Claiming the 48e Clean Electricity Investment Credit

The Inflation Reduction Act of 2022 established the Clean Electricity Investment Credit under Section 48E of the Internal Revenue Code. This technology-neutral, emissions-based credit replaces the existing energy investment tax credit for projects placed into service after December 31, 2024. The credit supports the transition to a cleaner energy grid by providing a financial benefit to taxpayers who build facilities that generate electricity without producing greenhouse gas emissions.

As an investment tax credit (ITC), its value is calculated based on the capital invested in a qualifying project, providing an upfront benefit to offset initial costs. The credit’s availability is scheduled to phase out once national greenhouse gas emissions from the electricity sector fall to 25% of 2022 levels, or starting in 2032, whichever is later.

Project and Taxpayer Eligibility

A project’s primary requirement is that it must be a “qualified facility” used to generate electricity with a greenhouse gas emissions rate of zero or less. This standard allows for a wide array of clean energy projects. Examples of qualified facilities include:

• New solar, wind, and geothermal energy systems
• Hydropower projects
• Marine and hydrokinetic energy projects
• Advanced nuclear fission and fusion facilities

The credit also extends to investments in “qualified energy storage technology.” This includes equipment that receives, stores, and delivers energy for conversion into electricity, but not equipment used for transportation.

An “eligible taxpayer” is the entity that owns the qualified facility and places it in service. This can include various business structures, such as corporations, partnerships, or individuals, as long as they are the party making the investment.

Calculating the Credit Amount

The value of the credit starts at a base rate of 6% of the total investment in a qualified facility for the year it is placed in service. This rate can be multiplied by five, reaching 30%, for projects that satisfy prevailing wage and apprenticeship (PWA) requirements. Projects with a maximum output of less than one megawatt can claim the 30% rate without meeting these labor standards.

The prevailing wage rules require that laborers and mechanics are paid at least the prevailing local wage rates. The apprenticeship requirement mandates that a certain percentage of total labor hours are performed by qualified apprentices from registered programs.

Taxpayers can further increase their credit value by meeting domestic content and energy community criteria. Using a specified percentage of U.S.-sourced steel, iron, and manufactured products adds a bonus of 10 percentage points if PWA requirements are met, or 2 percentage points if they are not. For projects in a designated “energy community,” an additional bonus of 10 percentage points is available if PWA standards are met, and 2 percentage points otherwise. An energy community can be a brownfield site, an area historically dependent on the fossil fuel industry, or a census tract affected by a recent coal facility closure.

A separate Low-Income Community Bonus Credit provides an additional 10 or 20 percentage points for projects under 5 megawatts. This bonus applies to facilities located in low-income communities, on Indian land, or as part of certain low-income benefit projects. A project meeting PWA standards and qualifying for both the domestic content and energy community bonuses can reach a total credit of 50% of the qualified investment.

Information and Documentation for Claiming the Credit

A taxpayer must maintain evidence to support the credit calculation, beginning with records that establish the cost basis of the qualified investment. These records include:

• Invoices
• Purchase agreements
• Construction contracts
• Proof of payment for equipment and labor

To substantiate a claim for the 30% credit rate through PWA, taxpayers must maintain certified payroll records demonstrating that laborers were paid prevailing wages. For the apprenticeship rules, documentation should include agreements with registered programs and records tracking apprentice hours. If the hour requirements are not met, records must show a good faith effort to comply.

For the domestic content bonus, supplier certifications are needed to attest that steel, iron, and other components were produced in the United States. To claim the energy community bonus, documentation must verify the project’s location, such as site plans or official designations.

The primary document for claiming the credit is IRS Form 3468, Investment Credit. On the form, the taxpayer reports the cost basis of the property and calculates the credit. To claim any bonus rates, the taxpayer must attest on the form that the specific requirements have been met and that supporting documentation is being maintained.

The Process for Monetizing the Credit

Taxpayers can monetize the credit through either direct pay or transferability. Both options require a mandatory pre-filing registration process completed through a dedicated IRS online portal before the tax return is filed.

The direct pay election is available to “applicable entities,” which include tax-exempt organizations, state and local governments, and other entities without significant tax liability. For these entities, the credit can be received as a direct cash payment from the government. After receiving a registration number from the pre-filing process, the entity makes the election for direct pay on its annual tax return by filing Form 3468 and Form 3800, General Business Credit.

The transferability election allows an eligible taxpayer to sell all or a portion of the credit to an unrelated third party for cash. This is useful for developers who lack sufficient tax liability to use the full value of the credits they generate. After obtaining a registration number, the taxpayer makes the transfer election on their tax return and provides the number to the buyer. The buyer can then use that registration number to claim the purchased credit on their own tax return.