Most provisions of the One Big Beautiful Bill Act (the “OBBBA”) created new hurdles and restrictions for clean energy tax credit eligibility. However, the OBBBA expanded eligibility for fuel cell projects.
Before the OBBBA, fuel cell projects generally did not qualify for tax credits under section 48E of the Internal Revenue Code (the “Code”) (or the corresponding tech neutral production tax credit under section 45Y) because they typically have some greenhouse gas (“GHG”) emissions. For fuel cell projects that begin construction after December 31, 2025, the OBBBA eliminates the requirement for fuel cell property to have no GHG emissions.1 Thus, fuel cells beginning construction after December 31, 2025 qualify for the investment tax credit (“ITC”) under section 48E, regardless of fuel source or GHG output, meaning fuel cells using natural gas, biogas, and other feedstocks all qualify.2
Below, we answer key questions about how section 48E now applies to fuel cell projects, what has changed from prior law, and what project developers and tax investors need to know.
Q: Is compliance with the prevailing wage and apprenticeship (“PWA”) requirements necessary to be eligible for a 30% credit rate?
A: Not for new fuel cell projects. For fuel cell projects beginning construction after December 31, 2025, the OBBBA exempts projects from the PWA requirements.3 This contrasts with both section 484 and the rules for all the other technologies under section 48E.5
Q: Are there any adders available to increase the ITC above 30% for new fuel cell projects?
A: No. Fuel cell projects are ineligible for any adders under the OBBBA if construction begins after December 31, 2025.6 This means the domestic content,7 energy community,8 and low-income community9 adders are not available for new fuel cell projects under the OBBBA.
Q: Does the $3,000/kW credit cap that applied to fuel cell projects under section 48 apply under section 48E after the OBBBA?
A: The OBBBA added section 48E(j) to the Code to provide special rules for fuel cell projects. That section applies to property satisfying the definition of qualified fuel cell property in section 48(c)(1) (applied without regard to subparagraph (E)).10 In section 48(c)(1), subparagraph (A) defines qualified fuel cell property, and subparagraphs (C) and (D) define terms relevant to that definition.11 Subparagraph (E) of section 48(c)(1) provides that qualified fuel cell property did not include property that began construction after December 31, 2024,12 so it needed to be made inapplicable to fuel cells under section 48E. All four of those subparagraphs are structured as definitions, beginning with the phrase “the term . . . means.”
In contrast, subparagraph (B) of section 48(c)(1) provides that the tax credit determined under section 48(a) is capped at $1,500 per 0.5 kW of nameplate capacity or $3,000/kW.13 Subparagraph (B) thus provides a limitation on the credit amount under section 48(a). It does not appear to define “qualified fuel cell property.” Therefore, the better view is that the $3,000/kW credit cap does not apply under the OBBBA. It is possible that the Joint Committee on Taxation’s Blue Book for the OBBBA could take a contrary view.
Q: Can emissions from a fuel cell project be captured and either sequestered, injected for enhanced oil recovery or used for another commercial purpose and qualify for the tax credit under section 45Q?
A: Yes, if the carbon capture equipment is not part of the “qualified facility.” The prohibition on claiming section 48E and section 45Q credits provides that the “term ‘qualified facility’ shall not include any facility for which- … (iii) a carbon oxide sequestration credit determined under section 45Q.”14 Under section 48E, a qualified facility is a facility used to produce energy that is placed in service after December 31, 2024 and that has no GHG emissions.15 Section 48E(j)(1) alters this definition for qualified fuel cell property by providing the definition applies without the GHG emissions requirement.16 Therefore, qualified fuel cell property does not need to have no GHG emissions to be a qualified facility.
Because qualified fuel cell property does not need to have no GHG emissions, carbon capture equipment that is added to qualified fuel cell property is likely not part of the “qualified facility.” Under section 48E, a qualified facility is a unit of qualified facility (i.e., all functionally interdependent components owned and operated together that can operate apart from other property to produce electricity) and property integral to the qualified facility.17 Property is integral if it is “used directly in the intended function of the qualified facility and is essential to the completeness of such function.”18 Since fuel cell property can be operated without carbon capture equipment, the carbon capture equipment is likely not part of the unit of qualified facility. Further, since fuel cell property does not need to have no GHG emissions, the carbon capture equipment may not be essential to the qualified facility for a fuel cell property. Therefore, any carbon capture equipment used to capture emissions from a fuel cell project may not be part of the qualified facility of the fuel cell property. Thus, the prohibition on claiming tax credits under section 48E and section 45Q with respect to the same facility is likely avoided.
