In short
U.S. data centers already consume about 45 percent of the world’s data center electricity and are on pace to consume up to 12 percent of all U.S. electricity by 2028. CRS R48583, Thomson Reuters, March 2026 To power that growth with clean energy, developers and AI data center operators rely on federal production tax credits. A production tax credit, or PTC, pays the owner of a zero emission generator for each kilowatt hour of electricity it produces and sells. The credit cuts the generator’s cost, which lowers the price the AI data center pays for power. If the AI data center owns the generator, it can claim the credit directly. CRS R48583
The main PTC for new projects is the technology neutral Section 45Y clean electricity production credit. For a qualifying facility placed in service after 2024 that meets prevailing wage and apprenticeship standards, the 2025 credit rate is 3.0 cents per kilowatt hour for the first ten years. 26 U.S.C. § 45Y(a)(2)(B), IRS inflation adjustment for 2025 Bonus adders can raise the rate to about 3.6 cents. A separate Section 45U credit supports existing nuclear plants. The One Big Beautiful Bill Act of 2025 cut off the credit for new wind and solar projects that begin construction after July 4, 2026 and are not placed in service by December 31, 2027, while other clean technologies keep a similar phaseout that begins in 2034. Public Law 119-21, §§ 70512, 70513 Credits are transferable for cash under Section 6418, and a market lets corporations buy credits at a discount. 26 U.S.C. § 6418, Tax credit transfer FAQ, Tax credit market FAQ
How does a production tax credit lower the cost of electricity for an AI data center?
A production tax credit is a per kilowatt hour payment from the federal government to the owner of a clean power facility. The credit reduces the generator’s cost of producing electricity, so the generator can sell power at a lower price and still earn a return. The AI data center that buys the electricity gets the benefit through a lower purchase price. CRS R48583 If the data center owns the generation, it can claim the credit directly against its own tax bill as long as it follows the metering rules described below. The AI data center does not have to be a utility. The taxpayer must produce electricity at a qualified facility and sell it to an unrelated person, or in the case of a qualified facility equipped with a metering device owned and operated by an unrelated person, the taxpayer may sell, consume, or store the electricity. 26 U.S.C. § 45Y(a)
What is the Section 45Y clean electricity production credit?
Who can claim the credit?
The credit goes to the taxpayer that owns a qualified facility and produces electricity from it. The electricity must be sold to an unrelated person. If the facility has a metering device owned and operated by an unrelated person, the electricity may also be sold, consumed, or stored by the taxpayer. 26 U.S.C. § 45Y(a) This means an AI data center operator that owns a solar array behind its meter can use the power itself and still claim the credit, provided a third party meter is installed.
What electricity qualifies?
The electricity must come from a facility placed in service after December 31, 2024, whose greenhouse gas emissions rate is not greater than zero. 26 U.S.C. § 45Y(b)(1)(A) The IRS has decided that several technologies automatically meet that zero emission standard. They include wind, solar, hydropower, marine and hydrokinetic, geothermal (flash and binary), nuclear fission, nuclear fusion, and waste energy recovery from those sources. T.D. 10024, 90 FR 4006
Combustion or gasification facilities, like a biogas engine, must prove through a life cycle assessment (LCA) that their net emissions are zero over 30 years, accounting for the alternative fate of methane feedstocks. 90 FR 4006 To date, no commercial biogas project has appeared on the IRS annual table as having a zero greenhouse gas rate. Ever.green, Jan. 2025
How is the credit amount calculated?
