The federal government aims to boost clean energy by investing in and incentivizing governments, businesses, and other stakeholders to adopt clean energy programs. This includes tax credits for developing clean energy projects like what was made available by the Inflation Reduction Act (IRA).
“I do think that [IRA] is helping,” Oklahoma Governor Kevin Stitt told Politico when discussing the clean energy technology investment boom in his state and across the U.S.
Earlier this year, the United States Department of the Treasury and the Internal Revenue Service (IRS) released final rules on key IRA provisions to expand the reach of clean energy tax credits and help build projects more quickly and affordably.
According to a March 5 press release from the Treasury Department, the goal is to “create good-paying jobs and lower energy costs for families.”
Photo Courtesy EPA
As the press release noted, the IRA created two new credit delivery mechanisms: elective pay, otherwise known as “direct pay,” and the other is transferability. The new mechanisms are designed to help stakeholders take advantage of clean energy tax credits, including nonprofit groups, U.S. territories, and state, local, and Tribal governments.
The Treasury Department said before the IRA introduced the new credit delivery mechanisms, many organizations — including businesses and government agencies — could not “fully benefit” from programs that incentivize clean energy deployment.
“The Inflation Reduction Act’s new tools to access clean energy tax credits are a catalyst for meeting [the current administration’s] historic economic and climate goals,” Janet Yellen, secretary of the treasury, said in a statement.
Photo Courtesy U.S. Department of Treasury
As Politico reported, the renewable energy industry traditionally relied on tax equity markets, in which banks and other financial institutions provided much of the capital needed to build projects. However, that kind of structure often made it hard for tax-exempt entities to enter the market.
According to the Treasury Department, the IRA allows tax-exempt and governmental entities to receive elective payments for 12 clean energy tax credits.
These include the major Investment and Production Tax (45 and 48) credits and tax credits for electric vehicles and charging stations. Businesses can also choose elective pay for three of those credits: the credits for Advanced Manufacturing (45X), Carbon Oxide Sequestration (45Q), and Clean Hydrogen (45V).
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Politico reported that proposed rules were also issued to address “looming questions” about entities that co-own clean energy projects and would like to use direct pay. The latest planned rule “provides a pathway” for entities that co-own projects to access the provision by changing their tax status.
Qualifying under these proposed rules requires co-ownership arrangements to be organized “exclusively to produce electricity from their applicable credit property, have one or more applicable entity co-owners that will claim elective pay, and meet certain other requirements,” the Treasury Department said in its press release.
Photo Courtesy Office of Clean Energy Demonstrations
It also said these proposed regulations would specifically:
- Permit renewable energy investments to be made through a noncorporate entity rather than requiring direct co-ownership of the property or facility by the applicable entity.
- Modify certain joint marketing restrictions to ensure that multi-year power purchase agreements would not violate the requirements to elect out-of-partnership tax treatment.