The ability of a fuel cell project to combine section 48E and section 45Q makes sense because unlike the other technologies a fuel cell project does not have to have zero emissions to qualify for section 48E; therefore, if its owner opts to capture its carbon emissions, that activity should be eligible to qualify for a section 45Q credit. Because the owner could opt to merely release the emissions.
Q: Can the section 48E credit for fuel cell projects be transferred to a third party?
A: Yes. Credit transferability under section 6418 is preserved under the OBBBA.19 However, credits cannot be transferred to a “specified foreign entity” within the meaning of section 7701(a)(51)(B).20
Q: Do the restrictions for prohibited foreign entities apply to fuel cell property?
A: Yes, the OBBBA’s rules for prohibited foreign entities apply to fuel cell property. No tax credits are allowed for projects that receive material assistance from PFEs—such as Chinese, Russian, Iranian, or North Korean companies—for projects beginning construction after December 31, 2025.21 Further, no tax credits are allowed for taxpayers that are prohibited foreign entities.22 This presentation discusses the prohibited foreign entity rules in detail.
Q: When does the section 48E credit for fuel cell projects phase out?
A: Under the OBBBA, 100% of the ITC is available for fuel cell projects that begin construction by December 31, 2033, followed by a step-down to 75% for projects beginning construction in 2034, 50% for projects beginning construction in 2035, and 0% for projects beginning construction in 2036 and later.23
Q: What happens to fuel cell projects that began construction before January 1, 2025?
A: Projects that began construction before January 1, 2025 are eligible under section 48 and are not subject to the OBBBA changes.24 Developers with projects that qualify under section 48 should evaluate whether their projects qualify for any adders that are no longer available for new projects under the OBBBA.
Q: What happens to fuel cell projects that began construction after January 1, 2025 but before December 31, 2025?
A: Fuel cell projects that began construction in calendar year 2025 are eligible for tax credits under section 48E only if they satisfy the general rules under section 48E. That means the fuel cell property must generate electricity with zero GHG emissions.25 The qualified facility must satisfy the PWA requirements to qualify for a 30% credit.26 However, if the facility satisfies those conditions, adders, such as domestic content and energy community, could be available to increase the credit rate above 30%.27
[1] Section 48E(j)(1) (providing that having an emissions rate of no greater than zero is not a requirement for a fuel cell property to satisfy the definition of qualified facility).
[2] There was no corresponding change made to the production tax credit under section 45Y. Therefore, a fuel cell project would only qualify under section 45Y if it could achieve zero emissions.
[3] Section 48E(j)(2) (providing that the credit rate for qualified fuel cell property is 30%).
[4] Sections 48(a)(10) and 48(a)(11).
[5] Section 48E(a)(2)(A)(ii)(III).
[6] Section 48E(j)(2) (providing that the 30% credit rate is not increased or adjusted by any other provisions of section 48E).
[7] Section 48(a)(12) and 48E(a)(3)(B).
[8] Sections 48(a)(14) and 48E(a)(3)(E).
[9] Sections 48(e) and 48E(h)
[10] Section 48E(j) (“any qualified fuel cell property (as defined in section 48(c)(1), as applied without regard to subparagraph (E) thereof” (emphasis added)).
[11] Sections 48(c)(1)(A), (C), and (D).
[12] Section 48(c)(1)(E).
[13] Section 48(c)(1)(B).
[14] Section 45Q(b)(3)(C)(iii).
[15] Section 48E(b)(3)(A).
[16] Section 48E(j)(1).
[17] Treas. Reg. § 1.48E-2(d)(1), (2).
[18] Treas. Reg. § 1.48E-2(d)(3).
[19] Section 6418(a).
[20] Section 6418(g)(5).
[21] Section 48E(b)(6)
[22] Section 48E(d)(6).
[23] Section 48E(e).
[24] Section 48(c)(1)(E).
[25] Section 48E(b)(3)(A)(iii).
[26] Section 48E(a)(2)(A)(ii)(III).
[27] Sections 48E(a)(3)(B) and 48E(a)(3)(A).