The statute sets a base amount of 0.3 cents per kWh. If the facility meets prevailing wage and apprenticeship requirements, or its maximum net output is less than 1 megawatt, the amount jumps to 1.5 cents per kWh. 26 U.S.C. § 45Y(a)(2)(A), (B) These amounts are adjusted for inflation each year. For 2025, the inflation adjustment factor is 1.9971, so the base credit is 0.6 cents per kWh and the PWA compliant credit is 3.0 cents per kWh. IRS inflation adjustment for 2025
The credit rate can increase further with bonus adders, shown in the table below.
| Scenario | Without PWA | With PWA |
|---|---|---|
| Statutory base (before inflation) | 0.3 cents | 1.5 cents |
| 2025 inflation adjusted base | 0.6 cents | 3.0 cents |
| With domestic content bonus (10%) | 0.66 cents | 3.3 cents |
| With energy community bonus (10%) | 0.66 cents | 3.3 cents |
| With both bonuses (20%) | 0.72 cents | 3.6 cents |
How long does the credit last?
The credit is available during the 10 year period that starts on the date the facility is originally placed in service. 26 U.S.C. § 45Y(b)(1)(B) There is no cap on total kilowatt hours produced during that window.
What is the prevailing wage and apprenticeship requirement?
To get the higher credit amount, a facility must pay prevailing wages to construction workers and meet apprenticeship ratios during construction. The requirement applies facility by facility, not at a larger project level. T.D. 10024, 90 FR 4006 There is an exception for facilities with a maximum net output under 1 megawatt, but if multiple small facilities are owned by the same or related taxpayers, placed in service in the same tax year, and transmit through the same interconnection point or serve the same end user, they are aggregated. The exception can then be lost. 90 FR 4006
How does the metering rule work when an AI data center uses the power onsite?
An AI data center that generates its own power behind the meter must install a meter that is owned and operated by an unrelated third party. The meter must meet the requirements of the American National Standards Institute C12.1-2022 standard (or subsequent revisions), be revenue grade, and have an accuracy within plus or minus 0.5 percent. 90 FR 4006 The third party may share fiber optic cables with the data center, and the meter can be operated remotely. The meter’s physical location, before storage or at the grid interconnection, does not matter. 90 FR 4006, preamble
There is no de minimis exception for greenhouse gas emissions. If a facility emits any amount of greenhouse gases above zero in a taxable year, it cannot claim the Section 45Y credit for that year. It may requalify in a later year if it eliminates the emissions. 90 FR 4006, preamble
What bonus adders can increase the credit?
What is the domestic content bonus?
If a facility uses 100 percent U.S. produced structural steel and iron and a rising share of U.S. manufactured components, the credit increases by 10 percent. The manufactured product thresholds are 40 percent for construction beginning before 2025, 45 percent in 2025, 50 percent in 2026, and 55 percent in 2027 and later. CRS R48358 A safe harbor provides pre approved cost percentages for solar photovoltaic, onshore wind, and battery storage projects. Crux, June 2025
What is the energy community bonus?
A facility located in an energy community, defined to include brownfield sites and areas with both historic fossil fuel employment and high unemployment, earns another 10 percent increase. 26 U.S.C. § 45Y(g)(7), 26 U.S.C. § 45(b)(11)(B) The OBBBA added a fourth energy community bonus category specifically for advanced nuclear facilities located in a metropolitan statistical area where direct employment related to the advancement of nuclear power is 0.17 percent or more. Public Law 119-21
How does the phaseout work and what did the One Big Beautiful Bill Act change?
