News & Insights


October 3, 2022

H2ypothetical - Clean Electricity Credits

On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the Act). The Act includes multiple tax benefits for hydrogen production, storage and utilization, summarized in the following King & Spalding Client Alert.

This is the fourth H2ypothetical in our series designed to provide observations on the Act’s hydrogen related provisions. Understanding these rules will take time. Hopefully many of the ambiguities we see will be resolved by government guidance. In the meantime, these H2ypotheticals are intended to answer some basic questions and tease out some issues that need guidance to resolve. You can access all of our other H2ypotheticals here.


Taxpayer owns and operates a solar or wind farm that is eligible for either the Section 45 production tax credit (PTC) or the Section 48 investment tax credit (ITC).

The taxpayer places an order for new hydrogen storage equipment and ten 100 kW fuel cells. The equipment will be delivered late in 2024 and the equipment will be installed next to the solar or wind farm within the United States. Neither the storage nor the fuel cells, however, will be “placed in service” until early 2025. 

The taxpayer’s plan is to produce hydrogen and claim the clean hydrogen PTC under Section 45V. The clean hydrogen PTC could be up to $3.00 per kilogram of hydrogen produced. This clean hydrogen will be stored onsite. The fuel cells will use some of this hydrogen to generate electricity that is sold onto the grid when advantageous to do so and the remainder will be sold to third parties.

This H2ypothetical assumes the original ITC/PTC for the solar or wind farm continues to apply, and that the hydrogen produced onsite has a zero rated greenhouse gas emissions rate. It is further assumed that the Treasury/IRS will have issued guidance on the Act’s prevailing wage/apprenticeship requirements in 2023 and that the taxpayer will comply with such requirements. Please see our first H2ypothetical for more information on the clean hydrogen PTC. Finally, we assume that the taxpayer will want to claim the energy storage ITC.

New Clean Electricity Regime

The Act introduces a new “technology neutral” tax credit regime to supersede the current Section 45/48 tax credits for projects placed in service on or after January 1, 2025. These new provisions should not apply to existing energy property placed in service before the effective date. 

More specifically, Section 45Y creates a new 10-year PTC for clean electricity with credit amounts equivalent to the existing PTC for any qualified facility, including the multiplier/bonus provisions. A qualified facility must be used for the generation of electricity where the greenhouse gas emissions rate for producing the electricity is “not greater than zero.” In addition, Section 48E creates a new clean electricity ITC that covers Section 45Y qualified facilities and “energy storage technology.” It also mirrors the multiplier/bonus provisions in Section 48. 

The taxpayer’s hydrogen storage should qualify for the new clean electricity ITC to the same extent it would have under Section 48 as amended by the Act. New Section 48E adopts the Section 48 definition of qualifying energy storage property by reference.1Section 48(c)(6)(A)(i) (“property (other than property primarily used in the transportation of goods or individuals and not for the production of electricity) which receives, stores, and delivers energy for conversion to electricity (or, in the case of hydrogen, which stores energy), and has a nameplate capacity of not less than 5 kilowatt hours”). As we noted in a prior H2ypothetical, while the application of the rules for hydrogen are unclear, the better view is to generally treat large scale storage as separate property for ITC purposes. 

The clean electricity regime for fuel cells becomes more nuanced starting in 2025. The regime then will be broadly technology agnostic, instead focusing on whether electricity production will have greenhouse gas emissions “not greater than zero”. This means the $3,000 per kW credit limitation for fuel cell property under Section 48 (discussed in a prior H2ypothetical) will no longer apply. More significantly, it also means the clean electricity PTC will also be available. The PTC is not available for fuel cell property under the pre-2025 rules.

Tax Credit Chain

The ability to elect the PTC for fuel cell generated electricity creates a potential chain of tax credits that is only available using hydrogen. A taxpayer could potentially claim tax credits for electricity generated by the solar/wind farm, a clean hydrogen PTC, a storage ITC, and an ITC or PTC for the fuel cells. The clean hydrogen PTC creates this potentially unique position. 

The taxpayer’s ability to claim the PTC for electricity generated by the fuel cell relies upon the hydrogen storage and fuel cell being respected as separate “facilities” for tax purposes. The Treasury/IRS have recognized separate facility treatment even for co-located assets.2 If the two are treated as part of the same facility, the PTC will not be available for the fuel cells. Separate or combined facility treatment will not impact claiming the ITC for both assets. 

Guidance from the Treasury/IRS on the definition of a facility in this context would be very helpful. The taxpayer friendly position would treat the hydrogen storage and the fuel cell properties as separate facilities capable of independently choosing the ITC or PTC. This reading also avoids potential issues regarding the definitional scope of a facility with large hydrogen storage capacity where some clean hydrogen is converted to electricity, but the remainder is sold to third parties. 


The new Section 45Y/48E energy tax credit regime provides greater opportunities for tax-based subsidies. Taxpayers will need to make their own calculations based upon their particular circumstances but the removal of the $3,000 per kW limitation for fuel cell property is helpful. The most taxpayer friendly reading of the new regime may permit a significant stacking of credits by a single taxpayer. Treasury and the IRS need to address many critical questions regarding the scope of the ITC/PTC in this context. 



For purposes of discussion, the fact patterns described above have been considerably simplified and many simplifying assumptions have been made. Readers should not construe the contents of this Hypothetical as legal, tax or other advice, and should consult their own tax or legal advisor as to legal, tax and other related matters concerning the Act.