Fences
(iv) Fences. Fencing is not an integral part of an energy property because it is not integral to the activity performed by the energy property. (v) Buildings. Generally, buildings are not integral parts of an energy property because they are not integral to the activity of the energy property. However, the structures described in paragraphs (f)(3)(vi) and (vii) of this section are not treated as buildings for this purpose. (vi) Structures essentially items of machinery or equipment. A structure that is essentially an item of machinery or equipment is not treated as a building for purposes of paragraph (f)(3)(v) of this section. (vii) Structures that house certain property. A structure that houses property that is integral to the activity of an energy property is not treated as a building for purposes of paragraph (f)(3)(v) of this section if the use of the structure is so closely related to the use of the housed energy property that the structure clearly can be expected to be replaced if the energy property it initially houses is replaced. (4) Location of energy property. Any property that meets the requirements of paragraphs (f)(2) and (3) of this section is part of an energy property regardless of where such property is located. (5) Examples. This paragraph provides examples illustrating property included in energy property. (i) Example 1. Solar energy property. X constructs a solar energy property (Solar Property) comprised of 500 separate solar panels. The solar panels are connected by wires, cables, and combiner boxes. Generated electricity is conditioned for subsequent use through one inverter and eventually carried to a substation that houses a transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. All components of the Solar Property up to the inverter are functionally interdependent components of the Solar Property. The inverter and up to and including the transformer are integral parts of the Solar Property. Therefore, the Solar Property is an energy property for purposes of the section 48 credit. When X places the Solar Property in service, the cost of the components up to and including the transformer is included in the basis of the Solar Property for purposes of computing the section 48 credit. (ii) Example 2. Co-located energy properties. Assume the same facts as in paragraph (f)(5)(i) of this section (Example 1), except that Y constructs a wind energy property (Wind Property) near X's solar energy property (Solar Property). X's Solar Property and Y's Wind Property each connect to a substation that houses a transformer where the electricity is stepped up to electrical grid voltage before being transmitted to the electrical grid through an intertie. X and Y each pay 50% of the cost of, and own a 50% undivided interest in, the transformer and related power conditioning equipment housed in the substation. X's Solar Property and Y's Wind Property are separate energy properties. When X and Y place their respective energy properties in service, the cost of the components up to and including 50% of the cost of the transformer and related power conditioning equipment is included in X's and Y's basis in their respective energy properties for purposes of computing the section 48 credit. (iii) Example 3. Qualified offshore wind energy project. Z constructs an offshore wind farm (Offshore Wind Energy Project) comprised of 150 turbines (energy properties) for which Z makes a valid election under section 48(a)(5) to claim the section 48 credit in lieu of the section 45 credit. The alternating current electricity generated by the individual wind turbines will be carried by inter-array cables to an offshore substation where a transformer will step up the voltage of the electricity and a converter will convert it to direct current so it may be transported by subsea export cables to an onshore substation adjacent to the point of interconnection with the electrical grid. When the electricity reaches the onshore substation, it will flow into another converter where it will be converted back to alternating current, and then through a transformer and associated switchgear where it will be converted to electrical grid voltage and where the Offshore Wind Energy Project can be electrically isolated from the grid. The electricity will then pass through an intertie that will take the electricity from the substation to the point of interconnection with the electrical grid. All components of the Offshore Wind Energy Project, up to and including the transformer and switchgear housed in the onshore substation, are either functionally interdependent components or integral parts of the energy properties that comprise the Offshore Wind Energy Project. Therefore, when Z places the Offshore Wind Energy Project in service, the cost of the components up to and including the transformer and switchgear housed in the onshore substation are included in the aggregate basis of the energy properties that comprise the Offshore Wind Energy Project for purposes of computing the section 48 credit. (iv) Example 4. Co-located energy property and qualified facility. X constructs a wind facility (Wind Facility) that is co-located with an energy storage technology (Energy Storage). The Wind Facility and Energy Storage share power conditioning and transfer equipment. The power conditioning and transfer equipment are integral parts of the Energy Storage, and are therefore considered energy property. Therefore, X will include a properly allocated share of the shared power conditioning and transfer equipment costs to determine the section 48 credit for the Energy Storage. If the Wind Facility otherwise satisfies the requirements of the section 45 credit, X may claim the section 45 credit with respect to the Wind Facility.