Last week, the Treasury released proposed regulations (the “Proposed Regulations”) that provide additional clarity around the energy manufacturing credits under the Advanced Manufacturing and Production (“AMP”) credit contained in section 45X of the Internal Revenue Code (“Code”). The AMP credit generally provides a 10-year production tax credit (“PTC”) for the production and sale of certain components used in connection with renewable energy facilities. If finalized, the Proposed Regulations would apply to eligible component sales that take place after December 31, 2022, and during tax years ending on or after the date that final regulations are published in the Federal Register.

The PTC available under section 45X is part of a broader complement of tools meant to bolster the manufacturing capabilities and supply chain connected with the US energy expansion. That is, the Inflation Reduction Act (“IRA”) introduced the AMP PTC and re-introduced the section 48C Qualifying Advanced Energy Project Credit (“AEP Credit”), an investment tax credit for advanced energy manufacturing projects. Additionally, the IRA introduced a “domestic content” adder for sections 45 and 48 (i.e., energy-generating PTC and investment tax credit projects, respectively) as well as incentives for domestically sourced materials in connection with section 30D.

Although the AEP Credit and the domestic content adders are broadly applicable to a number of different technologies, the AMP PTC primarily incentivizes the production of components for solar, wind (on and offshore), battery components, and inverters. The AMP PTC also incentivizes the production of a long list of minerals deemed critical to the domestic clean energy expansion.

The Proposed Regulations are organized into four primary sections — 1) general rules under proposed § 1.45X-1 (“General Rules”); 2) sale to unrelated persons under proposed § 1.45X-2 (“Sales to Unrelated Persons”); 3) eligible components under proposed § 1.45X-3 (“Eligible Components”); and 4) applicable critical minerals under proposed § 1.45X-4 (“Applicable Critical Minerals”). We discuss relevant portions of each section below.

General Rules

The AMP PTC generally requires the sale of a component to an unrelated party; but before an eligible component might be sold it must be produced. The Proposed Regulations clarify what it means to produce an eligible component. Similar to the requirements for the domestic content adders available under sections 45 and 48, the Proposed Regulations provide that an item must be substantially transformed rather than merely assembled. Production generally is that which “substantially transforms constituent elements, materials, or subcomponents into a complete and distinct eligible component that is functionally different from that which would result from mere assembly or superficial modification of the elements, materials, or subcomponents”. Of the six examples in the Proposed Regulation intended to demonstrate this concept, only one presents a fact pattern in which the hypothetical taxpayer has engaged in the act of production for purposes of the AMP PTC. Thus, the guidance tells stakeholders more about what does not qualify as production than what actually does. In any case, the proposed regulations illustrate that production of a component that began before December 31, 2022, may still meet the definition of “produced,” which is a relief to component manufacturers whose production period may have straddled a calendar year.

Production must take place in the United States or a US territory to be eligible for the AMP PTC. However, subcomponents that are used in production do not necessarily need to be sourced from the United States. Again, this permissibility mirrors the domestic content rules, which are not concerned with the origin of subcomponents in the determination of whether a manufactured product is domestically produced. Further, the Proposed Regulations do not contain any limitations around “Foreign Entities of Concern” such as those present in connection with the section 30D tax credit. Some stakeholders have expressed concern about this lack of limitations.

Generally speaking, the taxpayer entitled to the AMP PTC is one that directly performs the production activities. However, there is an exception for eligible components produced under a “contract manufacturing arrangement” (as defined in the Proposed Regulations). In those situations, the counterparty to such an arrangement might claim the AMP PTC, provided there is a signed certification statement indicating which party to the arrangement will claim the credit. Absent a signed certification statement, only the party performing the production activities that bring about the substantial transformation resulting in the eligible component is eligible to claim the credit.

Under the Proposed Regulations, the mere acquisition of off-the-shelf components from a contractor does not qualify as a contract manufacturing arrangement. The Proposed Regulation’s default provision allowing a contract manufacturer to claim the AMP PTC may introduce additional flexibility when applied against the transferability provisions of section 6418 or the direct-pay provisions of section 6417. That is, the use of those particular monetization channels is prohibited in regulations proposed under those statutes if the incentive has been previously transferred through a lease pass through election under § 1.48-4, a contractually-bound carbon sequester to claim a section 45Q PTC, or another arrangement.

Leo Berwick Insight: It remains to be seen whether having a contract manufacturer claim the AMP PTC would also prohibit that contract manufacturer from accessing transferability and direct-pay monetization channels.

An eligible component can be incorporated into another type of eligible component (provided that second type of component is not solar grade polysilicon, electrode active material, or an applicable critical mineral) and still generate an AMP PTC. Generally, if an eligible component is incorporated into another eligible component, the PTC in connection with the first component is generated at the time the second eligible component is sold to an unrelated person. An example of this concept is provided in the Sales to Unrelated Persons section below.

