U.S. Treasury, IRS Offer Clarity on Clean Energy Tax Credits from IRA

Dec. 15, 2023
According to the DOT's proposed guidance on Section 45X and the Advanced Manufacturing Production Credit, manufacturers can claim 75 percent, 50 percent and 25 percent in tax credits for clean energy components sold in 2030, 2031 and 2032, respectively.

Those U.S. manufacturers building solar energy and battery storage equipment, including as part of microgrids, are eligible to claim a tax credit on part of production costs up until the start of 2033 as part of the the nearly $900 billion federal Inflation Reduction Act (IRA), according to proposed new guidance released this week by the U.S. Treasury Department and the Internal Revenue Service.

 The Biden Administration’s legislation allocates billions of dollars in incentives and credits to increase clean energy production and drive down carbon emissions throughout the economy. Already, Treasury reported in the Thursday press release, more than $140 billion worth of domestic projects have been announced around renewable energy, electric vehicles and batteries since the IRA was signed into law about 18 months ago.

According to the proposed updated guidance, focused on Section 45X and the Advanced Manufacturing Production Credit, manufacturers can claim 75 percent, 50 percent and 25 percent in tax credits for clean energy components sold in 2030, 2031 and 2032, respectively. The IRA provides no Section 45X manufacturing tax credit for eligible components sold after 2032, the document shows.

These credits encourage “onshoring” of manufacturing around parts such as solar panels, modules, wind towers, blades, energy storage battery cells and critical materials. Those most eligible for the IRA tax credits are products with a sizable percentage of parts originating in the U.S., according to the federal guidelines.

“The Inflation Reduction Act has already fueled a clean energy manufacturing boom in America,” said Senior Advisor to the President for Clean Energy Innovation and Implementation John Podesta, in the government's press release. “Today’s guidance from Treasury on the Advanced Manufacturing Production Credit gives the clean energy industry even more clarity and confidence to continue their momentum.”

The U.S. Treasury Department’s notice of proposed rulemaking on the advanced manufacturing production credit is open to public comment for 60 days. Treasury will consider those comments before holding a hearing and issuing final rules on the new guidance.

The massive IRA is under constant evaluation and clarification as developers, manufacturers and end-user customers try to understand all the rules and potential benefits for installing microgrids and other distributed clean energy resources. It gives the industry about 10 years of incentives and tax credits to produce and acquire numerous renewable and distributed energy technologies.

These include the first-ever tax credits for microgrid components, which could cut costs of those parts from 5 to 50%, according to a 2022 sponsored post written by Eric Dupont, chief development officer at PowerSecure.

The IRA “expands the 30% investment tax credit for microgrid controllers, stand-alone energy storage, biogas property, dynamic gas and linear generators that begin construction before Jan. 1, 2025,” Dupont wrote in his Microgrid Knowledge post of December 2022.

“Developers who begin construction of a microgrid that is between 4 kW and 20 MW before 2025 can get a 6% investment tax credit applied to the initial, upfront investment associated with the microgrid controller, or a bonus rate of 30% if prevailing wage and apprenticeship requirements are met. Projects under 1 MW (alternating current) automatically qualify for the bonus rate,” the post by PowerSecure’s Dunpont continues. “With pathways to secure additional tax credits through siting and component considerations, some projects can realize up to 50% in investment tax credits for their projects’ microgrid controllers.”

The Microgrid 2024 Conference will be Close to the Heart of the Beltway

Happening April 22-24 in Baltimore at the Marriott Waterfront

Federal, State and Local Microgrid Advocates will Speak: Register now


About the Author

Rod Walton, Managing Editor | Managing Editor

For Microgrid Knowledge editorial inquiries, please contact Managing Editor Rod Walton at [email protected].

I’ve spent the last 15 years covering the energy industry as a newspaper and trade journalist. I was an energy writer and business editor at the Tulsa World before moving to business-to-business media at PennWell Publishing, which later became Clarion Events, where I covered the electric power industry. I joined Endeavor Business Media in November 2021 to help launch EnergyTech, one of the company’s newest media brands. I joined Microgrid Knowledge in July 2023. 

I earned my Bachelors degree in journalism from the University of Oklahoma. My career stops include the Moore American, Bartlesville Examiner-Enterprise, Wagoner Tribune and Tulsa World, all in Oklahoma . I have been married to Laura for the past 33-plus years and we have four children and one adorable granddaughter. We want the energy transition to make their lives better in the future. 

Microgrid Knowledge and EnergyTech are focused on the mission critical and large-scale energy users and their sustainability and resiliency goals. These include the commercial and industrial sectors, as well as the military, universities, data centers and microgrids. The C&I sectors together account for close to 30 percent of greenhouse gas emissions in the U.S.

Many large-scale energy users such as Fortune 500 companies, and mission-critical users such as military bases, universities, healthcare facilities, public safety and data centers, shifting their energy priorities to reach net-zero carbon goals within the coming decades. These include plans for renewable energy power purchase agreements, but also on-site resiliency projects such as microgrids, combined heat and power, rooftop solar, energy storage, digitalization and building efficiency upgrades.