About Renewable Energy Tax Credits
Investment Tax Credit
The ITC is a dollar-for-dollar credit for expenses invested in renewable energy properties, most often solar developments. The Consolidated Appropriations Act of 2016 extended the ITC through 2019 as a 30 percent credit for qualified expenditures. It then drops to 26 percent for facilities that begin construction in 2020 and 22 percent those beginning construction in 2021 before it becomes permanently 10 percent in 2022.
Production Tax Credit
The federal production tax credit program–used mostly for wind developments–was first applied to facilities placed in service beginning in 1994. It was extended several times, the most recently at the end of 2015 when it was set at 2.3 cents per kilowatt hour for 2016, with a 20 percent decrease each year from 2017 through 2019, after which it sunsets. The year in which a project begins construction determines the credit rate. It is a dollar-for-dollar credit against the taxpayer’s federal income tax liability and recipients of the PTC have the option to take the ITC in lieu of the PTC at the same 20 percent annual step-down levels beginning in 2017.
Section 1603 Treasury Program
The Section 1603 Treasury program is a technology-neutral finance mechanism that allows solar and other renewable energy project developers to receive a direct federal grant in lieu of the Section 48 ITC they were otherwise entitled to receive. The program was part of the American Recovery and Reinvestment Act (ARRA) of 2009 and allows taxpayers and small businesses to maximize the return and value of tax incentives by providing access to capital and streamlining financing costs. The payment is made after the energy property is placed in service. The program applies to solar and wind, as well as biomass, combined heat and power, fuel cells, geothermal, incremental hydropower, landfill gas, marine hydrokinetic, microturbine and municipal solid waste.
Another of the provisions of the American Recovery and Reinvestment Act of 2009 (ARRA) was Section 48C, which provided $2.3 billion of tax credits for manufacturing facilities related to renewables. It is a competitive credit, requiring an application to the Treasury Department. It is a credit for investing in the manufacturing of renewable energy equipment, not for the generation of it. The credit is 30 percent of the equipment’s cost while the initial $2.3 billion lasts.