It must have an emissions rate of zero, as determined by the tech-neutral regulations.
In addition to these qualifications, tax credit buyers and sellers need to understand the details of the final tech-neutral guidance.
Navigating the tech-neutral ITC and PTC
The IRS updated the final rules for the tech-neutral tax credits on several fronts, adopting important policy elements that will make the tech-neutral framework accessible and workable for a wide range of energy technologies. The final guidance builds upon and is largely in line with the proposed guidance released in May 2024. In particular, the IRS expanded on the workability of the tech-neutral credits, especially for C&G facilities such as natural gas-fired generators with carbon capture. The IRS maintained that C&G facilities must demonstrate that they are non-emitting, but established several processes whereby both C&G and non-C&G facilities can qualify for the tax credits:
- Annual table: The Secretary of the Treasury will publish an annual table that sets forth the greenhouse gas (GHG) emissions rates for types or categories of facilities. The Treasury Department and the IRS intend to include in the annual table the types or categories of facilities that are described in the final regulations as having a GHG emissions rate that is not greater than zero. The final regulations also clarify that in connection with the publication of the annual table, the Secretary must publish an accompanying expert analysis that addresses any types or categories of facilities added or removed from the annual table since its last publication.
- Provisional emissions rate: The final regulations provide the process for taxpayers to obtain a provisional emissions rate (PER) from the US Department of Energy (DOE) for facilities not listed on the annual table. The final regulations clarify that a taxpayer may not request an emissions value from DOE for a facility for which an emissions value can be determined by using a designated lifecycle analysis (LCA) model. The Treasury Department and the IRS have adopted an approach that harmonizes the technical requirements for the annual table and the PER process.
- C&G and non-C&G facilities: The final regulations retain the definitions of combustion and gasification facilities and non-C&G facilities, recognizing that the statute has different rules for determining GHG emissions rates for each type. The final regulations clarify that emissions included in the determination of GHG emissions are those that occur from the processes that transform the input energy source into electricity.
The IRS adopted several additional provisions governing the restart of facilities, the use of emissions offsets to achieve zero emissions, and the appropriate timeline for a lifecycle analysis. Those points are summarized below:
- Special rule for restarted facilities: The final regulations add an anti-abuse rule to prevent facilities from ceasing operation for the purpose of qualifying for the special rule for restarted facilities. The tech-neutral tax credit regime has already proven to support nuclear power plant repowerings, with both Constellation’s Three Mile Island and Entergy’s Pilgrim unit on track to be repowered in time to claim these tax incentives. However, some commenters noted that the IRS should discourage plant owners from shutting down their facilities to repower them and claim the tax credits. In practice, these rules likely have bearing on smaller facilities, but nonetheless are important to recognize.
- Emissions offsets: The final regulations clarify that offsets and offsetting activities should not be included in the LCA because they are not related to the production of electricity or the lifecycle of the fuel used in electricity production. This decision was expected, and is consistent with common regulatory treatment for supply-side generation under a zero-emission mandate.
- Time horizon for LCA: The final regulations adopt a time horizon for LCA of 30 years from the year in which a qualified facility is placed in service. This is particularly notable for facilities that use agricultural feedstocks, such as biomass facilities. The implication is that these facilities need to account for the land-use or other impacts of their feedstock on a 30-year horizon. This should not be misconstrued as a 30-year global warming impact, or the impact that GHG emissions have on the Earth’s atmosphere over a 30-year period.
Get our latest insights and favorite reads on the transferable tax credit market in your inbox.
The availability of the ITC and PTC for biogas generation
There are several matters of particular significance that the IRS addressed in the final guidance. In particular, the IRS simplified the treatment of biogas facilities and clarified the process of qualification for the tech-neutral tax credits. In the proposed rules, the IRS proposed requiring that biogas facilities demonstrate that they are the first productive use for a biogas feedstock. In practice, commenters noted that this would be administratively difficult, and the IRS dropped this requirement in the final rules. Under the final rules, biogas-fired generation must satisfy simpler requirements to be eligible for the ITC or PTC under the tech-neutral framework, supporting workability for this important technology category:
- Lifecycle analysis: Facilities using biogas or renewable natural gas (RNG) must demonstrate a net-zero GHG emissions rate through a LCA. This analysis must consider all stages of the fuel's lifecycle, from production to electricity generation.
