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IRS, Treasury Hearing Reveals Potential Issues with Section 45X Guidelines Regarding Critical Minerals, Solar Energy and Wind Energy

Published by Peter Lawrence on Tuesday, March 26, 2024 - 12:38PM

The Internal Revenue Services (IRS) and U.S. Department of the Treasury (Treasury) hosted a hearing Feb. 22 where more than two dozen speakers shared their thoughts on the proposed Section 45X Advanced Manufacturing Production Credit regulations. The hearing transcript details speakers’ requests for clarification, examples and further guidance.

One of the many tax incentives introduced in the Inflation Reduction Act (IRA) to promote domestic production and manufacture of clean energy, Internal Revenue Code Section 45X provides a production tax credit (PTC) for eligible components of renewable energy projects. The components eligible for the Section 45X credit include solar and wind facility components, energy storage components and 50 different critical minerals. 

Panelists Express Concerns Over Critical Minerals, Solar Energy and Wind Energy

Speakers mainly expressed concerns with respect to the costs of critical minerals included in the Section 45X Advanced Manufacturing Production Credit. Some also requested clarifications with respect to certain definitions and calculations relating to wind and solar energy.

One of the main concerns with respect to critical minerals was that production costs starting from extraction should be included in the Section 45X credit. For example, Rich Nolan of the National Mining Association said that not including extraction costs in the tax credit would prevent electric vehicle related businesses from being competitive with China. Similarly, Heather McDowell of Sibanye-Stillwater said that the proposed regulations would encourage people to continue buying palladium from Russia, which controls 80% of the palladium market. Multiple speakers also suggested including both direct and indirect costs in the Section 45X credit, which is prohibited in the proposed regulations over fears of double-counting credits. Several speakers suggested taking purity requirements into consideration for critical minerals to ensure that the tax credit is not being allocated to minerals that contain significant contaminants. 

Several speakers used their time to provide suggestions with respect to solar energy. Multiple speakers requested edits with respect to inverters. Rachel Prishkolnik of Solar Edge Technologies suggested clarifications for the definition of a multimodule inverter, saying that it could create confusion for direct current (DC) optimized inverter systems. Mark Kanjorski of Ampt LLC said that the allowance of DC optimizers should be paired with commercial inverters and proposed a clarification that inverters with different rates of output qualify for the Section 45X credit. Lastly, Drew Bond of PowerField Energy said that the IRS should support a technology neutral approach that incorporates solar energy components and leaves the door open for component products that have not yet been imagined.

Two speakers requested revisions to the proposed regulations regarding wind energy. Laura El-Sabaawi of Wind Tower Trade Coalition said that the regulations should explicitly state that each section of a wind tower must meet the domestic content requirements of Section 45X to prevent partially foreign produced wind towers from being eligible. Timothy Jacobs of GE Vernova requested additional guidance on whether an existing wind turbine may be repowered and still qualify for the Section 45X credit. He said that repowering existing wind farms depends on the definition of nacelle, the key component in the main electricity-generating component of the wind turbine. Jacobs said that the IRS should further define this term to acknowledge that some components will be reused.

Future Proposed Regulations

In total, 183 written comments were submitted on the proposed Section 45X regulations. Novogradac’s Renewable Energy Working Group will continue to review future energy provisions in the IRA. Energy stakeholders interested in joining the group can use this form

Additionally, Novogradac will be hosting the Novogradac 2024 Spring Renewable Energy Tax Credits Conference from May 16-17 in San Diego. Here, experts in renewable energy tax credits will discuss the latest guidance and industry trends, as well as emerging technologies and financing strategies. With built-in opportunities for networking and professional development, the conference provides the opportunity to connect with leaders in the renewable energy world.

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