Federal Tax Incentives:

Advanced Nuclear Production Tax Credit

Background

The Advanced Nuclear Production Tax Credit (PTC) (Internal Revenue Code (IRC) Section 45J) provides a 1.8 cent per kilowatt hour (kWh) tax credit for electricity sold that was produced at qualifying facilities. Criteria for qualifying facilities include that they must use nuclear reactor designs approved by the Nuclear Regulatory Commission after 1993, and must be placed in service by the end of 2020. Qualifying facilities can claim tax credits during the first eight years of production.

There are additional limitations associated with the provision. First, the credit is restricted to 6,000 megawatts (MW) of total electric generating capacity for all qualifying facilities nationwide, with the 6,000 MW allocated by the Internal Revenue Service (IRS). Second, taxpayers can claim no more than $125 million in tax credits per 1,000 MW of the allocated capacity in any single year.

*Service Action & Application Required: Application & Approval Due Before 12/31/2014
On or before December 31, 2014, the IRS accepted or rejected the taxpayer(s) applications and notified the taxpayer(s), by letter, of its decision to award the Credit for Production from Advanced Nuclear Facilities. If the taxpayer’s application was accepted, the acceptance letter would state the amount of the national megawatt capacity limitation allocated to the facility.

The IRS then allocated the national megawatt capacity limitation only to qualifying facilities for which the applications are submitted in accordance with IRS Notice 2006-40.

As such, the credit may not be available to claim unless previously approved before the stated deadline of 12/31/2014 or through the sale/purchased from an unrelated party of the Advanced Nuclear Facilities Credit. See below or IRS Notice 2006-40 for additional details.
 

Calculation Summary

Section 45J was enacted by section 1306 of the Energy Policy Act of 2005, Public Law 109-58 (199 Stat. 594). Section 45J permits a taxpayer to claim a credit for electricity that the taxpayer (1) produces at an advanced nuclear power facility during the eight-year period beginning when the facility is placed in service and (2) sells to an unrelated person (qualifying electricity).
 

Under § 45J(d), an advanced nuclear power facility is a nuclear facility that meets all of the following requirements:

  • (1) The facility consists of a nuclear power reactor that uses nuclear energy to produce electricity. For purposes of this notice, each nuclear power reactor located on a multi-reactor site is a separate facility.

  • (2) The facility is owned by the taxpayer. Commission after December 31, 1993 (and such design or a substantially similar design of comparable capacity was not approved on or before that date). 

  • (3) The reactor design for the facility is approved by the Nuclear Regulatory

  • (4) The facility is placed in service before January 1, 2021.

 

Under § 45J(b)(1), a taxpayer may claim a credit for qualifying electricity produced at an advanced nuclear power facility only if part of the national megawatt capacity limitation has been allocated to the facility.
 

Under § 45J(b)(1) and (c), the credit allowed for a taxable year with respect to the qualified electricity produced at an advanced nuclear power facility is computed under the following rules:

  • (1) A tentative credit for the taxable year is computed for the facility. The facility’s tentative credit for the taxable year is equal to 1.8 cents multiplied by the kilowatt hours of qualified electricity produced at the facility and sold during the taxable year to an unrelated person.

  • (2) The credit percentage is computed for the facility. If the nameplate capacity of the facility exceeds the national megawatt capacity limitation allocated to the facility, the credit percentage for the facility is determined by dividing the national capacity limitation allocated to the facility by its nameplate capacity. If the nameplate capacity of the facility does not exceed the national megawatt capacity limitation allocated to the

  • facility, the credit percentage for the facility is 100 percent.

  • (3) The credit allowed is the lesser of

    • (a) the tentative credit for the facility multiplied by the credit percentage for the facility, or

    • (b) $125,000,000 per 1000 megawatts of national megawatt capacity limitation allocated to the facility.
       

Section 45J(b)(2) provides that the national megawatt capacity limitation is 6,000 megawatts. Section 45J(b)(3) requires the Secretary to allocate this national megawatt capacity limitation. Section 45J(b)(4) requires the Secretary to provide a certification process under which the Secretary, after consultation with the Secretary of Energy, shall approve and allocate the national megawatt capacity limitation.
 

ALLOCATION OF NATIONAL MEGAWATT CAPACITY LIMITATION
Allocation Limited to Qualifying Facilities.
The Service will allocate the national megawatt capacity limitation only to advanced nuclear facilities (within the meaning of § 45J(d)(2)) that satisfy the requirements of "qualifying facilities". An advanced nuclear facility is a qualifying facility only if each of the following requirements is satisfied:

  • (1) An application for a construction/operating license for the facility is filed with the Nuclear Regulatory Commission on or before the later of

    • (i) December 31, 2007, or 

    • (ii) the date on which the aggregate nameplate capacity of advanced nuclear facilities for which applications for a construction/operating license have been filed with the Nuclear Regulatory Commission first equals or exceeds 6,000 megawatts.

  • (2) Construction on the facility begins before January 1, 2014.

    • For this purpose, construction begins when a person who has applied for or been granted a combined license for an advanced nuclear facility initiates the pouring of safety-related concrete for the reactor building.

  • (3) The U.S. Department of Energy (DOE) provides a certification that the facility qualifies as an advanced nuclear facility, and that it is feasible for the facility to placed in service prior to January 1, 2021 (“DOE certification”).

Allocation Method.
The national megawatt capacity limitation will be allocated as follows:

  • (1) If the total nameplate capacity of all qualifying facilities for which applications are submitted does not exceed the national megawatt capacity limitation, each of those facilities will be allocated an amount of national megawatt capacity limitation equal to its nameplate capacity.

  • (2) If the total nameplate capacity of all qualifying facilities for which applications are submitted exceeds the national megawatt capacity limitation, the national megawatt capacity limitation will be allocated among the facilities in proportion to their nameplate capacities.
     

ADDITIONAL ISSUES
Sale to Unrelated Person.
The credit under § 45J is allowed only for electricity that the taxpayer produces and sells to an unrelated person. Electricity will be treated as sold to an unrelated person for this purpose if the ultimate purchaser of the electricity is not related to the person that produces the electricity. The requirement of a sale to an unrelated person will be treated as satisfied in these circumstances even if the producer sells the electricity to a related person for resale by the related person to a person that is not related to the producer. For rules for determining whether a person is related to the producer of the electricity, see § 45(e)(4).
 

Effect of Grants, Tax-Exempt Bonds, Subsidized Energy Financing, and Other Credits.

The amount of the credit under § 45J is not reduced on account of any grants, tax-exempt bonds, subsidized energy financing, or other credits described in § 45(b)(3). 

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