IRS Releases New Renewable Energy IRA Tax Credit Proposals

In the draft proposal, the IRS defines a “qualified facility” as “a taxpayer-owned facility used to generate electricity that is placed in service after December 31, 2024, and that has a greenhouse gas emission factor… not greater than zero.” An “Eligible Facility” will qualify as such for 10 years from the date it commences operations.

The full draft goes further by specifying the properties and integral parts of “qualified facilities” and energy storage facilities. It also sets out proposals for calculating tax deductions, measurement devices, related and unrelated persons, greenhouse gas emissions and emission rates.

It proposes that tax relief will be available at a “basic rate and a higher alternative rate” – the former being 6% and the latter 30%, depending on eligibility.

A project would qualify for the higher rate if it has a “net maximum power output of less than 1 megawatt (AC)” and begins construction in compliance with applicable wage and apprenticeship requirements.

The IRS and Treasury are now inviting the public to comment on the proposed regulations. More details can be found on the IRS website here.

ITC and PTC have contributed to significant growth in the use of renewable energy in the US, especially photovoltaics. A report by the Solar Energy Industries Association (SEIA) and Wood Mackenzie shows that more than 50% of U.S. solar installations in the rooftop, utility, and corporate and industrial (C&I) sectors have been installed since 2020, when the IRA was adopted.

However, at the same time, this sector is hampered by the American network. Reports indicate that approximately 1 TW of solar capacity is waiting in interconnection queues across the country; PV Tech Premium looked into this backlog last month.

The need for large and long-term investments in transmission infrastructure, combined with the high valuation of solar projects, partly driven by IRA incentives, has caused some U.S. utilities to sell their commercial solar assets to focus on grid projects. We explored this dynamic and its impact on the U.S. solar sector earlier this year (Premium Access).