Code of Federal Regulations · Section

§ 1.45Y-1 — y-1 Clean Electricity Production Credit

26 C.F.R. § 1.45Y-1

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(a) Overview—(1) In general. For purposes of section 38 of the Internal Revenue Code (Code), the section 45Y credit (defined in paragraph (a)(9) of this section) is determined under section 45Y of the Code and the section 45Y regulations (defined in paragraph (a)(10) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 45Y, the section 45Y regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45Y or the section 45Y regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45Y credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 45Y credit. Paragraph (d) of this section provides rules regarding combined heat and power system (CHP) property. See § 1.45Y-2 for rules relating to qualified facilities for purposes of the section 45Y credit. See § 1.45Y-4 for rules of general application for the section 45Y credit. See § 1.45Y-5 for rules to determine greenhouse gas emissions rates for qualified facilities.

(2) CHP property—(i) In general. For purposes of section 45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property means property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including for heating and cooling applications).

(ii) Components excluded. CHP property does not include property used to transport the energy source to the generating facility or to distribute energy produced by the facility.

(3) Code. The term Code means the Internal Revenue Code.

(4) kWh. The term kWh means kilowatt hours.

(5) Metering device—(i) In general. For purposes of section 45Y(a)(1)(A)(ii)(II), the term metering device means equipment that is owned and operated by an unrelated person (as defined in paragraph (a)(11) of this section) for energy revenue metering to measure and register the continuous summation of an electricity quantity with respect to time.

(ii) Standards for maintaining and operating a metering device. For purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering device must—

(A) Be maintained in proper working order in accordance with the instructions of its manufacturer;

(B) Be certified as meeting generally accepted industry performance standards, such as the American National Standards Institute C12.1-2022 standard, or subsequent revisions;

(C) Be revenue grade with a ±0.5 percent accuracy; and

(D) Be properly calibrated.

(iii) Network equipment. For purposes of operating the metering device, the unrelated person may share network equipment, such as spare fiber optic cable owned by the taxpayer that produces the electricity, and may co-locate network equipment in the taxpayer's facilities.

(iv) Examples. This paragraph (a)(5)(iv) provides examples illustrating the application of paragraph (a)(5) of this section.

(A) Example 1. Qualified facility equipped with a metering device owned and operated by an unrelated person. X owns a qualified facility equipped with a metering device that is owned and operated by Y, an unrelated person. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. X sells electricity produced at the qualified facility to Z, a related person during the taxable year. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and meets the requirements of paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit based on the electricity produced by X and sold to Z during the taxable year.

(B) Example 2. Electricity produced by the taxpayer at a qualified facility sold, consumed, or stored by the taxpayer during the taxable year. X owns a qualified facility equipped with a metering device that is owned and operated by an unrelated person, Y. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and the metering device meets the requirements of paragraphs (a)(5)(i) through (iii), X may sell electricity produced at the qualified facility during the taxable year to a related or unrelated person. X may also consume the electricity produced at the qualified facility during the taxable year onsite. Additionally, X may store the electricity produced at the qualified facility during the taxable year in energy storage technology owned by X. In any of these three situations, X may claim a section 45Y credit for the taxable year for the kWh of electricity produced at the qualified facility measured by the metering device and sold, consumed, or stored by X during the taxable year.

(6) Qualified facility. The term qualified facility for purposes of the section 45Y credit has the meaning provided in § 1.45Y-2(a).

(7) Related person—(i) In general. The term related person means a person that is related to another person if such persons would be treated as a single employer under the regulations in this chapter under section 52(b) of the Code.

(ii) Member of a consolidated group. In the case of a corporation that is a member of a consolidated group (as defined in § 1.1502-1(h)), such member will be treated as selling electricity to an unrelated person if such electricity is sold to an unrelated person by another member of such group.

(8) Secretary. The term Secretary means the Secretary of the Treasury or their delegate.

(9) Section 45Y credit. The term section 45Y credit means the clean electricity production credit determined under section 45Y of the Code and the section 45Y regulations.

(10) Section 45Y regulations. The term section 45Y regulations means this section and §§ 1.45Y-2 through 1.45Y-5.

(11) Unrelated person. For purposes of section 45Y(a), the term unrelated person means a person who is not a related person as defined in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case of sales of electricity to an individual consumer, such sales will be treated as sales to an unrelated party for purposes of the section 45Y credit. For example, assume Taxpayer X produces electricity at a qualified facility and sells it to Consumer Y. Consumer Y is an individual consumer and is not subject to aggregation under the regulations at 26 CFR 1.52-1 prescribed under section 52(b). Therefore, Consumer Y is not treated as a single employer with Taxpayer X under section 52(b), and a sale to Consumer Y is treated as a sale to an unrelated person. The result is the same if Consumer Y is an individual consumer who is a member of a cooperative or Indian tribe that owns or controls, directly or indirectly, Taxpayer X. The result is also the same if Consumer Y is an individual consumer who is a resident of a State or municipality that owns or controls, directly or indirectly, Taxpayer X.