The standard phaseout schedule
The Section 45Y credit begins a phasedown when U.S. electricity sector greenhouse gas emissions fall to 25 percent of 2022 levels, or in calendar year 2032, whichever is later. For facilities that begin construction in the first year of the phaseout, the credit is 100 percent of the normal amount. In the second year, 75 percent. Third year, 50 percent. For facilities that begin construction after the third calendar year following the applicable year, the credit is zero. 26 U.S.C. § 45Y(d)(1)–(3)
OBBBA early cutoff for wind and solar
The One Big Beautiful Bill Act, signed July 4, 2025, added an earlier termination for wind and solar facilities. No Section 45Y credit is allowed for any wind or solar project that begins construction after July 4, 2026, and is placed in service after December 31, 2027. 26 U.S.C. § 45Y(d)(4), Public Law 119-21, §§ 70512, 70513
However, if construction of the wind or solar facility began on or before July 4, 2026, the 2027 termination date does not apply. The facility can still receive the credit for its full ten year period. Notice 2025-42 § 1
To meet the beginning of construction test for this grandfather rule, a developer may use the Physical Work Test, meaning the start of actual physical work of a significant nature. Except for low output solar facilities under section 6 of the notice, the Five Percent Safe Harbor, which counts spending 5 percent of total cost as construction start, is not available for this purpose. Notice 2025-42 § 3.01
Projects that begin construction before July 5, 2026 have a four year continuity safe harbor. A project that starts in 2026 satisfies a continuity safe harbor if placed in service by the end of 2030. Notice 2025-42 § 4.04
Non wind and solar technologies, nuclear, geothermal, hydropower, biogas, and energy storage, are not affected by this early cutoff. They are not subject to the wind and solar early cutoff and follow a similar post 2032 phaseout schedule, although the OBBBA removed the emissions-based trigger that could have delayed the phaseout under the prior law. Public Law 119-21
What is the Section 45U nuclear production tax credit?
The Section 45U credit supports existing nuclear plants placed in service before August 16, 2022. The base credit is 0.3 cents per kWh, but if prevailing wage requirements are met for alterations and repairs, the credit multiplies by five to 1.5 cents per kWh. 26 U.S.C. § 45U
The credit is reduced by a formula that takes away 16 percent of the excess of gross receipts over 2.5 cents per kWh (adjusted for inflation). In practice, the credit phases out entirely when the market price of electricity reaches roughly $43.75 per megawatt hour. 26 U.S.C. § 45U(b)(2), Law firm analysis
The credit runs through December 31, 2032. 26 U.S.C. § 45U(e) OBBBA added restrictions that prevent credits from being sold to certain foreign entities. 26 U.S.C. § 45U (as amended by OBBBA)
Microsoft’s September 2024 agreement to reopen the Three Mile Island Unit 1 reactor, renamed the Crane Clean Energy Center and targeting a 2027 restart, depends on the Section 45U credit. The credit is estimated to be worth roughly $15 per megawatt hour for that facility. CRS R48583
How can an AI data center company buy the credits even if it does not generate electricity?
Section 6418 lets the owner of a production tax credit sell all or part of the credit to an unrelated taxpayer for cash, one time. The sale is not taxable income to the seller and not deductible by the buyer. The buyer claims the credit on its own return. 26 U.S.C. § 6418
In 2025, an estimated $42 billion in credits were transferred, up from $32 billion in 2024. Crux, March 2026 Buyers typically pay 88 to 95 cents on the dollar, a discount of 5 to 12 percent. Concentro, March 2026 Nuclear credits traded at an average of 96.2 cents on the dollar in 2025. Crux nuclear insights
AI data center operators, which often have large tax bills, are common buyers. However, purchased credits are treated as passive activity credits and are subject to the general business credit limit, which caps the credit claimed at 75 percent of the buyer’s income tax liability for the year. 26 U.S.C. § 38, 26 U.S.C. § 469 Unused credits can be carried forward.
Nuclear credits represented about 25 percent of all transferable credit deals by count in the first quarter of 2025, though only about 5 to 7 percent by dollar value in the first half of the year. Crux nuclear insights
Key takeaways
- The Section 45Y production tax credit pays 3.0 cents per kWh (2025) for new zero emission generation, lasting ten years. With domestic content and energy community bonuses, the rate can reach 3.6 cents per kWh.
- Wind and solar projects face a tight timeline. They must be placed in service by December 31, 2027, unless construction began on or before July 4, 2026. The Physical Work Test is the only way to prove the start date for the grandfather rule.
- An AI data center that owns behind the meter generation can claim the credit directly, but only if a third party meter meeting the ANSI C12.1 2022 standard is installed.
