Tax Update for Manufacturers: Clean Energy Tax Credits

The Inflation Reduction Act of 2022 has granted manufacturing, distribution and logistics companies new credit opportunities for maximizing the utilization of clean energy. Let’s discuss the extension and modification of Section 48, “Clean Energy Investment Tax Credit,” the new Section 45X, “Advanced Manufacturing PTC” and the monetizing of the Federal Income Tax Credit and Statutory vs. Discretionary Credits and Incentives.

Modification of Section 48 “Energy Investment Tax Credit”

Qualified Property, including solar power, battery storage and and biogas facilities, could qualify for up to a 30% base credit if either the project has a maximum net output of less than 1 megawatt of energy or the taxpayer ensures that the prevailing wage and apprenticeship (PWA) requirements are met.

The credit amount could be further increased if the project is located in an energy community qualifies for the domestic content bonus, or is a qualified solar or wind facility located in an applicable low-income community or Indian Land. If all additional tests are met, a taxpayer could accumulate up to a 60% base credit or receive an increase of 10% percent for each additional test provided the PWA requirements are met or the project is less than 1 Megawatt.

For an Energy Investment Tax Credit to fall under the Section 48 test, it must be placed in service or construction must have started prior to December 31, 2024. If construction starts after December 31, 2024, the type of qualified energy property may be limited further restrictions apply.

Section 45X “Advanced Manufacturing Production Credit” 

This Advanced Manufacturing Production credit is available for any taxable year to the extent eligible components are produced by the taxpayer in the taxable year and sold to an unrelated property.

Eligible components and the amount of credit per component sold to a third party, include:

Component Amount
Thin Photovoltaic Cell or Crystalline Photovoltaic Cell $0.04 multiplied by the capacity of the cell
Photovoltaic Wafer $3 per square meter
Solar Grade Polysilicon $0.40 per square meter
Polymeric Backsheet $0.07 multiplied by the capacity of the module
Solar Module 10% of the sales price of the vessel
Wind Energy Component (other than related offshore wind vessel) The applicable amount of the component under I.R.C. § 45X(b)(2)(A) multiplied by the total rated capacity (on a per watt basis) of the completed wind turbine
Torque Tube $0.87 per kilogram
Structural Fastener $2.28 per kilogram
Component Amount
Inverter The applicable amount of the inverter under I.R.C. § 45X(b)(2)(B) multiplied by the capacity of the inverter (on a per alternating current watt basis)
Electrode Active Material 10% of the costs incurred by the taxpayer with respect to production of the materials
Battery Cell $35 multiplied by the capacity of the battery cell (on a kilowatt-hour basis)
Battery Module $10 (or $45 if battery module does not use battery cells) multiplied by the capacity of the battery module (on a kilowatt-hour basis)
Critical Mineral 10% of the costs incurred by the taxpayer with respect to production of the mineral

Unlike many of the energy credits added or modified under the Inflation Reduction Act, a taxpayer that manufactures eligible components and sells them to a third party does not have to meet any additional incentives to take advantage of the credit, including domestic content bonus requirements or PWA requirements

Unlike the Section 48 Energy Investment Tax Credit, taxpayers may claim a federal income tax refund from the Advanced Manufacturing Production tax credit for a 5-year period if a direct pay election is made. The credit is available until 2030 and then until 2033 but limited through phase-outs.

On-Demand Webinar: Maximizing Manufacturing Opportunities With Clean Energy Refundable Tax Credits

Learn more about the evolving clean energy state regulations and gain an understanding of how your manufacturing company can utilize federal incentives for clean energy.

Monetizing the Federal Income Tax Credit

In August of 2022, the “Inflation Reduction Act” was passed, incorporating the buying and selling of clean energy credits possible for “for-profit entities.” The purchasing or selling of these credits must occur with cash only. When defending these credits to the IRS, it is the responsibility of buyer. Clients can get more comfortable in purchasing clean energy credits by identifying eligible credits that do not have PWA, domestic content requirements or recapture periods. Alternatively, clients may choose to purchase energy credits and lower any potential risk through indemnity clauses or insurance.

It is time for clients to review the many advantages of the new clean energy credits that the Inflation Reduction Act Provides. Modeling potential existing projects with the receipt of federal income tax credits could make projects more obtainable in the short term and assist in allowing your company to reflect positive sustainability movements in your community.

Contact Us

For more information on this topic, please contact a member of Withum’s Manufacturing, Distribution and Logistics Services Team.