Renewable Electricity Production Tax Credit (PTC)

The Inflation Reduction Act of 2022 (H.R. 5376) brought significant modifications to the federal renewable electricity production tax credit (PTC), including extending its expiration date, introducing new bonus credits, and establishing fresh criteria for full credit eligibility. It also phases out the section 45 tax credit of the Internal Revenue Code by the end of 2024, replacing it with a new technology-neutral tax credit under section 45Y. The following summary details the current section 45 tax credit as revised by the Inflation Reduction Act, and the upcoming 45Y tax credit.

Federal Renewable Electricity Production Tax Credit (PTC):

• An inflation-adjusted tax credit per kilowatt-hour (kWh) for qualified energy resource-generated electricity sold in the taxable year.
• Valid for 10 years from the facility’s service start date.
• Established in 1992, it’s been extended multiple times, with the latest being the Inflation Reduction Act of 2022.
• The Act imposes new prevailing wage and apprenticeship requirements for larger systems to access the full credit value—2.6 cents per kWh for wind, closed-loop biomass, and geothermal; 1.3 cents per kWh for other specified technologies.
• Guidelines for these labor provisions are expected from the Treasury Secretary in late 2022 or 2023.

Base Credit:

• Projects under 1 MW or those starting up to 60 days post the labor guidelines development are exempt from the new labor standards for the full tax credit.
• Projects over 1 MW starting construction within 60 days post-labor guideline release and before January 1, 2025, will receive a base tax credit of 0.5 cents/kWh but can qualify for the full credit by meeting labor and apprenticeship standards.

Bonus Credits:

• The Domestic Content Bonus boosts the credit by 10% for projects using certain domestically produced materials.
• The Energy Community Bonus also adds 10% for projects in specific locations, with guidance provided by the Treasury Department.

Credit Monetization:

• Allows non-taxable entities to monetize credits directly, making the tax credit refundable for them.
• Taxpayers can transfer eligible tax credits to unrelated taxpayers, with certain restrictions.

Clean Energy Production Tax Credit (45Y):

• Introduced by the Inflation Reduction Act for systems operational from January 1, 2025, it replaces the traditional PTC.
• Applies to all zero-emission generation facilities, with credit calculations similar to the PTC and subject to labor requirement compliance.
• The credit will phase out in alignment with U.S. greenhouse gas emission reduction milestones.