Overview
(a) Overview(1) In general. For purposes of section 38 of the Internal Revenue Code (Code), the section 45Y credit (defined in paragraph (a)(9) of this section) is determined under section 45Y of the Code and the section 45Y regulations (defined in paragraph (a)(10) of this section). This paragraph (a) provides definitions of terms that, unless otherwise specified, apply for purposes of section 45Y, the section 45Y regulations, and any provision of the Code or this chapter that expressly refers to any provision of section 45Y or the section 45Y regulations. Paragraph (b) of this section provides rules for determining the amount of the section 45Y credit for any taxable year. Paragraph (c) of this section provides rules regarding the phase-out of the section 45Y credit. Paragraph (d) of this section provides rules regarding combined heat and power system (CHP) property. See 1.45Y-2 for rules relating to qualified facilities for purposes of the section 45Y credit. See 1.45Y-4 for rules of general application for the section 45Y credit. See 1.45Y-5 for rules to determine greenhouse gas emissions rates for qualified facilities. (2) CHP property(i) In general. For purposes of section 45Y(g)(2)(B) and paragraph (d) of this section, the term CHP property means property comprising a system that uses the same energy source for the simultaneous or sequential generation of electrical power, mechanical shaft power, or both, in combination with the generation of steam or other forms of useful thermal energy (including for heating and cooling applications). (ii) Components excluded. CHP property does not include property used to transport the energy source to the generating facility or to distribute energy produced by the facility. (3) Code. The term Code means the Internal Revenue Code. (4) kWh. The term kWh means kilowatt hours. (5) Metering device(i) In general. For purposes of section 45Y(a)(1)(A)(ii)(II), the term metering device means equipment that is owned and operated by an unrelated person (as defined in paragraph (a)(11) of this section) for energy revenue metering to measure and register the continuous summation of an electricity quantity with respect to time. (ii) Standards for maintaining and operating a metering device. For purposes of section 45Y(a)(1)(A)(ii)(II) and this section, a metering device must (A) Be maintained in proper working order in accordance with the instructions of its manufacturer; (B) Be certified as meeting generally accepted industry performance standards, such as the American National Standards Institute C12.1-2022 standard, or subsequent revisions; (C) Be revenue grade with a 0.5 percent accuracy; and (D) Be properly calibrated. (iii) Network equipment. For purposes of operating the metering device, the unrelated person may share network equipment, such as spare fiber optic cable owned by the taxpayer that produces the electricity, and may co-locate network equipment in the taxpayer's facilities. (iv) Examples. This paragraph (a)(5)(iv) provides examples illustrating the application of paragraph (a)(5) of this section. (A) Example 1. Qualified facility equipped with a metering device owned and operated by an unrelated person. X owns a qualified facility equipped with a metering device that is owned and operated by Y, an unrelated person. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. X sells electricity produced at the qualified facility to Z, a related person during the taxable year. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and meets the requirements of paragraphs (a)(5)(i) through (iii), X may claim a section 45Y credit based on the electricity produced by X and sold to Z during the taxable year. (B) Example 2. Electricity produced by the taxpayer at a qualified facility sold, consumed, or stored by the taxpayer during the taxable year. X owns a qualified facility equipped with a metering device that is owned and operated by an unrelated person, Y. The metering device meets the requirements of paragraphs (a)(5)(i) through (iii) of this section. Because the qualified facility is equipped with a metering device that is owned and operated by an unrelated person and the metering device meets the requirements of paragraphs (a)(5)(i) through (iii), X may sell electricity produced at the qualified facility during the taxable year to a related or unrelated person. X may also consume the electricity produced at the qualified facility during the taxable year onsite. Additionally, X may store the electricity produced at the qualified facility during the taxable year in energy storage technology owned by X. In any of these three situations, X may claim a section 45Y credit for the taxable year for the kWh of electricity produced at the qualified facility measured by the metering device and sold, consumed, or stored by X during the taxable year. (6) Qualified facility. The term qualified facility for purposes of the section 45Y credit has the meaning provided in 1.45Y-2(a). (7) Related person(i) In general. The term related person means a person that is related to another person if such persons would be treated as a single employer under the regulations in this chapter under section 52(b) of the Code. (ii) Member of a consolidated group. In the case of a corporation that is a member of a consolidated group (as defined in 1.1502-1(h)), such member will be treated as selling electricity to an unrelated person if such electricity is sold to an unrelated person by another member of such group. (8) Secretary. The term Secretary means the Secretary of the Treasury or their delegate. (9) Section 45Y credit. The term section 45Y credit means the clean electricity production credit determined under section 45Y of the Code and the section 45Y regulations. (10) Section 45Y regulations. The term section 45Y regulations means this section and 1.45Y-2 through 1.45Y-5. (11) Unrelated person. For purposes of section 45Y(a), the term unrelated person means a person who is not a related person as defined in section 45Y(g)(4) and paragraph (a)(7) of this section. In the case of sales of electricity to an individual consumer, such sales will be treated as sales to an unrelated party for purposes of the section 45Y credit. For example, assume Taxpayer X produces electricity at a qualified facility and sells it to Consumer Y. Consumer Y is an individual consumer and is not subject to aggregation under the regulations at 26 CFR 1.52-1 prescribed under section 52(b). Therefore, Consumer Y is not treated as a single employer with Taxpayer X under section 52(b), and a sale to Consumer Y is treated as a sale to an unrelated person. The result is the same if Consumer Y is an individual consumer who is a member of a cooperative or Indian tribe that owns or controls, directly or indirectly, Taxpayer X. The result is also the same if Consumer Y is an individual consumer who is a resident of a State or municipality that owns or controls, directly or indirectly, Taxpayer X. (12) Waste energy recovery property (WERP). WERP is property that generates electricity solely from heat from buildings or equipment if the primary purpose of such building or equipment is not the generation of electricity. Examples of buildings or equipment the primary purpose of which is not the generation of electricity include, but are not limited to, manufacturing plants, medical care facilities, facilities on school campuses, and associated equipment.