160
‘‘(ii) $500 for each kilowatt of capac-
ity in the case of any fuel cell described in 
subparagraph (A)(i), and 
‘‘(iii) $3,000 in the case of any nat-
ural gas heat pump described in subpara-
graph (A)(iv). 
‘‘(4) COMBINED
HEAT
AND
POWER
SYSTEM 
PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘combined 
heat and power system property’ means prop-
erty—
‘‘(i) comprising a system for the same 
energy source for the simultaneous or se-
quential generation of electrical power, me-
chanical shaft power, or both, in combina-
tion with steam, heat, or other forms of 
useful energy, 
‘‘(ii) which has an electrical capacity 
of more than 20 kilowatts or a mechanical 
energy capacity of more than 67 horse-
power or an equivalent combination of elec-
trical and mechanical energy capacities, 
‘‘(iii) which produces—
161
‘‘(I) at least 20 percent of its 
total useful energy in the form of 
thermal energy, and 
‘‘(II) at least 20 percent of its 
total useful energy in the form of elec-
trical or mechanical power (or a com-
bination thereof), and 
‘‘(iv) the energy efficiency percentage 
of which exceeds—
‘‘(I) 60 percent in the case of a 
system with an electrical capacity of 
less than 1 megawatt, 
‘‘(II) 65 percent in the case of a 
system with an electrical capacity of 
not less than 1 megawatt and not in 
excess of 50 megawatts, and 
‘‘(III) 70 percent in the case of a 
system with an electrical capacity in 
excess of 50 megawatts. 
‘‘(B) SPECIAL RULES.—
‘‘(i) ENERGY
EFFICIENCY
PERCENT-
AGE.—For 
purposes 
of 
subparagraph 
(A)(iv), the energy efficiency percentage of 
a system is the fraction—
162
‘‘(I) the numerator of which is 
the total useful electrical, thermal, 
and mechanical power produced by 
the system at normal operating rates, 
and 
‘‘(II) the denominator of which is 
the lower heating value of the primary 
fuel source for the system. 
‘‘(ii) DETERMINATIONS MADE ON BTU 
BASIS.—The energy efficiency percentage 
shall be determined on a Btu basis. 
‘‘(iii) INPUT AND OUTPUT PROPERTY 
NOT INCLUDED.—The term ‘combined heat 
and power system property’ does not in-
clude property used to transport the en-
ergy source to the facility or to distribute 
energy produced by the facility. 
‘‘(iv) ACCOUNTING RULE FOR PUBLIC 
UTILITY PROPERTY.—If the combined heat 
and power system property is public utility 
property (as defined in section 46(f)(5) as 
in effect on the day before the date of the 
enactment of the Revenue Reconciliation 
Act of 1990), the taxpayer may only claim 
the credit under subsection (a)(1) if, with
163
respect to such property, the taxpayer uses 
a normalization method of accounting. 
‘‘(5) QUALIFIED ANAEROBIC DIGESTER PROP-
ERTY.—The term ‘qualified anaerobic digester prop-
erty’ means an anaerobic digester for manure or 
crop waste which achieves at least 65 percent effi-
ciency measured in terms of the fraction of energy 
input converted to electricity and useful thermal en-
ergy. 
‘‘(6) WASTE
CONVERSION
PROPERTY.—The 
term ‘waste conversion property’ means equipment 
used to produce a usable liquid or gaseous synthetic 
fuel derived from a waste feedstock (including plas-
tic waste and biomass (as defined in section 29(c)). 
‘‘(7) ADJUSTABLE SPEED DRIVE PROPERTY.—
‘‘(A) IN GENERAL.—The term ‘adjustable 
speed drive property’ means equipment installed 
as part of an electric motor driven system of 10 
horsepower or greater—
‘‘(i) that is used to adjust the speed 
of the electric motor drive output to the re-
quirements of a fluctuating load, and 
‘‘(ii) that achieves an energy savings 
of at least 20 percent during a complete 
cycle of operation.
164
‘‘(B) LIMITATION.—In the case of adjust-
able speed drive property placed in service dur-
ing the taxable year, the credit under sub-
section (a) for such year may not exceed 
$10,000 for each item of such property. 
‘‘(C) COORDINATION
WITH
DEDUCTION 
FOR
ENERGY-EFFICIENT
COMMERCIAL
BUILD-
ING PROPERTY.—The energy percentage shall 
apply to the basis of adjustable speed drive 
property 
after 
adjustment 
under 
section 
1016(a)(34). 
‘‘(f) SPECIAL RULES.—For purposes of this sec-
tion—
‘‘(1) SPECIAL RULE FOR PROPERTY FINANCED 
BY SUBSIDIZED ENERGY FINANCING OR INDUSTRIAL 
DEVELOPMENT BONDS.—
‘‘(A) REDUCTION OF BASIS.—For purposes 
of applying the energy percentage to any prop-
erty, if such property is financed in whole or in 
part by—
‘‘(i) subsidized energy financing, or 
‘‘(ii) the proceeds of a private activity 
bond (within the meaning of section 141) 
the interest on which is exempt from tax 
under section 103, the amount taken into