- First productive use: The IRS considered a "first productive use" requirement in the proposed tech-neutral guidance, which would have required that the biogas or RNG used originate from its first valuable application. However, this requirement was not included in the final regulations due to concerns about substantiation and verification.
- Future guidance: The IRS suggested that taxpayers maintain third-party certification that verifies that facilities meet LCA criteria. The IRS may also provide specific substantiation and documentation data requirements related to alternative fates or avoided emissions for specific fuels or feedstocks in future guidance.
Availability of the start construction and continuous construction safe harbor
The IRS explicitly adopted the beginning of construction and continuous construction safe harbor, which entitles a facility to claim the ITC or PTC on the basis of the applicable law when they began construction and not when the facility was placed into service, as long as it meets continuous construction requirements.
The IRS final guidance applies the begin construction and continuous construction safe harbor to projects claiming the 48E investment tax credit or the 45Y production tax credit by referencing existing IRS guidance. This important step ensures that projects that begin construction in 2025 or later are able to rely upon the long-standing safe harbors to ensure that they receive the tax credits that helped capitalize the facility when it began construction.
- Begin construction: For purposes of determining when construction begins for the 45Y and 48E credits, the IRS uses principles similar to those in Notice 2013-29. This notice provides two tests to determine if construction has begun. Taxpayers satisfying either of these tests will be considered to have begun construction:
- Physical work test: Construction begins when physical work of a significant nature begins.
- Five-percent safe harbor: Construction begins when 5% or more of the total cost of the facility has been incurred.
- Continuity safe harbor: The IRS also applies principles similar to those in existing IRS notices regarding the continuity requirement. This means that after construction has begun, taxpayers must demonstrate continuous efforts toward the completion of the facility.
- Four-year rule: Generally, a facility must be placed in service no more than four calendar years after the calendar year in which construction began
- Notice 2022-61: The IRS has specified that Notice 2022-61 applies to the 45Y and 48E credits for purposes of determining the beginning of construction. This notice also provides guidance on the prevailing wage and apprenticeship (PWA) requirements
- Failure to meet requirements of sections 45 or 48: A project that fails to satisfy the requirements, including the beginning-of-construction requirements, for the section 45 or 48 credits is not disqualified from claiming either section 45Y or 48E, so long as the facility meets all requirements under those code sections.
Amendments to incorporating interconnection cost into the ITC cost basis
Finally, the guidance adopted a regulatory treatment, which the IRS finalized in recent §48 ITC rules, that modifies the application of the five-megawatt limitation for the purpose of including interconnection costs in the ITC cost basis, subject to certain constraints.
The final tech-neutral guidance carried forward certain modifications to the five-megawatt rule for including qualified interconnection costs in the ITC basis under section 48E, consistent with final guidance for the §48 guidance published in December 2024. Here's a breakdown of how it works:
- Five-megawatt limitation: The qualified investment for a qualified facility can include amounts paid or incurred by the taxpayer for qualified interconnection property if the facility has a maximum net output of not greater than five megawatts (as measured in alternating current). This is referred to as the "Five-Megawatt Limitation."
- Qualified interconnection property: This refers to tangible property that is part of an addition, modification, or upgrade to a transmission or distribution system that is required at or beyond the point where the qualified facility connects to the system. The property must be constructed, reconstructed, or erected by the taxpayer, or the costs must be paid or incurred by the taxpayer. Also, the original use of the property must begin with a utility.
- However, the five-megawatt limitation may not be calculated only on the facility level, but on the basis of a series of solar modules and inverters, the combined capacity of which does not exceed five megawatts.
More information on the treatment for interconnection costs for larger solar projects can be found in a writeup here.
The final guidelines provide more certainty for clean energy developers and manufacturers on what clean energy technologies will be eligible for the new tech-neutral tax credits. Crux estimates the total transferable tax credit market for 2024 between $22 and $25 billion, and has already seen a great deal of interest among buyers for 2025 tax credits.
Contact us today to learn more about transferable tax credits for 2025 and how to transact successfully in the tax credit market.
.png)