IRS Section 45
Transferable Production Tax Credit for Electricity from Renewables

Summary:

The Production Tax Credit for Renewable Electricity incentivizes facilities generating electricity from wind, biomass, geothermal, solar, small irrigation, landfill / trash, hydropower, and marine / hydrokinetic renewable energy. The credit amount depends on the type of facility and when it was placed into service. Eligible facilities have a 10-year period to take advantage of the credit once placed into service.

Date in Effect:

January 1, 2023 – December 31, 2024

Calculation Details:

The base credit available under IRS Section 45 is $0.03/kWh(kilowatt hour). Facilities may increase this by 5x, to $0.15/kWh (kilowatt hour) if prevailing wage and apprenticeship requirements are met.

An additional 20% bonus is also available via two separate 10% enhanced multipliers

10% increased for projects meeting certain domestic content requirements for steel, iron, and manufactured products. The guidelines for the threshold are likely to change and have still not been completely published as of today (2023). It is likely to require 45% - 55% of materials to be domestic in order to receive this bonus.

10% increase if the eligible facility is located in a defined energy community. A map of applicable

geographies can be accessed here

Finally, once the applicable year is reached, a phase out calculation must be performed to determine the eligible transferable tax credit. See example at the end of the section.

Credit Pre Bonus

=IF[(Prevailing wage and apprenticeship requirement = met, THEN(Total kWh produced * $0.15) , ELSE(Total kWh produced * $0.03)]

Credit Bonus 1

=IF [(Domestic content requirement = met, THEN(10% * Credit Pre Bonus),ELSE(0%)] + Credit Pre Bonus

Final Credit Calc

=IF[(Located in eligible community = met, THEN(10% * Credit Bonus), ELSE(0%)] + Credit Bonus 1* Calculation above assumes an eligible facility meeting the GHG emissions of zero or below and no phase out impact

Filing Requirements:

  • Register and obtain unique identifier number from the Internal Revenue Service

  • File tax return for self, or if transferring the credit for cash, then reflect the sale of both buyer and seller’s tax return

  • Evidence and logs of production and emissions required by the IRS

Direct Pay:

Direct Pay is an election that allows the taxpayer to sell directly to the Internal Revenue Service. Section 48 E transferable tax credits allow the following entities to make this election:

  • Tax-exempt organizations

  • States

  • Political subdivisions

  • The Tennessee Valley Authority

  • Indian Tribal governments

  • Alaska Native Corporations

  • Rural electricity co-ops.

*Applies to qualified facilities that are originally placed in service after December 31, 2022; applies separately with respect to each qualified facility*