Treasury Releases Final Regulations for the Tech-Neutral PTC and ITC

On January 7, 2025, the U.S. Department of the Treasury (the “Treasury”) and the Internal Revenue Service (the “Service”) issued final regulations (T.D. 10024) (the “Final Regulations” and the preamble thereto, the “Preamble”) regarding the clean electricity production tax credit and the clean electricity investment tax credit provided by the Inflation Reduction Act of 2022 (the “IRA”)¹ and available under new sections 45Y and 48E, respectively, of the Internal Revenue Code of 1986, as amended (the “Code”). Our prior coverage of the proposed regulations regarding these credits can be found here.

As background, Code sections 45Y (the “Tech Neutral PTC”) and 48E (the “Tech Neutral ITC”) became effective at the beginning of this year (January 1, 2025) and are essentially in lieu of the production tax credit (“PTC”) and investment tax credit (“ITC”) that were previously available under Code sections 45 and 48, respectively.² The Tech Neutral PTC and Tech Neutral ITC apply to certain clean electricity and energy storage property and provide a production or investment based tax credit for such facilities that have a greenhouse gas (“GHG”) emission rate³ of not greater than zero. The Tech Neutral PTC and Tech Neutral ITC are available for facilities that are placed in service after December 31, 2024, and will begin to phase out over a three-year period in the calendar year following the later of (i) the “applicable year” in which GHG emissions drop at least 25% in the U.S. compared to the GHG emissions during calendar year 2022 or (ii) 2032.

Unlike the former PTC and ITC, Code sections 45Y and 48E take a “tech-neutral approach” — i.e., regardless of the type of facility or technology, a clean electricity or storage facility may be eligible for the Tech Neutral PTC or Tech Neutral ITC so long as the relevant facility is a net generator of electricity (taking into account electricity consumed by the qualified facility) with a GHG emissions rate of not greater than zero.⁴ For many clean energy facilities (including wind, solar, storage, geothermal and hydropower), it will generally be business as usual (with a few considerations highlighted below); however, more novel technologies and facilities that generate electricity through the combustion or gasification of feedstocks that have not been historically eligible for the PTC or ITC may now be eligible for the Tech Neutral PTC or Tech Neutral ITC if they can demonstrate that the facility has a GHG emissions rate that is not greater than zero. On the other hand, certain technologies, such as renewable natural gas and biogas, that historically were eligible to claim the PTC and ITC may now have a more challenging time qualifying for the Tech Neutral PTC or Tech Neutral ITC.⁵

In many respects the Final Regulations followed rules in the proposed regulations and existing final ITC regulations with a few important changes and additions. Notably, the Final Regulations provide additional rules and guidelines for the calculation of a facility’s GHG emissions rate and boundaries for performing the lifecycle analysis (“LCA”). As further described below, the Final Regulations also outline a variety of additional updates and clarifications that address many of the open questions from the proposed regulations (e.g., impacts of land use change, market mediated effects, and the treatment of renewable natural gas technology). While a full review of these Final Regulations is beyond the scope of this alert, we have highlighted certain notable items below. Please contact a Vinson & Elkins attorney to discuss specific issues or fact patterns.

Determination of GSG Emissions Rate:

The Final Regulations expanded the guidelines for determining a facility’s GHG emissions rate and the methodology for performing an LCA for GHG emissions.⁶

• Annual Table. Treasury will release an “Annual Table” each year that will identify technologies and types of facilities that have (i) a GHG emissions rate less than or equal to zero and (ii) a GHG emissions rate greater than zero.⁷ The first release of the Annual Table was included in Proc. 2025-14, which appears to only restate facilities deemed qualifying from the Final Regulations (i.e., solar, geothermal, nuclear fission, fusion energy, and certain waste energy recovery property).⁸

The Final Regulations explicitly provide that wind, hydropower, marine and hydrokinetic, solar, geothermal, nuclear fission, fusion energy, and certain waste energy recovery properties have a GHG emissions rate of not greater than zero and may be deemed published in the Annual Table.⁹

For determining the availability of the Tech Neutral PTC or Tech Neutral ITC, qualified facilities can rely on the Annual Table that is in effect when a facility begins construction.

