26 U.S.C. § 45 — Electricity produced from certain renewable resources, etc.

(a) General rule You get a tax credit for making electricity. The credit equals 0.3 cents times the number of kilowatt hours you produced. Two things must be true: you made the electricity from a qualified energy resource at a qualified facility, within the first 10 years that facility was in service, and you sold that electricity to someone unrelated to you during the tax year. (b) Limitations and adjustments (1) Phaseout of credit: If the market price of electricity (the "reference price") for that year is above 8 cents, your credit shrinks. The higher the price climbs above 8 cents, up to 3 cents higher, the more your credit shrinks — until it disappears once the price is 3 cents or more above 8 cents. (2) Credit and phaseout adjustment based on inflation: Every year, the 0.3 cent credit rate, the 8 cent phaseout trigger, and several dollar amounts elsewhere in this section (like the $4.375 refined-coal rate) get multiplied by an inflation adjustment factor for that year. The adjusted 0.3 cent credit rate is rounded to the nearest 0.05 cent; other adjusted amounts are rounded to the nearest 0.1 cent. (3) Credit reduced for tax-exempt bonds: If your facility was partly financed with tax-exempt bonds, your credit is cut. The cut equals your credit multiplied by the smaller of 15 percent, or the share of your facility's total capital cost that came from those bonds (measured at year end, adding up all years so far). (4) Credit rate and period for electricity produced and sold from certain facilities: For open-loop biomass, geothermal, solar, small irrigation, municipal solid waste, and hydropower facilities (the kinds listed in (d)(3), (5), (6), and (7)), the credit rate is cut in half, and the credit only runs for 5 years instead of 10. An exception: a particular kind of open-loop biomass facility placed in service before this rule existed gets its own 5-year period, starting January 1, 2005. That particular exception does not apply to facilities placed in service after the rule creating the exception was enacted. (5) Phaseout of credit for wind facilities: Wind facilities placed in service before January 1, 2022, lose part of their credit depending on when construction began: 20% cut if construction began in 2017, 40% cut if construction began in 2018, 60% cut if construction began in 2019, and 40% cut if construction began in 2020 or 2021. (6) Increased credit amount for qualified facilities: A facility that meets the wage and apprenticeship rules in paragraphs (7) and (8) gets its credit multiplied by 5. You automatically qualify for this 5x boost without meeting those rules if either: your facility produces less than 1 megawatt of power (measured in alternating current), or construction began before 60 days after the Secretary published guidance on the wage and apprenticeship rules. (7) Prevailing wage requirements: To keep the 5x credit, you must make sure that laborers and mechanics who build, alter, or repair your facility — whether employed by you, a contractor, or a subcontractor — are paid at least the prevailing local wage rate the Secretary of Labor has most recently set for similar work in that area. If you underpay a worker, you can still count as compliant by paying that worker the wage gap plus interest (at 6 percentage points above the normal underpayment interest rate), and by paying the government a penalty of $5,000 per underpaid worker. If the Secretary finds the underpayment was intentional, the back-pay amount triples and the penalty rises to $10,000 per worker. These correction payments must be made within 180 days after the Secretary's final determination, or the fix doesn't count. The IRS's normal deficiency procedures do not apply to these penalties. (8) Apprenticeship requirements: A rising share of construction labor hours must be worked by qualified apprentices: 10% for facilities where construction began before 2023, 12.5% for construction beginning in 2023, and 15% for construction beginning after 2023 — subject to the normal apprentice-to-journeyworker ratio rules set by the Department of Labor or the state apprenticeship agency. Any taxpayer, contractor, or subcontractor with 4 or more workers on the job must employ at least 1 qualified apprentice. You are excused from missing this requirement if you made a good-faith effort — you requested apprentices from a registered apprenticeship program and either were turned down through no fault of your own or contractors', or got no response within 5 business days — or, short of that, if you pay the Secretary a penalty of $50 per labor hour you fell short on ($500 per hour if the shortfall was intentional). "Labor hours" does not include hours worked by foremen, superintendents, owners, or certain salaried executive, administrative, or professional staff. A "qualified apprentice" is someone enrolled in a registered apprenticeship program. (9) Domestic content bonus credit amount: Your credit goes up by 10% if you certify to the Secretary that all the steel, iron, and manufactured products used to build your facility were produced in the United States. For steel and iron, this follows a specific federal regulation. For manufactured products, it's enough if at least 40% of their total cost (20% for an offshore wind facility) comes from products mined, produced, or manufactured in the U.S. (10) Phaseout for elective payment: If you chose to receive this credit as a direct cash payment instead of a tax credit (an election under section 6417), the payment is reduced to a percentage of the full credit value — the "applicable percentage." You get 100% if your facility is under 1 megawatt or meets the domestic-content requirement in paragraph (9). Otherwise, you get 100% if construction began before 2024, or 90% if construction began during 2024. The Secretary must grant an exception, restoring the payment to 100%, if using domestic steel, iron, or products would raise total construction costs by more than 25%, or if those U.S.