Sectors: Commercial, Industrial
The federal renewable electricity production tax credit (PTC) is an inflation-adjusted per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. The duration of the credit is 10 years after the date the facility is placed in service for all facilities placed in service after August 8, 2005.
Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently by the American Recovery and Reinvestment Act of 2009 (H.R. 1 Div. B, Section 1101 & 1102) in February 2009 (often referred to as “ARRA”), the American Taxpayer Relief Act of 2012 (H.R. 8, Sec. 407) in January 2013, the Tax Increase Prevention Act of 2014 (H.R. 5771, Sec. 155) in December 2014, and the Consolidated Appropriations Act, 2016 (H.R. 2029, Sec. 301) in December 2015.
The tax credit amount is $0.015 per kWh in 1993 dollars for some technologies and half of that amount for others. The amount is adjusted for inflation by multiplying the tax credit amount by the inflation adjustment factor for the calendar year in which the sale occurs, rounded to the nearest 0.1 cents. The Internal Revenue Service (IRS) publishes the inflation adjustment factor no later than April 1 each year in the Federal Registrar. For 2016, the inflation adjustment factor used by the IRS is 1.5556.
Applying the inflation-adjustment factor for the 2016 calendar year, the production tax credit amount is as follows:
- $0.023/kWh for wind, closed-loop biomass, and geothermal energy resources
- $0.012/kWh for open-loop biomass, landfill gas, municipal solid waste, qualified hydroelectric, and marine and hydrokinetic energy resources
The tax credit is phased down for wind facilities and expires for other technologies commencing construction after December 31, 2016. The phase-down for wind facilities is described as a percentage reduction in the tax credit amount described above:
- For wind facilities commencing construction in 2017, the PTC amount is reduced by 20%
- For wind facilities commencing construction in 2018, the PTC amount is reduced by 40%
- For wind facilities commencing construction in 2019, the PTC amount is reduced by 60%
Note that the exact amount of the production tax credit for the tax years 2017-2019 will depend on the inflation-adjustment factor used by the IRS in the respective tax years.
The duration of the credit is 10 years after the date the facility is placed in service. Two exceptions applied to facilities placed in service more than a decade ago:
- open-loop biomass, geothermal, small irrigation hydro, landfill gas, and municipal solid waste combustion facilities placed into service after October 22, 2004, and before enactment of the Energy Policy Act of 2005, on August 8, 2005, were only eligible for the credit for a 5-year period, and
- open-loop biomass facilities placed in service before October 22, 2004, were eligible for the 5-year period beginning January 1, 2005.