Overview of Section 45Y - Clean Electricity Production Tax Credit (2025 onwards)

The Clean Electricity Production Tax Credit offers a technology-neutral incentive for the generation of environmentally-friendly electricity. This initiative supersedes the previous production tax credit for renewable energy, which has been extended through 2024 under Section 13101. The credit is designed to encourage the development and use of clean energy technologies by offering financial benefits to eligible producers.

Direct Pay Eligibility:
Tax-exempt organizations, states, political subdivisions, the Tennessee Valley Authority, Indian Tribal governments, Alaska Native Corporations, and rural electricity cooperatives are eligible to receive payments directly, bypassing conventional tax credit mechanisms.

This credit can be transferred, providing additional flexibility for how it can be utilized.

The credit amount may be reduced if tax-exempt bonds are involved, adhering to similar stipulations as those in section 45(b)(3). Additionally, it is not permissible to claim both the §48E Investment Tax Credit (ITC) and the §45Y Production Tax Credit (PTC) for the same facility.

Energy Community Bonus:
An additional incentive is available for projects situated in designated energy communities, enhancing the credit's appeal in these areas.

Tax Credit Details:

  • Period of Availability: Facilities must be placed in service after December 31, 2024. The phase-out of the credit begins either in 2032 or when U.S. greenhouse gas emissions from electricity drop to 25% of their 2022 levels, whichever occurs later.
  • Tax Mechanism: Production-based, calculated per kilowatt-hour (kWh).
  • Base Credit Amount: Starts at 0.3 cents/kWh, with adjustments for inflation.
  • Bonus Credit Amounts:
    • Labor: The credit increases fivefold for projects complying with prevailing wage and registered apprenticeship stipulations.
    • Domestic Content: An additional 10% increase is available for using domestic steel, iron, and manufactured products.
    • Location: A further 10% boost is provided for projects located in energy communities.

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