-made materials simply are not available in enough quantity or of good enough quality. (11) Special rule for qualified facility located in energy community: If your facility sits in an "energy community," your credit goes up another 10% (this is on top of the base credit after paragraphs (1) through (10), but does not apply on top of the domestic-content bonus in paragraph (9)). An "energy community" is any of: a brownfield site as defined under federal environmental cleanup law; a metro or non-metro statistical area that has (or had, since 2010) at least 0.17% direct employment or 25% local tax revenue tied to extracting, processing, transporting, or storing coal, oil, or natural gas, and whose unemployment rate is at or above the national average; a census tract where a coal mine closed after 1999 or a coal-fired power plant retired after 2009 (or a tract directly next to one); or, for advanced nuclear facilities, a metro area with at least 0.17% direct employment (since 2010) tied to advanced nuclear power — including nuclear facility work, nuclear research, fuel-cycle work, or manufacturing nuclear facility components. An "advanced nuclear facility" is one whose reactor design is approved the way section 45J(d)(2) describes, or one the Nuclear Regulatory Commission has approved for construction with a site-specific permit or license (regardless of when the design itself was approved). (12) Regulations and guidance: The Secretary must issue whatever regulations or other guidance are needed to carry out this subsection, including rules on recordkeeping and information reporting. (c) Resources For this section: (1) In general: "Qualified energy resources" means wind, closed-loop biomass, open-loop biomass, geothermal energy, solar energy, small irrigation power, municipal solid waste, qualified hydropower production, and marine and hydrokinetic renewable energy. (2) Closed-loop biomass: Organic material from a plant grown specifically so it can be used at a qualified facility to make electricity. (3) Open-loop biomass: Either agricultural livestock waste nutrients, or nonhazardous cellulosic waste or lignin material from: forest sources (mill and harvest residue, precommercial thinnings, slash, brush); solid wood waste (waste pallets, crates, dunnage, manufacturing and construction wood waste — but not pressure-treated, chemically-treated, or painted wood, and not municipal solid waste, landfill biodegradation gas, or commonly-recycled paper); or agricultural sources (orchard, vineyard, grain, legume, sugar, and other crop byproducts or residues). It does not include closed-loop biomass, or biomass burned together with fossil fuel beyond what's needed to start and stabilize the flame. "Agricultural livestock waste nutrients" means manure and litter (including bedding material like wood shavings, straw, or rice hulls) from cattle, pigs, poultry, and sheep. (4) Geothermal energy: Energy from a geothermal deposit, as defined in section 613(e)(2). (5) Small irrigation power: Power generated without any dam or water impoundment, through an irrigation canal or ditch, with a rated capacity of at least 150 kilowatts but less than 5 megawatts. (6) Municipal solid waste: Has the same meaning as "solid waste" under the Solid Waste Disposal Act, except it excludes commonly-recycled paper that has been separated from other solid waste. (7) Refined coal: Fuel that is either (i) a liquid, gas, or solid made from coal or high-carbon fly ash — including when used as a raw material — that the taxpayer sells expecting it to be used for making steam, and that the taxpayer certifies will cut, when burned for steam, nitrogen oxide emissions by at least 20% and either sulfur dioxide or mercury emissions by at least 40%, compared with burning the original feedstock coal or similar coal that was widely available as of January 1, 2003; or (ii) "steel industry fuel" — fuel made by liquefying coal waste sludge and applying it to coal, then used as a raw material to make coke. "Coal waste sludge" means tar decanter sludge and related coking byproducts, including material that has been stored in the ground, in tanks, or in lagoons, and that had been treated as hazardous waste before being turned into coke feedstock. (8) Qualified hydropower production: Either the extra ("incremental") power an existing hydroelectric dam produces because of efficiency improvements or added capacity installed after this rule was enacted — measured as a percentage of the dam's historical average annual production, using the same water-flow data used to set that historical baseline, and certified by the Federal Energy Regulatory Commission (purely operational changes unrelated to the improvements don't count) — or all the power from a new hydroelectric project installed on a dam that previously did not make electricity. That kind of dam's project must be FERC-licensed and meet all other applicable environmental and regulatory requirements; the dam itself must have existed before this rule and been used for flood control, navigation, or water supply without producing electricity; and the project must be operated so the water surface stays at the level it would have been without the project, unless a license requires a different level to improve the waterway's environmental quality. The Secretary, working with FERC, certifies whether a project meets that water-level condition. Nothing here changes FERC's normal authority to license and regulate hydropower projects. (9) Indian coal: Coal produced from coal reserves that, as of June 14, 2005, were owned by an Indian tribe or held in trust by the United States for a tribe or its members. "Indian tribe" has