Section 48E: Clean Electricity Investment Tax Credit

The Clean Electricity Investment Credit, introduced by the Inflation Reduction Act of 2022 and designated under Section 48E of the tax code, is an incentive for the energy sector. It is designed to stimulate investment in new facilities that generate electricity without producing greenhouse gas emissions. This credit applies to projects placed in service after December 31, 2024. The structure of the incentive encourages a broad range of clean energy solutions by moving away from technology-specific subsidies to a more comprehensive, emissions-based standard. The credit is scheduled to begin phasing out starting in 2032 or when U.S. greenhouse gas emissions from the electricity sector fall to 25% of 2022 levels, whichever is later.

Eligible Clean Electricity Properties

The Section 48E credit is defined by its “technology-neutral” approach. To qualify, a facility must be used for the generation of electricity and have a greenhouse gas emissions rate that is not greater than zero. This standard opens the door for a wide array of projects, including established technologies like wind, solar, geothermal, hydropower, and nuclear fission. It also extends to emerging technologies such as nuclear fusion and marine and hydrokinetic energy projects.

This framework ensures that as new zero-emission technologies are developed, they can qualify for the credit without requiring new legislation. The key metric is the facility’s net greenhouse gas emissions from the point of generation. For facilities placed in service after 2024, this emissions-based qualification replaces the previous model of listing specific eligible technologies.

A component of the Section 48E credit is its inclusion of energy storage technologies. Qualified energy storage technology is eligible for the credit, including electrical energy storage property such as batteries, thermal energy storage, and hydrogen energy storage. To be considered a qualified investment, the storage technology must have a capacity of not less than 5 kilowatt-hours.

The eligibility of energy storage applies whether it is a standalone project or co-located with a generation facility. This allows for greater grid stability and the ability to dispatch clean power when generation is low. A taxpayer can claim a credit for a qualified facility and an associated energy storage unit, even if they are part of a hybrid system.

Determining Your Credit Rate

The financial value of the Clean Electricity Investment Credit is determined by a two-tiered structure, which is then potentially increased by several bonus adders. The foundational credit is calculated as a percentage of the qualified investment or “tax basis” of the eligible property. For most projects, the base credit rate is 6% of this investment basis.

The credit rate can be multiplied by five, increasing from 6% to 30%, if the project meets prevailing wage and apprenticeship (PWA) requirements. Projects with a maximum net output of less than one megawatt are generally exempt from the PWA requirements and can automatically qualify for the 30% rate.

To secure the 30% credit rate, a project must satisfy both prevailing wage and apprenticeship requirements for the construction, alteration, or repair of the facility. Prevailing wage rules mandate that all laborers and mechanics be paid wages at rates no less than the prevailing local rates for similar work, as determined by the Department of Labor. The apprenticeship requirement stipulates that a certain percentage of total labor hours must be performed by qualified apprentices from a registered apprenticeship program.

Beyond the PWA requirements, project owners can further increase their credit value through several stackable bonuses.

Domestic Content Bonus

A 10 percentage point bonus is available for projects that meet domestic content standards. To qualify, a project must certify that a specified percentage of the steel, iron, and manufactured products used in its construction are produced in the United States.

Energy Community Bonus

An additional 10 percentage point bonus is available for projects located in designated “energy communities.” This adder is intended to drive investment into areas historically impacted by the fossil fuel industry. An energy community can be a brownfield site, an area with significant historical employment in fossil fuels and high unemployment, or a census tract where a coal mine has closed or a coal-fired power plant has been retired. The IRS provides mapping tools to help developers identify these qualifying locations.

Low-Income Community Bonus

A third bonus is available for certain facilities under 5 megawatts located in low-income communities. This bonus, which requires a special application and allocation from the IRS, adds either 10 or 20 percentage points. The 10-point bonus applies to projects located in a low-income community or on Indian land. The 20-point bonus is for projects that are part of a qualified low-income residential building or that provide at least 50% of their financial benefits to low-income households.

These bonus credits are stackable. For example, a project that meets the PWA requirements (30%), the Domestic Content bonus (10%), the Energy Community bonus (10%), and the 20% Low-Income Community bonus could claim a total investment tax credit of 70% of the project’s cost basis.

Information and Documentation for Claiming the Credit

To claim the Clean Electricity Investment Credit, taxpayers must gather and maintain comprehensive information and documentation. The process begins with compiling foundational project data, which includes the specific type of clean energy technology used, the physical address of the facility, its placed-in-service date, and its nameplate generating capacity in megawatts.

Substantiating eligibility for the bonus credit rates requires specific, detailed documentation for each adder.

• Prevailing Wage and Apprenticeship (PWA): Keep certified payroll records for all laborers and mechanics to prove that prevailing wages were paid. Additionally, taxpayers must maintain copies of apprenticeship agreements with registered programs and records tracking the hours worked by qualified apprentices.
• Domestic Content: The key documents are certifications from the manufacturers of the steel, iron, and manufactured products used in the project. These statements must attest that the components meet the U.S. sourcing requirements outlined in IRS guidance.
• Energy Community: Documentation involves using official government data and mapping tools to verify that the project’s location qualifies.
• Low-Income Community: Taxpayers must complete a separate application through an IRS portal to receive an allocation, which must be retained as proof of eligibility.

The primary form for claiming the credit is IRS Form 3468, Investment Credit. This form has been redesigned to accommodate the credits introduced by the Inflation Reduction Act. When completing Form 3468, taxpayers will check specific boxes to attest that they have met the requirements for the PWA, Domestic Content, Energy Community, or Low-Income Community bonuses. These attestations must be backed by the detailed records previously assembled, as the IRS may require this supporting documentation in the event of an audit.

The Process for Monetizing the Credit

Taxpayers can monetize the Section 48E credit through one of two pathways: direct pay or transferability. These options provide flexibility for different types of project owners to realize the financial value of the credit, even if they lack sufficient tax liability to use it themselves. The choice between these pathways depends on the entity type of the taxpayer.

The direct pay option is available exclusively to “applicable entities,” which include tax-exempt organizations, state and local governments, Indian tribal governments, and rural electric cooperatives. This mechanism converts the tax credit into a direct cash payment from the IRS. To utilize this pathway, an eligible entity must first complete a mandatory pre-filing registration process through an online IRS portal. After receiving a valid registration number, the entity files its annual tax return, attaching Form 3468 and Form 3800, to formally claim the payment.

The second monetization pathway is transferability, which allows eligible taxpayers who are not applicable entities to sell all or a portion of their tax credit to an unrelated third-party buyer for cash. This creates a market for the credits, enabling developers to receive immediate cash for their investments. The process requires the seller to complete the same IRS pre-filing registration to obtain a unique registration number for the credit-generating property.

Following registration, the buyer and seller must execute a “transfer election statement,” which is a written document detailing the transaction. Both the seller and the buyer must attach this statement to their respective tax returns for the year of the transfer. The cash received by the seller is not considered taxable income.