• 10-Year Expectation. For the Tech Neutral ITC, with respect to technologies that are not already identified and stipulated by Treasury and the Service as having a GHG emissions rate of not greater than zero in the Annual Table, taxpayers need to reasonably assume that there will be zero GHG emissions for 10 years following when the facility is placed in service (based on objective indicia).  An annual determination is required during the five-year recapture period, and, in the event there is a GHG emissions rate of greater than 10 grams of CO₂e per kWh, recapture will occur.  Importantly, recapture will not result merely if the Annual Table changes the GHG rate during the recapture period.
• LCAs.  While the rules for performing an LCA have expanded, Treasury has not yet identified any LCA models that taxpayers can use to calculate the GHG emissions rate for a technology that is not identified in the Annual Table.  Treasury also did not set a timeline for when it will identify a valid LCA model.¹⁰

An LCA, in determining the GHG emissions, must take into account:

1. 1. Emissions generated at the qualified facility (emissions from the construction, operation and maintenance, and manufacturing of the facility or the components thereof need not be considered);
   2. “Alternative fates,” “avoided emissions,” “market-mediated effects,” and the impact of the Tech Neutral PTC and Tech Neutral ITC:

“Alternative fate” – defined as a set of informed assumptions (e.g., production processes, material outcomes, and market-mediated effects) used to estimate the emissions from the use or disposal of each feedstock were it not for the feedstock’s new use due to the implementation of policy (that is, to produce electricity).  The applicable “alternative fate” varies by feedstock:

“Market-mediated effects” – generally effects from policy interventions and certain other factors (like technological innovations) that alter the availability of, and demand for, marketed goods and activities and their related GHG emissions profiles.  These effects include land use changes and shifts in total market demand and supply for input fuels, feedstocks, and related commodities.

Impact of the Tech Neutral PTC and Tech Neutral ITC – Whether the availability of the Tech Neutral PTC and Tech Neutral ITC is expected to result in either additional production of the relevant product or material changes in the supply chain must be considered.  If so, the LCA must take into account the impact of the direct and indirect emissions of the additional production or changes in the supply chain.¹¹

Emissions over a 30-year temporal scale, but the spatial scale of the LCA is based on the relevant facts and circumstances; and

Primary products, co-products, byproducts, and waste products (as each is defined in the Final Regulations).

Clarifications and Modifications to Defined Terms:

The Final Regulations also provided clarifications and modifications to certain defined terms.

• The definition of “unit of qualified facility (or energy storage technology)” (i.e., all functionally interdependent components of property) and “integral property” (i.e., property used directly in the intended function of the property and is essential to the completeness of such function) are largely consistent with the terms as outlined in the final section 48 ITC regulations.¹²
• Consistent with the final section 48 ITC regulations, a taxpayer claiming the Tech Neutral PTC or Tech Neutral ITC must own the entire unit of qualified facility or energy storage technology. A taxpayer is not required to own the integral property to be eligible for the credits. The credits, however, are limited to property which the taxpayer actually owns.
• The Final Regulations clarify that a qualified facility must be a “net generator of electricity taking into account electricity consumed by the facility.” Thus, a net consumer of electricity cannot claim the Tech Neutral PTC or Tech Neutral ITC.
• The rules outlining the inclusion of qualified interconnection costs into eligible basis are largely the same as the rules provided in the final section 48 ITC regulations, with additional clarifying examples. An exception, however, is that qualified interconnection costs may not be included in the Tech Neutral ITC available for energy storage.¹³
• Software has been removed from integral equipment, and transformers, inverters, and converters are explicitly considered components of “power conditioning equipment” that is integral equipment.
• For the Tech Neutral PTC, a qualified facility can sell energy to a related party as long as the quantity sold is metered and verified according to the rules set forth in the Final Regulations. The Preamble to the Final Regulations confirms that a third-party owned and verified meter is required even if electricity is sold to a related party for resale.¹⁴
• According to the Preamble, if a facility qualifies for the Tech Neutral PTC at any point during the 10-year period following placement in service (i.e., if its GHG emissions rate is reduced to or below zero and is otherwise qualifying), it will be entitled to the Tech Neutral PTC.
• The definition of a combustion or gasification facility is refined from the proposed regulations to be “a facility that produces electricity through combustion or uses an input energy source to produce electricity, if the input energy source was produced through a fundamental transformation of one energy source into another using combustion or gasification.”¹⁵

