§ 1.45Y-2. Qualified facility for purposes of section 45Y.

¶(i) In general. For purposes of the section 45Y credit, the unit of qualified facility includes all functionally interdependent components of property (as defined in paragraph (b)(2)(ii) of this section) owned by the taxpayer that are operated together and that can operate apart from other property to produce electricity, or, in the case of CHP property, useful thermal energy and electricity. No provision of this section, § 1.45Y-1, or §§ 1.45Y-3 through 1.45Y-5 uses the term unit in respect of a qualified facility with any meaning other than that provided in this paragraph (b)(2)(i).

¶(ii) Functionally interdependent. Components of property are functionally interdependent if the placing in service of each of the components is dependent upon the placing in service of each of the other components to produce electricity.

¶(i) In general. For purposes of thesection 45Ycredit, a component of property owned by a taxpayer is an integral part of a qualified facility if it is used directly in the intended function of the qualified facility and is essential to the completeness of such function. Property that is an integral part of a qualified facility is part of the qualified facility.

¶(ii) Power conditioning and transfer equipment. Power conditioning equipment and transfer equipment are integral parts of a qualified facility. Power conditioning equipment includes, but is not limited to, transformers, inverters, and converters, which modify the characteristics of electricity or thermal energy into a form suitable for use, transmission, or distribution. Parts related to the functioning or protection of power conditioning equipment are also treated as power conditioning equipment and include, but are not limited to, switches, circuit breakers, arrestors, and hardware used to monitor, operate, and protect power conditioning equipment. Transfer equipment includes components of property that allow for the aggregation of electricity generated by a qualified facility and components of property that alter voltage to permit electricity to be transferred to a transmission or distribution line. Transfer equipment does not include transmission or distribution lines. Examples of transfer equipment include, but are not limited to, wires, cables, and combiner boxes that conduct electricity. Parts related to the functioning or protection of transfer equipment are also treated as transfer equipment and may include items such as current transformers used for metering, electrical interrupters (such as circuit breakers, fuses, and other switches), and hardware used to monitor, operate, and protect transfer equipment.

¶(iii) Roads. Roads that are integral to the intended function of the qualified facility such as onsite roads that are used to operate and maintain the qualified facility are integral parts of a qualified facility. Roads used primarily for access to the site, or roads used primarily for employee or visitor vehicles, are not integral to the intended function of the qualified facility and thus are not an integral part of a qualified facility.

¶(iv) Fences. Fencing is not an integral part of a qualified facility because it is not integral to the intended function of the qualified facility.

¶(v) Buildings. Generally, buildings are not integral parts of a qualified facility because they are not integral to the intended function of the qualified facility. However, the structures described in paragraphs (b)(3)(v)(A) and (B) of this section are not treated as buildings for this purpose and are an integral part of a qualified facility:

¶(vi) Shared integral property. Multiple qualified facilities (whether owned by one or more taxpayers), including qualified facilities with respect to which a taxpayer has claimed a credit under section 48E or another Federal income tax credit, may include shared property that may be considered an integral part of each qualified facility. In addition, a component of property that is shared by a qualified facility as defined in section 45Y(b) (45Y Qualified Facility) and a qualified facility as defined by section 48E(b)(3) (48E Qualified Facility) that is an integral part of both qualified facilities will not affect the eligibility of the 45Y Qualified Facility for the section 45Y credit or the 48E Qualified Facility for the section 48E credit (defined in § 1.48E-1(a)(10)).

¶(vii) Examples. This paragraph (b)(3)(vii) provides examples illustrating the rules of paragraphs (b)(3)(i) through (vi) of this section.

¶(i) Example 1. Taxpayer claims a section 45Y credit on a solar farm and section 48E credit on co-located EST. X owns a solar farm that is a qualifying facility (Solar Qualified Facility), and X owns a co-located EST (as defined in § 1.48E-2(g)) (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and, therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and X may also claim the section 48E credit based on its qualified investment in the Energy Storage.

¶(ii) Example 2. Different taxpayers claim a section 45Y credit for a solar farm and a section 48E credit for co-located Energy Storage Technology. X owns a solar farm that is a qualifying facility (Solar Qualified Facility), and Y owns a co-located EST (as defined in § 1.48E-2(g)) (Energy Storage). The Energy Storage is not part of the Solar Qualified Facility, and therefore, X may claim the section 45Y credit based on the kWh of electricity produced by the Solar Qualified Facility, and Y may claim the section 48E credit based on its qualified investment in the Energy Storage.

¶(iii) Example 3. Taxpayer claiming another credit is not allowed a section 45Y credit. X owns a wind facility that satisfies the requirements of a qualified facility as well as the requirements of a qualified facility as defined in § 1.48E-2(a). X claims a section 48E credit with respect to the wind facility. While a credit may be available with regard to the wind facility under section 45Y, because X has already claimed a section 48E credit with respect to the wind facility, a section 45Y credit is not allowed.

¶(iv) Example 4. Interaction of section 45Y and section 45Q credits for single qualified facility. X owns a qualified facility (Facility A) that includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by Facility A. X used the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide and claimed a section 45Q credit in a prior taxable year. As a result, X cannot claim a credit for its Facility A because a qualified facility does not include a facility for which a credit determined under section 45Q is allowed.

¶(v) Example 5. Interaction of section 45Y and section 45Q credits for co-located qualified facilities. Assume the same facts as in paragraph (c)(3)(iv) of this section (Example 4), except that X owns a co-located qualified facility (Facility B) that also includes carbon capture equipment, which is needed for the facility to meet the zero greenhouse gas requirement, so it is functionally interdependent to the production of electricity by Facility B. X used the carbon capture equipment to capture and utilize (as described in section 45Q(f)(5)) qualified carbon dioxide, but has not claimed a section 45Q credit with respect to Facility B. While X claimed a section 45Q credit in a prior taxable year for Facility A (see paragraph (c)(3)(iv) of this section (Example 4)), Facility B is not part of Facility A, and, therefore, X may claim the section 45Y credit for Facility B.