(12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.

(b) Credit amount—(1) In general. The section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced at a qualified facility and sold by the taxpayer to an unrelated person during the taxable year, multiplied by the applicable amount with respect to such qualified facility. In the case of a qualified facility equipped with a metering device (as defined in paragraph (a)(5) of this section) that is owned and operated by an unrelated person, the section 45Y credit for any taxable year is an amount equal to the product of the kWh of electricity that is produced, as measured by the metering device, at such qualified facility and sold, consumed, or stored by the taxpayer during the taxable year, multiplied by the applicable amount with respect to such qualified facility. Only one section 45Y credit can be claimed for each kWh of electricity produced by the taxpayer at a qualified facility. The credit amount may also be increased as provided in section 45Y(g)(11) and paragraph (b)(5) of this section in the case of a qualified facility that satisfies the domestic content requirements of section 45Y(g)(11)(B).

(2) Applicable amount—(i) In general. The term applicable amount means the base amount described in paragraph (b)(2)(ii) of this section or the alternative amount described in paragraph (b)(2)(iii) of this section. The applicable amount is subject to the inflation adjustment as provided in section 45Y(c)(1) and paragraph (b)(3) of this section. The applicable amount may also be increased as provided in section 45Y(g)(7) and paragraph (b)(4) of this section in the case of a qualified facility that is located in an energy community.

(ii) Base amount. Under section 45Y(a)(2)(A), in the case of any qualified facility that does not satisfy the requirements provided in section 45Y(a)(2)(B), the applicable amount is the base amount, which is 0.3 cents.

(iii) Alternative amount. Under section 45Y(a)(2)(B), in the case of any qualified facility that satisfies the prevailing wage and apprenticeship requirements provided in section 45Y(a)(2)(B), the applicable amount is the alternative amount, which is 1.5 cents.

(3) Inflation adjustment—(i) In general. Pursuant to section 45Y(c)(1), in the case of a calendar year beginning after 2024, the base amount and the alternative amount will each be adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale, consumption, or storage of the electricity occurs. If the base amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.05 cent, such amount will be rounded to the nearest multiple of 0.05 cent. If the alternative amount as adjusted under this paragraph (b)(3)(i) is not a multiple of 0.1 cent, such amount will be rounded to the nearest multiple of 0.1 cent.

(ii) Annual computation. Pursuant to section 45Y(c)(2), the inflation adjustment factor for each calendar year will be published in the Federal Register not later than April 1 of that calendar year. The base amount and the alternative amount, as adjusted under paragraph (b)(3)(i) of this section, will also be published in the Federal Register not later than April 1 of each calendar year.

(iii) Inflation adjustment factor. Under section 45Y(c)(3), the term inflation adjustment factor means, with respect to a calendar year, a fraction—

(A) The numerator of which is the GDP implicit price deflator for the preceding calendar year; and

(B) The denominator of which is the GDP implicit price deflator for the calendar year 1992.

(iv) GDP implicit price deflator. Under section 45Y(c)(3), the term GDP implicit price deflator means the most recent revision of the implicit price deflator for the gross domestic product as computed and published by the Department of Commerce before March 15 of the calendar year.

(4) Energy communities increase in credit. In the case of any qualified facility that is located in an energy community (as defined in section 45(b)(11)(B)), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the applicable amount will be increased by an amount equal to 10 percent of the applicable amount that would otherwise be in effect before application of this paragraph (b)(4). The 10 percent increase under this paragraph (b)(4) applies after the inflation adjustment under paragraph (b)(3) of this section.

(5) Domestic content bonus credit amount. In the case of any qualified facility that satisfies the requirements of section 45Y(g)(11)(B)(i) (domestic content requirement), for purposes of determining the amount of the section 45Y credit with respect to any electricity produced by the taxpayer at such facility during the taxable year, the amount of the credit otherwise determined under this paragraph (b), without application of paragraph (b)(4) of this section (related to energy communities), is increased by 10 percent.

(c) Credit phase-out—(1) In general. The amount of the section 45Y credit for any qualified facility, the construction of which begins during a calendar year provided in section 45Y(d)(2) and described in paragraph (c)(2) of this section, is equal to the product of—

(i) The amount of the credit determined under section 45Y(a) and described in paragraph (b) of this section, without regard to section 45Y(d) and this paragraph (c); multiplied by

(ii) The phase-out percentage provided under section 45Y(d)(2) and described in paragraph (c)(2) of this section.