Guidance on PWA Requirements and Bonus Adders:

• The Final Regulations provide guidance on the Prevailing Wage and Apprenticeship Requirements (“PWA Requirements”).¹⁶ Notably, for a qualified facility to meet the one megawatt exception and avoid compliance with the PWA Requirements, the Final Regulations clarify that the determination is based on the nameplate capacity of the qualified facility. However, if a qualified facility has “integrated operations” with one or more other qualified facilities, then the aggregate nameplate capacity of the qualified facilities is used for the purposes of determining the capacity.¹⁷
  • As further described in the Preamble, satisfaction of the PWA Requirements appears to be determined at the “project”-level.¹⁸
• The determination of whether the domestic content bonus adder or the energy community bonus adders are available, however, is made on a facility-by-facility basis (i.e., you must separately determine for each facility whether an energy community or domestic content adder is available).
  • For example, wind projects will make the domestic content determination on a per turbine basis, and solar projects will make the domestic content determination on an inverter, circuit, or block basis (depending on the relevant facts).
  • Interestingly, the Final Regulations did not address the discrepancy with the domestic content percentage for the Tech Neutral ITC. As such, the domestic content applicable percentage for the Tech Neutral PTC will increase each year as outlined in section 45, but the domestic content applicable percentage for the Tech Neutral ITC appears to be locked in at 40 percent absent a retroactive technical correction.

Additional Capacity and the 80/20 Rule:

• The Final Regulations define new measurement standards for determining additions to the capacity of a qualified facility — importantly, in the event of an increase in a facility’s capacity, for the Tech Neutral PTC, the credit only applies to the increased production capacity, and for the Tech Neutral ITC, the credit only applies to the portion of basis attributable to the property that increases the nameplate capacity (without regard to degradation that may have occurred over time). The examples provided in the Final Regulations reiterate that additions to capacity are based on comparing the qualified facility’s “nameplate capacity.”
  • Taxpayers may still treat a facility as newly placed in service if they meet the “80/20 rule” and, consistent with the final section 48 ITC regulations, for purposes of calculating the 80/20 rule, taxpayers need only consider the costs of the unit of qualified facility or energy storage technology, and not consider property of the qualified facility that is integral property.

Decommissioning Anti-Abuse Limitation:

• The Final Regulations provide an anti-abuse limitation for restarted facilities such that a qualified facility cannot have ceased operation in order to qualify for the Tech Neutral PTC or Tech Neutral ITC. Specific rules for restarting a decommissioned nuclear facility are set forth in the Final Regulations, which generally align with the rules from the proposed regulations.

Updates for Specific Technologies:

The Final Regulations provide updates for specific technologies –

• With respect to electricity produced by biogas/RNG, Treasury declined to include anaerobic digestion and other cleaning and conditioning equipment in the definition of a “qualified facility.”
  • Also highly relevant (and detrimental) for biogas/RNG facilities, book-and-claim accounting cannot be used in an LCA to calculate the GHG emissions rate for any facility that uses methane or any other input or feedstock.
• Hydrogen energy storage technology is no longer required to store hydrogen exclusively for the generation of electricity. In addition, hydrogen liquefaction and gather and distribution lines are now explicitly identified as integral property for a hydrogen energy storage property.
• A clarifying example provides that a dam is integral to a hydropower facility, and as such, the ownership of the dam by another party does not impact the ability of the owner of the hydropower facility to claim the Tech Neutral PTC or the Tech Neutral ITC.
• “Waste Energy Recovery Property” is eligible for the Tech Neutral PTC or Tech Neutral ITC, which is generally defined as 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.
• Carbon capture equipment is functionally interdependent to a qualified facility if the carbon capture equipment is used to reduce a facility’s GHG emissions to below zero. Importantly, a taxpayer cannot claim a 45Q credit for carbon capture equipment that is functionally interdependent to a qualified facility if the qualified facility claims a Tech Neutral PTC or Tech Neutral ITC.
  • If a qualified facility uses carbon capture equipment to reduce a facility’s GHG emissions to below zero, the relevant taxpayer must meet the 45Q requirements for substantiation and verification of carbon capture and sequestration.