- No de minimis exception exists for greenhouse gas emissions. Any emissions above zero in a year disqualify the facility from the credit for that year.
- Existing nuclear plants can earn the Section 45U credit. However, the credit shrinks as power prices rise and disappears at about $43.75 per MWh.
- The transfer market for credits is large and liquid. Buyers can purchase credits at a discount of 5 to 12 percent, with nuclear credits trading near 96 cents. Data center companies are common buyers but face passive activity and general business credit limits.
- Developers and AI data center counsel should model credit start dates, PWA compliance costs, and bonus eligibility early, especially for wind and solar where the deadline is imminent.
Frequently asked questions
Q:What is a production tax credit?
A:A production tax credit is a per kilowatt hour payment from the federal government to the owner of a clean electricity generator. It reduces the generator’s cost of producing power, which can make clean energy cheaper for buyers. CRS R48583
Q:Can an AI data center claim the Section 45Y credit if it buys electricity from a wind farm?
A:No. The credit goes to the wind farm owner, the generator. However, the credit lowers the wind farm’s cost, which can result in a lower power purchase price for the data center. The AI data center gets the economic benefit indirectly.
Q:What happens if a wind project starts construction on July 1, 2026?
A:It qualifies for the grandfather rule because construction began before July 5, 2026. The project does not have to be placed in service by December 31, 2027. To satisfy the Continuity Safe Harbor, a facility must be placed in service by the end of the fourth calendar year after the calendar year construction began (by the end of 2030 if construction began in 2026), but the safe harbor is not mandatory and continuity may also be shown by facts and circumstances. Notice 2025-42 § 4.04
Q:Is the Section 45U credit available for new nuclear reactors?
A:No. Section 45U is only for nuclear plants placed in service before August 16, 2022. New nuclear reactors may use the Section 45Y production tax credit or the Section 48E investment tax credit. 26 U.S.C. § 45U(b)(1)(C), 26 U.S.C. § 45Y(b)(1), 26 U.S.C. § 48E(b)(3)
Q:Can a biogas to power project at a data center get the credit?
A:Possibly, but it must prove net zero lifecycle greenhouse gas emissions through an LCA. No commercial biogas project has so far appeared on the IRS table as having a zero emission rate. Ever.green, Jan. 2025
Q:How does the credit transfer work in practice?
A:The seller makes a one time transfer election under Section 6418 and reports the transfer on its tax return. The buyer claims the credit on its return. The cash the seller receives is tax free, and the buyer cannot deduct the purchase price. 26 U.S.C. § 6418
Q:What metering equipment is needed for an AI data center’s onsite solar to claim the credit?
A:The meter must be owned and operated by an unrelated third party. It must be certified as meeting generally accepted industry performance standards (such as the ANSI C12.1-2022 standard or subsequent revisions), be revenue grade, and have an accuracy within plus or minus 0.5 percent. 90 FR 4006
Q:Are there any production tax credits for energy storage?
A:No. There is no production tax credit for storage. Storage qualifies for the investment tax credit under Section 48E, which is a separate topic.
Q:What did OBBBA change for nuclear credits?
A:OBBBA added rules that prohibit sales to certain foreign entities and created a new energy community bonus for advanced nuclear projects in specific metropolitan areas. The existing nuclear credit’s expiration date, 2032, did not change. Public Law 119-21
Q:How do I know if a site qualifies as an energy community?
A:The Department of Energy maintains a map of energy communities. The IRS also updates energy community eligibility in notices, including Notice 2025-31. IRS Notice 2025-31
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Junde Liu, JD, LL.M. (Taxation) candidate at UF Law. Originally published on Compute Law Blog. This article is general information and does not constitute legal advice. Reading it does not create an attorney client relationship. The reader should not act on the basis of any content here without first consulting a licensed attorney in the relevant state. Last reviewed for accuracy May 23, 2026.