(2) Phase-out percentage. The phase-out percentage described in this paragraph (c)(2) is equal to—

(i) For a facility the construction of which begins during the first calendar year following the applicable year, 100 percent;

(ii) For a facility the construction of which begins during the second calendar year following the applicable year, 75 percent;

(iii) For a facility the construction of which begins during the third calendar year following the applicable year, 50 percent; and

(iv) For a facility the construction of which begins during any calendar year subsequent to the calendar year described in paragraph (c)(2)(iii) of this section, 0 percent.

(3) Applicable year. For purposes of this paragraph (c), the term applicable year means the later of—

(i) The calendar year in which the Secretary makes the determination that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022; or

(ii) 2032.

(4) Phase-out data. For purposes of paragraph (c)(3)(i) of this section, the annual greenhouse gas emissions from the production of electricity in the United States for any calendar year must be assessed separately using both of the data sources described in paragraphs (c)(4)(i) and (ii) of this section:

(i) The U.S. Energy Information Administration's Electric Power Annual, summing the annual carbon dioxide emissions data from conventional power plants and combined heat and power plants and the Monthly Energy Review annual carbon dioxide emissions from the combustion of biomass to produce electricity in the Electric Power Sector; and

(ii) The U.S. Environmental Protection Agency (EPA) Inventory of U.S. Greenhouse Gas Emissions and Sinks (GHGI) annual electric power-related carbon dioxide, methane, and nitrous oxide emissions data including carbon dioxide emissions from the combustion of biomass to produce electricity.

(5) Determination of phase-out. For purposes of paragraph (c)(3)(i) of this section, the Secretary will determine that the annual greenhouse gas emissions from the production of electricity in the United States are equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022 only if the annual greenhouse gas emissions from the production of electricity in the United States, as determined separately under both of the data sources described in paragraph (c)(4) of this section, are each equal to or less than 25 percent of the annual greenhouse gas emissions from the production of electricity in the United States for calendar year 2022. If a data source described in paragraph (c)(4) of this section becomes unavailable (for example, it is no longer published or does not provide the specified data), the Secretary must designate a similar data source to replace the unavailable data source.

(d) Requirements for CHP property—(1) In general. To be eligible for the section 45Y credit, a CHP property must produce at least 20 percent of its total useful energy in the form of useful thermal energy that is not used to produce electrical or mechanical power (or combination thereof), and at least 20 percent of its total useful energy in the form of electrical or mechanical power (or combination thereof). The energy efficiency percentage of CHP property must exceed 60 percent. These percentages are determined on a British thermal unit (Btu) basis.

(2) Energy efficiency percentage. The energy efficiency percentage of a CHP property is the fraction the numerator of which is the total useful electrical, thermal, and mechanical power produced by the system at normal operating rates, and expected to be consumed in its normal application, and the denominator of which is the lower heating value of the fuel sources for the system. In the case of a qualified facility using nuclear energy, which does not involve combustion, the denominator is the reactor's maximum power level in megawatts thermal listed on the Nuclear Regulatory Commission (NRC) operating license, converted to Btus using 3,412,140 Btus per hour per megawatt. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).

(3) Special rule for calculating electricity produced by CHP property—(i) In general. For purposes of section 45Y(a) and paragraph (b) of this section, the kWh of electricity produced by a taxpayer at a qualified facility includes any production in the form of useful thermal energy by any CHP property within such facility, and the amount of greenhouse gases emitted into the atmosphere by such facility in the production of such useful thermal energy is included for purposes of determining the greenhouse gas emissions rate for such facility.

(ii) Conversion from Btu to kWh—(A) In general. For purposes of section 45Y(g)(2)(A)(i) and this paragraph (d)(3), the amount of kWh of electricity produced in the form of useful thermal energy is equal to the quotient of the total useful thermal energy produced by the CHP property within the qualified facility, divided by the heat rate for such facility.

(B) Heat rate. For purposes of this paragraph (d)(3), the term heat rate means the amount of energy used by the qualified facility to generate 1 kWh of electricity, expressed as Btus per net kWh generated. In calculating the heat rate of a qualified facility that includes CHP property that uses combustion, a taxpayer must use the annual average heat rate, defined as the total annual fuel consumption of the CHP property (in Btus, using the lower heating value of the fuel) during the taxable year for which the section 45Y credit is claimed, divided by the annual net electricity generation (in kWh) of the CHP property during such taxable year. In the case of a qualified facility using nuclear energy, which does not involve combustion, the facility's reactor's total annual thermal output (in Btus, using a conversion rate of 3,412,140 Btus per megawatt hour thermal) shall be used in place of the total annual fuel consumption of the CHP property. For other qualified facilities not using combustion, additional methodologies may be prescribed by the Secretary in guidance published in the Internal Revenue Bulletin (see § 601.601 of this chapter).

(e) Applicability date. This section applies to qualified facilities placed in service after December 31, 2024, and during a taxable year ending on or after January 15, 2025.

26 C.F.R. § 1.45Y-0 26 C.F.R. § 1.45Y-2

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