Generally, a facility that generates an AMP PTC cannot also take advantage of the AEP Credit. That is, an AMP PTC facility cannot contain any equipment that received an allocation of AEP Credits. However, the Proposed Regulations provide examples in which a taxpayer owns two facilities, each on its own capable of producing eligible components. If the facts and circumstances align, a taxpayer may be able to generate an AMP PTC for one of those facilities and an AEP Credit for the other.

Leo Berwick Insight: Of course, in assessing the value of an AMP PTC versus an AEP Credit, stakeholders must consider: 1) the timing of the receipt of these incentives; 2) the relatively limited scope of the AMP PTC as compared to the AEP Credit; 3) the reality that the AMP PTC incentive is available by statute whereas the AEP Credit is only available by application; 4) analysis of project cost relative to production; and 5) assessing recapture risk in the AEP Credit context.

Finally, Proposed Regulation § 1.45X-1 contains an anti-abuse provision that addresses Treasury’s concern that some manufacturers might produce components (perhaps for a cost less than the available AMP PTC incentive) and sell those components to another entity for an unproductive use. Under the anti-abuse rule, the AMP PTC is not allowable with respect to the production and sale of otherwise eligible components that are discarded, disposed of, or destroyed without having been put to productive use.

Sales to Unrelated Persons

To be eligible for an AMP PTC, an eligible component generally must be produced (as discussed above) and sold to an “unrelated person;” for this purpose, two taxpayers are related if they are considered a single employer under section 52. Thus, a sale from one taxpayer to a related taxpayer would not be eligible for the AMP PTC. However, a taxpayer is treated as selling an eligible component to an unrelated person if that component is sold to the unrelated person by a person who is a related person with respect to the selling taxpayer. To illustrate this rule, consider an example in which Taxpayer A sells an eligible component X to B, a related taxpayer. Taxpayer B subsequently incorporates X into eligible component Y, and then sells component Y to an unrelated party.

A generally would be able to recognize the associated AMP PTC from its sale of X at the time that B sells Y to an unrelated party.

Leo Berwick Insight: However, with a correctly filed related person election in place, A could recognize its AMP PTC at the time it sells X to B. Related person elections must be made on a timely-filed tax return (including extensions) and are irrevocable for a given tax year. The related person election applies to all sales of eligible components to related persons by the taxpayer for each trade or business that the taxpayer engages in during the taxable year that results in the generation of an AMP PTC. For a trade or business of a consolidated group, the related person election must be made by the agent for the group on behalf of the group.

Eligible Components

The Proposed Regulations provide additional clarity around the various types of eligible components the sale of which might generate AMP PTCs. Eligible components include solar energy components, wind energy components, inverters, battery components, and applicable critical minerals (discussed in Applicable Critical Minerals, below). The Proposed Regulations provide different specifications that various components must fulfill to be eligible for the AMP PTC. For example, to assess the nameplate capacity of a photovoltaic solar cell or a solar module, a taxpayer must measure direct current watts using Standard Test Conditions as defined by the International Electrotechnical Commission. On the other hand, producers of solar grade polysilicon must know that solar grade polysilicon has a purity of 99.999999% silicon by mass. In the context of wind, the amount of AMP PTCs available for wind energy components (e.g., blades, nacelles) must be calculated by reference to the rated capacity of the turbine to which they are attached (determined in accordance with a relevant national or international standard, adherence to which must be documented by a certificate issued by a certified accredited body). Other, would-be, eligible components such as torque tubes must have associated documentation attesting to a particular use, a specification sheet, a bill of sale, or something similar.

Leo Berwick Insight: In summary, each eligible component and the associated AMP PTC is defined by reference to a number of technical specifications and documentation requirements.

Applicable Critical Minerals

The Proposed Regulations contain a laundry list of technical specifications that a potentially applicable critical mineral must meet in order to generate an AMP PTC. For any applicable critical mineral, the amount of the PTC is equal to 10% of the costs incurred by a taxpayer with respect to the production of that applicable critical mineral and is not subject to the phase-outs otherwise applicable to eligible components. The production processes and associated costs that are eligible for AMP PTCs are those that either convert a mineral to a different species or those that purify a mineral by increasing the mass fraction of a certain element. Includible costs are those defined in Treasury Regulation § 1.263A-1(e) and incurred within the rules of section 461 (i.e., the “all events” test). However, materials costs (both direct and indirect) defined in Treasury Regulation § 1.263A-1(e)(2)(i)(A) and (e)(3)(ii)(E) are excluded, as well as any costs related to the extraction of raw materials. These particular limitations are likely unwelcome news to the mining industry.


The Proposed Regulations provide significant clarity on a number of questions raised with respect to section 45X upon the passage of the Inflation Reduction Act. Some stakeholders might find certain clarifications disappointing, such as those concerned with critical mineral extraction costs or the lack of attention to Foreign Entities of Concern. Regardless, however, the Proposed Regulations provide clarity which should help all participants in the renewable energy supply chain transact with increased confidence.

If you have further questions about this or any other tax enquiries, please contact Dorian Hunt, Partner, Head of Renewable Energy (