Rising Utility Bills? R&D Tax Credits Partnered with Energy Credits Could Help Offset the Cost
As utility costs continue to rise, businesses may be able to offset some of that increase by utilizing two tax credits. While the credits are very different from one another, they may apply to the same underlying project.
Two Different Credits, One Shared Opportunity
If your utility bills are growing and it’s affecting your profit and loss report, you’re not alone. Manufacturers, processers, and other facility-heavy companies have been watching their energy costs climb for years, and many are responding by testing new equipment, redesigning processes, or investing in on-site generation to bring those costs down.
What many businesses don’t realize is that the work they’re doing to refine their processes to reduce costs may qualify for two separate federal credits: the Research & Development (R&D) Tax Credit under IRC §41 and one of the advanced manufacturing & clean electricity production credits that remained on the books after the One Big Beautiful Bill Act (OBBBA) was passed.
The R&D Credit
The R&D tax credit rewards businesses for developing or improving a product, process, or piece of equipment when the outcome is technically uncertain at the outset, regardless of the industry the business sits in. The IRS looks for four things.
• Permitted Purpose: The activity must be intended to develop or improve the functionality, performance, reliability, or quality of a business component.
• Technological in Nature: The work must rely on engineering, physical or biological science, or computer science principles.
• Technical Uncertainty: The activity must be undertaken to discover information intended to eliminate uncertainty about the capability, method, or appropriate design of the business component.
• Process of Experimentation: Your team must have a process that evaluates alternatives through modeling, simulation, systematic trial and error, or other methods to eliminate uncertainty.
For a business looking to cut its energy use, qualified activities might include:
- Prototyping on-site battery storage or energy management systems
- Developing custom software to monitor and reduce energy consumption across a production line
- Redesigning a manufacturing process to improve its power usage efficiency without sacrificing output and/or quality
If the activities involve systematic trial and error, meaning that your team did not know the answer before testing began, the wages, supplies, contract research costs, and cloud computing costs tied to that work may be eligible for the R&D tax credit.
The Advanced Manufacturing & Clean Electricity Credits
This is where it gets a bit more complicated. The OBBBA, signed into law on July 4, 2025, closed or accelerated the end date on several energy efficiency credits that paired naturally with R&D work.
• §179D, the Energy Efficient Commercial Buildings Deduction, is no longer available for projects that began construction after June 30, 2026.
• §45L, the New Energy Efficient Home Credit, ended for homes acquired after June 30, 2026.
• The residential §25C and §25D credits ended on December 31, 2025.
Two credits, though, are still very much alive for businesses:
• §45X, the Engery Production Credit: If your business domestically manufactures solar components, wind components, battery components, inverters, or certain critical minerals, this credit pays out per unit produced and sold rather than per project. It runs into the early 2030s for most components (wind components lose eligibility for units sold after 2027), which makes it one of the more durable advanced manufacturing credits still on the books.
• §45Y and §48E, the Clean Electricity Production and Investment Credits: These still apply to solar and wind facilities, though the window has tightened. Projects that began construction before July 5, 2026 have more time to be placed in service. Projects starting construction now can still qualify, but they must be placed in service by December 31, 2027, or the credit is lost.
Where the Two Combine
The R&D credit rewards the process of developing or improving something. The energy credits reward the finished, in-service equipment or the manufactured component. These are two different tests applied to two different sets of costs, which is exactly why they can be claimed alongside each other without double-counting the same dollars.
A few examples:
- A manufacturer developing a next-generation battery cell may claim the R&D credit for the wages and supplies tied to the development and testing, and claim the §45X credit once that cell is in production and being sold.
- A facility evaluating multiple configurations of an on-site solar array before settling on a final design can claim the R&D credit for the evaluation phase before pursuing the §48E credit once construction begins and the array is placed in service within the required window.
- A company building custom energy monitoring software to identify where power is wasted on a production line can claim the R&D tax credit for the software development, independent of any equipment credit tied to the physical upgrades that come out of it.
Documentation
As always, documentation is the cornerstone of every claim, and stacking credits does not change the importance of doing so. The George v Commissioner decision is a useful reminder of why: the U.S. Tax Court agreed that agricultural research at issue qualified for the R&D tax credit, but limited the taxpayer’s recovery because its records didn’t separate research costs from ordinary operating costs in a clear enough way.
The same principle applies here; if you plan to claim both R&D and energy credits tied to the same project, your records will need to clearly identify:
- Which costs were incurred during the design or development stage versus the costs related to the final manufactured component or installed equipment.
- Which employees, hours, and supplies correlate to the R&D stage versus the routine maintenance or production phase.
Next Steps
- Identify any facility upgrades, equipment testing, or process redesigns underway that are meant to reduce energy costs.
- Separate development and testing costs from equipment and installation costs.
- Confirm whether any planned solar, wind, or component manufacturing project still falls within the OBBBA windows.
- Talk to a firm that specializes in tax credits to ensure that you qualify and are properly documenting activities.
RK Partners specializes in R&D tax credits and is highly experienced in searching for and documenting qualifying R&D activities. We can make sure you’re not claiming activities that qualify for energy credits but wouldn’t hold up as R&D tax credit activities, and we can compile a study that will stand up to IRS scrutiny.
Schedule a no-risk consultation with us today to see what your company may qualify for.
