The Inflation Reduction Act of 2022 (the “IRA”) allows firms to develop and sell clean energy tax credits. In our last update, available here, we discussed the uncertain future of energy tax credit sales as we head into the election.
Earlier this summer, Treasury released the long-awaited guidance package (available here, as corrected here) on the new technology-neutral electricity tax credits that will replace the production tax credit (“PTC”) and investment tax credit (“ITC”) in 2025.
Here's the lowdown: the proposed rules largely follow the current rules governing PTCs and ITCs, while also expanding the eligibility criteria to include new technologies. While the current rules specify the eligible technologies, the new credits determine eligibility criteria in reference to prescribed greenhouse gas emissions standards aimed at achieving zero emissions.
The PTC-based credits provide a tax credit based on the kilowatt hours of electricity generated by a qualifying clean energy facility. The new ITC-based credit, much like its predecessor, offers a tax incentive to invest in clean energy projects by providing a credit to reduce the capital cost of a qualifying project. These new credits can be claimed in 2025 until the later of 2032 (like the other IRA credits) or until the U.S. meets the greenhouse gas emission targets outlined in the IRA.
Notably, both credits cannot be claimed for the same facility. Developers faced with high capital costs might favor the ITC-based credit, while developers with existing facilities and the capability to efficiently increase production may prefer the PTC-based credits. Additionally, the ITC-based credit can be claimed upfront, whereas the PTC-based credits are claimed periodically over a 10-year term.
Additional updates on energy tax credits include:
We can expect more guidance to be released in the coming weeks as Treasury resumes work after the summer break and hastens to finalize IRA guidance ahead of a potential change in administration.
Linda Z. Swartz
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Adam Blakemore
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Jon Brose
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Andrew Carlon
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Mark P. Howe
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Catherine Richardson
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catherine.richardson@cwt.com
Gary T. Silverstein
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