45/45Y: Clean Electricity Production Tax Credit

Federal Agency

Sub-Department

Internal Revenue Service (IRS)

Purpose

To provide a tax credit for the production of clean electricity. 45 is applicable for facilities producing electricity before 2025. 45Y is a technology-neutral tax credit for production of clean electricity starting in 2025.

Applicant and/or Project Eligibility Requirements

Solar, wind, georthermal, and closed loop biomass before 2025 and facilities generating electricity for technologies with zero greenhouse gas emissions after 2025

Decarbonization Considerations

Only electricity that has zero greenhouse gas emissions may qualify for 45Y

Equity Considerations

Credit decreased by 5X for projects that do not meet the prevailing wage and apprenticeship requirements. An additional 0.275 cents/kWh credit is added for projects meeting certain domestic content requirements for steel, iron, and manufactured products. An additional 0.275 cents/kWh credit is added if the facility is located in an energy community. See more on the bonuses here: https://cityrenewables.org/funding-guidance/understanding-available-incentives/leveraging-energy-transition-adders/

Helpful Tips

Tax-exempt entities can leverage these credits through a new mechanism known as "elective" or "direct" pay. To learn more about how these tax credits work for entities with and without tax liability, check out our Funding Guidance here: https://cityrenewables.org/funding-guidance/understanding-available-incentives/tax-credits-for-renewable-energy/

Other Notes

Section 13703 offers an additional tax deduction for facilities or property qualifying for this tax credit. These facilities or property will be treated as a 5-year property for purposes of cost recovery; meaning, they will be able to deduct from their taxable income the depreciating value of their business assets, such as equipment, faster than the value actually declines. In practical terms, qualifying facilities or property will be able to take bigger deductions—leaving them with lower taxable income—in the earlier years of a clean energy investment. Solar now qualifies for the first time Entities can only elect the ITC (48) or the PTC (45). For more information on the tax credits and which to select, see this resource from DOE: https://www.energy.gov/eere/solar/federal-solar-tax-credits-businesses