The US government has today (Friday) finalised a rule that will allow producers of clean hydrogen to sell tax credit subsidies to other taxpayers in exchange for cash, which officials say will help developers secure financial backers and speed up the pace of development.
The new transferability rule — one of two options now available for monetising tax credits — drawn up by the Department of the Treasury and the Internal Revenue Service (IRS, the federal tax authorities), will apply to producers eligible for 11 different tax credit subsidies across the Inflation Reduction Act, including the 45V production tax credit for clean hydrogen.
Developers utilising the 45Q tax credit for carbon capture and storage — which includes some blue hydrogen producers — will also be eligible for the programme, as will those using the 48C credit for “advanced energy projects” such as electrolyser factories.
When fully finalised by regulators, the 45V credit will allow eligible producers of clean hydrogen to claim a maximum of $3 back in tax credits on each kg of H2 they produce.
However, some developers will take some time to be profitable, meaning that they may not have a high enough tax bill to offset against the value of the tax credits they are owed — a problem which the Treasury noted is putting up costs and putting up barriers to project financing.
The new rule aims to overcome this by laying out the terms by which developers can “transfer” (ie, sell) the credits to other US taxpayers in lieu of claiming back on their own taxes.
Developers can transfer credits to another tax payer via the IRS’s specially-built online platform Energy Credits Online (ECO), in exchange for cash only.
The other option available to tax-credit recipients is so-called “elective pay”, in which the IRS provides direct cash payments to companies of the same amount as the tax credits, but hydrogen producers will only be eligible to do that for five tax years in total. The 45V credit is available for ten years, meaning that producers would have to switch back to receiving credits after the five year period.
This means that those opting to “transfer” credits would be guaranteed a 10-year revenue scheme, even if third-party buyers would inevitably seek to purchase credits at a lower price than their face value in order to turn a profit.
“The Inflation Reduction Act’s new tools to access clean energy tax credits are a catalyst for meeting President Biden’s historic economic and climate goals,” said Treasury Secretary Janet Yellen. “They are acting as a force multiplier, enabling companies to realise far greater value from incentives to deploy new clean power and manufacture clean energy components.
“More clean energy projects are being built quickly and affordably, and more communities are benefitting from the growth of the clean energy economy.”
The IRS reported a surge in registrations on the ECO, noting today that the total volume of registration requests hit 59,000 across 900 different business entities as of 19 April 2024, with the vast majority of applications pursuing transferability, rather than elective payments.
Most of the registrations relate to solar and wind projects so far, it added.
The relative absence of green hydrogen developers so far is likely due to uncertainty over which projects will be eligible for the 45V, as controversial new rules governing this are still out for consultation by the Treasury, leading to fears that the credit's implementation could be delayed.
Around 1,300 projects are pursuing elective payments on ECO, some of which are from tax-exempt state or regional governments registering programmes for clean vehicles covered under the rule.
UPDATED: to clarify different terms for elective pay and transferable pay in paragraphs eight and nine.
