Federal Renewable Energy Tax Credits

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Tax Credit Advisor, August 2009:

Federal Renewable Energy Tax Credits

  Production Tax Credits (PTCs) Energy (Investment) Tax Credits (ITCs)
Governing Section of Internal Revenue Code Section 45 Section 48
Types of Energy Facilities/Equipment Wind, biomass, geothermal, municipal solid waste, hydropower and marine and hydrokinetic power. Solar (including solar photovoltaic, hot water), fuel cell, microturbines, small wind, and those facilities electing out of PTCs and into ITCs.
Amount of Tax Credit A formula price of cents per kilowatt hour (2.1 cents in 2009) of electricity produced and sold to an unrelated person for a 10-year period from placemetn in service (reduced to 1.1 cents/kwh, for open loop biomass, landfill gas, trash facilities, hydropower and water based hydrokinetic facilities. 30% of the basis of the energy property placed in service during a taxable year.
Credit Claimed Annually for 10 years, starting with placement in service. One time only, at placemetn in service.
Recapture No. Five-year recapture period, credit vesting 20%/year.
Subsidized Energy Financing Credit Reduction PTC reduced by up to 50% to the extent project costs are funded by tax-exempt obligations or other subsidized energy financing or government grants. No credit reduction.
Alternative Minimum Tax (AMT) PTCs can reduce federal AMT for first 4 years of the 10-year PTC period (but not for the final 6 years). ITCs can reduce AMT.
Credit Basis Reduction None. Depreciable basis reduced by 50% of amount of ITCs claimed.
Leasing Structures Available to Pass-Through Credits Available for closed loop biomass only. Available.
Expiration of Credit Must place in service by 12/31/2012 for wind and by 12/31/2013 for other facilities. Must place in service by 12/31/2016 (other than facilities which opted out of PTCs into ITCs, which remain subject to the deadlines which had applied under the PTC program).
Requirement That Electricity Be Sold Must be sold to an unrelated third party. No sale requirement.
Conservation of Credits to U.S. Treasurey Grants* Must first opt out of PTC into ITC, then ITC requirements apply. Must complete or commence construction in 2009 or 2010 and complete by the foregoing deadline for the type of facility; Treasury grants not available to government entities, non-profits, and pass-through entities any party or equity or profits holder of which is a governmental or tax-exempt entity.

Source: Chart prepared by James F. Duffy, Nixon Peabody LLP.

* Note that only one of ITC, PTC (if applicable) or Treasury grant may be claimed for a particular facility.

Note: This chart is intended solely as a quick summary and is not intended to reflect all provisions or variations in these tax credits. This chart does not constitute legal advice; advice pertinent to any particular facility should be south from qualified professionals.