the meaning given in section 7871(c)(3)(E)(ii). (10) Marine and hydrokinetic renewable energy: Energy from ocean, estuary, or tidal waves, tides, and currents; free-flowing water in rivers, lakes, and streams; free-flowing water in an irrigation system, canal, or similar man-made channel (including projects using nonmechanical structures to speed up water flow for power production); temperature differences in the ocean; or pressurized water in a pipeline or similar man-made water conveyance, if that water is mainly being moved for agricultural, municipal, or industrial use rather than mainly to generate electricity. It excludes any energy source that uses a dam, diversion structure, or impoundment for power production — except for the nonmechanical-structure irrigation channels described above. (d) Qualified facilities For this section: (1) Wind facility: A facility you own, originally placed in service after December 31, 1993, with construction beginning before January 1, 2025. It does not include a facility whose owner already counted a qualified small wind energy expenditure toward the credit under section 25D. (2) Closed-loop biomass facility: Either a facility you own that was placed in service after December 31, 1992, with construction beginning before January 1, 2025; or a facility you own that, before January 1, 2025, was placed in service and then modified to co-fire closed-loop biomass with coal, other biomass, or both — but only if that modification was approved under the Biomass Power for Rural Development Programs or a related Commodity Credit Corporation pilot project. A modification counts as happening before January 1, 2025 if construction on it began before that date. This term also includes a new generating unit added after enactment to an already-qualifying facility, but only for the extra electricity that new unit produces. For a modified/co-fired facility, its 10-year credit period is treated as starting no earlier than when the rule allowing this kind of facility was enacted, and if the facility's owner is not the one producing the electricity, the lessee or operator gets the credit instead of the owner. (3) Open-loop biomass facilities: For a facility using agricultural livestock waste nutrients, it must be owned by the taxpayer, placed in service after the date this rule was enacted, have construction beginning before January 1, 2025, and have a rated capacity of at least 150 kilowatts. For any other open-loop biomass facility, it just needs construction beginning before January 1, 2025. This term includes a new unit added to a qualifying facility, counted only for its extra output. If the facility's owner is not the electricity producer, the lessee or operator gets the credit. (4) Geothermal or solar energy facility: A facility you own, placed in service after the date this paragraph was enacted, with construction beginning before January 1, 2025. It excludes property already counted toward the investment tax credit under section 48. (5) Small irrigation power facility: A facility you own, placed in service after enactment of this paragraph and before October 3, 2008. (6) Landfill gas facilities: A facility making electricity from gas produced by the biodegradation of municipal solid waste, owned by the taxpayer, placed in service after enactment, with construction beginning before January 1, 2025. (7) Trash facilities: Any other facility (not a landfill gas facility) using municipal solid waste to make electricity, owned by the taxpayer, placed in service after enactment, with construction beginning before January 1, 2025. This includes a new unit added to a facility that was already placed in service on or before enactment, counted only for its extra output. (8) Refined coal production facility: For a facility making steel industry fuel, any facility (or modification to one) placed in service before January 1, 2010. For any other refined coal facility, any facility placed in service after the enactment of the American Jobs Creation Act of 2004 and before January 1, 2012. (9) Qualified hydropower facility: Either an existing facility, counted only for the incremental hydropower production from efficiency improvements or added capacity placed in service after enactment and before January 1, 2025; or any other qualified-hydropower-production facility placed in service after enactment, with construction beginning before January 1, 2025. Its 10-year credit period starts when the efficiency improvement or added capacity is placed in service. An improvement or addition counts as placed in service before January 1, 2025, if construction on it began before that date. (10) Indian coal production facility: Any facility that produces Indian coal. (11) Marine and hydrokinetic renewable energy facilities: A facility you own with a rated capacity of at least 25 kilowatts, originally placed in service on or after enactment of this paragraph, with construction beginning before January 1, 2025. (e) Definitions and special rules For this section: (1) Only production in the United States taken into account: Only electricity produced within the United States, or within a U.S. possession, counts toward this credit. (2) Computation of inflation adjustment factor and reference price: By April 1 of each year, the Secretary must determine and publish in the Federal Register that year's inflation adjustment factor and reference price. The "inflation adjustment factor" is a fraction: the prior year's GDP implicit price deflator (the most recent revision published by the Department of Commerce before March 15) divided by the 1992 GDP implicit price deflator. The "reference price" is the Secretary's determination of the average price per kilowatt hour that electricity from the same qualified energy resource sold for under contracts in the U.S. the previous year, counting only contracts