US Rolls Out New Rules for Clean Energy Tax Credits Starting in 2025

here's a wave of excitement in the U.S. clean energy sector as the Department of the Treasury and the Internal Revenue Service (IRS) release fresh guidance on the Inflation Reduction Act (IRA). This move aims to supercharge investments in a variety of clean technologies, including efficient solar energy, by offering new tax credits and clarifying numerous tax-related issues. SunValue is here to break down what this means for America's clean energy journey.

The Transition to Clean Electricity Credits

In August 2022, President Biden signed the Inflation Reduction Act, kicking off a transformative era in clean energy investment. Key parts of this act are the Investment Tax Credit (ITC) and Production Tax Credit (PTC).

PTC slashes the cost of generating clean energy by giving credits for every kilowatt-hour produced. The more energy a project pumps out—especially if it's over 1,000 kilowatt-hours—the bigger the credit. This system motivates producers to ramp up their clean energy generation to the max.

ITC, on the other hand, lowers the price tag on installing clean energy systems. For example, if a solar energy project generates up to 1 megawatt-hour, the ITC provides a generous 30% credit on the cost. For the bigger players with high output PV panels, the ITC offers a 6% discount on the overall project value.

But recently, the U.S. Department of the Treasury and the IRS proposed new guidance to phase out these existing credits. They plan to replace them with the Clean Electricity Production Credit (Section 45Y) and the Clean Electricity Investment Credit (Section 48E), which will kick in for projects starting after December 31, 2024.

An IRS press release explains that the new plan is all about setting the same high standards for every clean energy technology out there, and the ultimate goal is to promote the growth and use of technologies that hit net-zero greenhouse gas emissions. This change is expected to increase clean energy production, open up new job opportunities, boost energy security, and reduce electricity bills for consumers.

“These proposed rules generally follow rules from the existing Production and Investment Tax Credits, which should provide clarity and certainty to developers as they move forward with clean energy production projects. Treasury is committed to grounding these rules in the best available science and ensuring continued transparency and public accountability,” states the press release.

Expanding the Reach: Eligible Technologies for Tax Credits

The guidance from the U.S. Treasury Department and the IRS casts a wide net over the clean technologies that align with the strict environmental requirements of the IRA, and naturally, the most efficient photovoltaic panels ensured solar made the cut. The full lineup includes:

• Wind
• Solar
• Hydropower
• Marine and hydrokinetic energy
• Nuclear fission and fusion
• Geothermal energy
• Specific waste energy recovery properties (WERP)

Beyond these, the provisions clarify how energy storage technologies can take advantage of the Clean Electricity Investment Credit.

Importantly, any clean energy tech that uses burning or gasifying to make electricity must be rigorously checked across its lifecycle to show it truly emits zero net greenhouse gases.

The Impact of New Credits: Projections and Expectations

The launch of the Clean Electricity Production and Investment Credits is set to turbocharge America's efforts to cut down on emissions and hit President Biden’s climate and energy targets. Research by Rhodium Group predicts that by the year 2035, the new credits could cut down greenhouse gases by a massive 300-400 million tons. That’s a reduction of 29-46% compared to what would have happened without these incentives. Additionally, they’re expected to pump up our clean electricity capacity by nearly 650 gigawatts, slashing air pollution by at least 20% and possibly lowering annual electric bills by $16 to $34 billion.

Source: Rhodium Group

By 2030, with the new credits rolling out, we are set to see clean energy surge to represent 59-79% of the U.S.'s total energy consumption, a significant rise from the current 40%.  By 2035, this is projected to increase even further to between 63-88%, scoring a major win for environmental efforts.

Source: Rhodium Group

Investment Wave & Industry Upgrade

Treasury Secretary Janet L. Yellen spotlighted how essential these credits are for the progress of the U.S. clean energy plans. She pointed out that the Inflation Reduction Act championed by President Biden has sparked an unprecedented investment surge, bringing a record-breaking amount of clean energy to our power grid. This increase is not just about boosting supply—it's also keeping consumer energy costs down and enhancing the nation’s energy security.

Yellen added, “The Clean Electricity Tax Credits created under the Inflation Reduction Act provide certainty to the market and are poised to drive substantial further growth and lower utility bills over the long-run.”

John Podesta, the President's Senior Advisor for International Climate Policy, echoed Yellen’s enthusiasm. He remarked, “Today’s initial guidance from Treasury will help provide long-term certainty to investors and developers, support new zero-emission innovations, and accelerate our progress toward a 100 percent clean power sector.”

Getting the Public on Board

The Treasury Department is calling on the public to share their thoughts on the proposed regulations. Comments will be accepted for 60 days following the publication in the Federal Register, with a public hearing scheduled for August 12 and 13. This open-door policy makes sure that diverse viewpoints get a seat at the table before the rules are set in stone.

Final Thoughts: U.S. Clean Energy Gears Up

As the U.S. embraces the new Clean Electricity Production and Investment Credits, the Treasury Department’s latest guidance lays out a crystal-clear game plan for both developers and investors. These new tax credits are set to bring major growth in clean energy, boost American innovation, and help hit the nation’s climate and energy targets.

The coming years are going to be very important for the future of the solar market and other clean energy markets in the U.S. As everyone starts playing by the new rules, input from all the key players will be crucial in tweaking the guidelines to perfection and making sure the IRA's benefits are tapped to the fullest.

In a nutshell, the latest updates from the Treasury Department on the IRA's clean electricity tax credits are a big deal for America's green dream. With its support for a wide range of technologies and its crystal-clear guidelines, these credits are ready to kickstart a major boost in the clean energy scene, delivering real benefits for consumers, the economy, and the environment.

Source:

https://public-inspection.federalregister.gov/2024-11719.pdf

https://home.treasury.gov/news/press-releases/jy2376