As of the writing of this alert, a “Congressional Review Act” challenge on the Final Regulations has not been introduced in Congress. But, given the impending change in administration and beginning of the 119^th Congress, we will be anxiously paying attention to potential challenges to these Final Regulations or other changes in tax law. Stay tuned for updates.

¹ Our full coverage of IRA matters can be found here.

² While the PTC and ITC will still be available for projects that begin construction prior to January 1, 2025, as described above, the Tech Neutral PTC and Tech Neutral ITC apply to facilities that are placed in service after December 31, 2024.  As a result, certain projects/facilities will have the option to choose between the PTC and ITC or Tech Neutral PTC and Tech Neutral ITC.

³ Defined as the amount of GHG emitted into the atmosphere by a facility in the production of electricity, expressed as grams of CO₂e per kWH.  Code sections 45Y(b)(2)(A) and 48E(b)(3)(B)(ii).

⁴ In order to get the full credit rate, either (i) the taxpayer must satisfy the prevailing wage and apprenticeship requirements with respect to the construction and applicable alteration and repair of such qualifying facility or eligible facility, (ii) the facility must have a maximum net output of less than one MWac, or (iii) construction of the facility must have begun prior to January 29, 2023.

The credit rate may be increased if the “domestic content requirements” are met or if the qualified facility is located in an “energy community” or “low-income community.” See Code sections 45Y(g)(7), 45Y(g)(11), 48E(a)(3)(A), 48E(a)(3)(B), and 48(e).

⁵ Nevertheless, many renewable natural gas and biogas technologies may be able to qualify for the Code section 45Z Clean Fuel Production Credit.

⁶ These rules are largely the same for both the Tech Neutral PTC and Tech Neutral ITC.

⁷ If a technology or type of facility type is not included in the Annual Table, taxpayers will have to rely on certain LCAs deemed acceptable by Treasury and/or apply for a provisional emissions rate.

⁸ The first Annual Table is included below:

⁹ While these credits are technology neutral and require a GSG emissions rate of not greater than zero, Treasury and the Service are stipulating that certain technologies clearly have zero GHG emissions and disposed of the need to perform an LCA on such technologies.

¹⁰ In order for this change to Tech Neutral ITC and Tech Neutral PTC to promote meaningful innovation, it is critical that a model for LCAs be identified as soon as possible.  For example, currently, under Code section 45V, the model is the Department of Energy’s Argonne National Laboratory’s Greenhouse gases, Regulated Emissions, and Energy use in Technologies (“GREET”) model 45VH2-GREET.

¹¹ The Final Regulations provide an example for methane, which describes how the LCA must take into account whether the availability of the Tech Neutral PTC and Tech Neutral ITC may cause the production of additional methane.

¹² Compare with 1.48-9(f)(2)(ii); 1.48-9(f)(3).

¹³ Our previous coverage of the final section 48 ITC regulations can be found here.

¹⁴ This is a departure from guidance promulgated under the section 45 PTC which permitted sales to a related party so long as the electricity was resold to a third party (IRS Notice 2008-60).

¹⁵ A notable impact of this revision is that certain fuel cell facilities may be treated as combustion or gasification facilities depending on the input energy source.

¹⁶ Our previous coverage of the final regulations for the PWA Requirements can be found here.

¹⁷ “Integrated operations” of a qualified facility of the same technology type means that the qualified facilities are owned by the same taxpayer or related taxpayers (i.e., members of a group of trades or businesses that are under common control), placed in service in the same taxable year, and transmit electricity generated by the facilities through the same point of interconnection or, if the facilities are not grid-connected or are delivering electricity directly to an end user behind a utility meter, are able to support the same end user.

¹⁸ In order to determine the “project” applicable for the PWA Requirements, by cross-reference to Code section 45 and 48 regulations, it appears taxpayers will need to consider the seven-factor test set forth in the final section 48 ITC regulations and any facilities with four or more common factors and shared ownership at certain times will be a single “project.” Whether the taxpayer paid necessary prevailing wage requirements, utilized enough apprenticeship hours, and satisfied recordkeeping and documentation mandates under the PWA Requirements will be determined on this “project” basis.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.