entered into after December 31, 1989. (3) Production attributable to the taxpayer: If a facility has more than one owner, production is split among them based on their share of the facility's gross sales, unless the Secretary's regulations say otherwise. (4) Related persons: People treated as a single employer under the related-business rules (section 52(b)) are treated as related for this section too. A corporation that's part of a consolidated tax-filing group still counts as selling to an "unrelated person" if the buyer is unrelated to another member of the group that made the actual sale. (5) Pass-thru in the case of estates and trusts: Rules like those in section 52(d) apply. (6) Repealed by Public Law 109-58 in 2005. (7) Credit not to apply to electricity sold to utilities under certain contracts: The credit does not apply to electricity from a wind facility placed in service after June 30, 1999, if that electricity is sold to a utility under a contract originally made before January 1, 1987 (even if later amended). This restriction doesn't apply if the contract was amended so that: prices above the market ("avoided cost") price only apply up to a capped annual amount of electricity — the greater of the average yearly amount sold under the contract in 1994-98, or the contract's own production estimate (or, if there is none, the highest yearly amount sold in 1996, 1997, or 1998); and any electricity beyond that cap is sold either to the utility only at the market price at time of delivery, or to a third party after giving the utility advance notice. (8) Refined coal production facilities: (A) Refined coal producers get their credit increased by $4.375 per ton of qualified refined coal they produce at a refined coal facility during the first 10 years the facility operated, and sell to an unrelated buyer during that 10-year period and tax year. (B) This $4.375 bonus phases out as the reference price of the feedstock coal rises above 1.7 times its 2002 reference price, shrinking to zero once that excess reaches $8.75. (C) Rules similar to (b)(3) and paragraphs (1) through (5) of this subsection apply in figuring the bonus. (D) For steel industry fuel specifically, this paragraph applies separately, with modifications: the rate is $2 per barrel-of-oil equivalent instead of $4.375 per ton; the credit period runs from the latest of when the facility (or its coke-producing modification) was placed in service, or October 1, 2008, until the later of December 31, 2009, or one year after that start date; and there is no phaseout. A "barrel-of-oil equivalent" is the amount of steel industry fuel containing 5,800,000 Btus. (9) Coordination with credit for producing fuel from a nonconventional source: A facility does not count as "qualified" here if it makes electricity from landfill-biodegradation gas that already earned the nonconventional-fuel-source credit under section 45K for this or an earlier year. Likewise, a "refined coal production facility" excludes a facility whose production already earned a section 45K credit (or, before that, a section 29 credit) for this or an earlier year — except this exclusion does not apply to steel industry fuel made at that facility. (10) Indian coal production facilities: Producers of Indian coal get their credit increased by a set dollar amount per ton of Indian coal produced during the 16 years starting January 1, 2006, and sold to an unrelated buyer (directly or after passing through related persons) during that 16-year period and tax year. The per-ton amount is $1.50 for 2006 through 2009, and $2.00 for years after 2009 — both further adjusted for inflation each year after 2006, using 2005 (instead of 1992) as the comparison base year. Rules similar to (b)(3) and paragraphs (1), (3), (4), and (5) of this subsection apply. (11) Allocation of credit to patrons of agricultural cooperative: (A) An eligible farm cooperative may choose to pass part of its credit through to its member-patrons, split based on how much business each patron did with the cooperative that year. This election must be made on a timely-filed return, is irrevocable for that year, and only takes effect if the cooperative mails written notice of the allocation to its patrons during the payment period described in section 1382(d). (B) Credit passed to patrons this way is excluded from the cooperative's own credit for the year, and is instead included in each patron's credit for the patron's tax year that ends on or after the cooperative's payment-period deadline (or, if earlier, when the patron actually receives notice of the allocation). (C) If the cooperative's actual credit for a year turns out lower than what it originally claimed, the excess reduction — minus whatever wasn't passed on to patrons — becomes additional tax owed by the cooperative, though that extra tax does not itself count as tax owed for purposes of figuring other credits. (D) "Eligible cooperative" means a cooperative described in section 1381(a) that is more than 50% owned by farmers, or by entities that are themselves more than 50% farmer-owned. (12) Coordination with energy credit for qualified biogas property: A facility does not count as "qualified" here if it makes electricity from gas produced by biogas property that already earned the investment tax credit under section 48 for this or an earlier year. (13) Special rule for electricity used at a qualified clean hydrogen production facility: Electricity is treated as sold to an unrelated person — even if it never actually left the producer's hands — if the taxpayer (or someone related to them) uses that electricity during the tax year to make qualified clean hydrogen at a qualified clean hydrogen production facility (as defined in section 45V), and an unrelated third party verifies both the use and the hydrogen production, in whatever form the Secretary requires.