May 06, 2022
UPDATED: IRS Releases 2022 Section 45 Production Tax Credit Amounts
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On April 14, 2022, the US Internal Revenue Service (IRS) published a notice that provides the inflation-adjustment factor and reference price for the calculation of renewable electricity production tax credits (PTCs) under Internal Revenue Code (IRC) section 45 for calendar year 2022, as well as the amount of the PTC for 2022 as adjusted for inflation.
On May 5, 2022, the IRS issued corrections to this notice, revising the inflation-adjustment factor from the initially released 1.8012 to 1.7593 and reducing the PTC amounts accordingly.
Using an inflation-adjustment factor of 1.7593, the notice (as corrected) provides that the PTC for electricity produced from wind, as well as closed-loop biomass and geothermal energy, increased from 2.5 cents per kilowatt hour (kWh) for 2021 to 2.6 cents per kWh for 2022 (rather than 2.7 cents per kWh as originally published). The notice also includes the PTC amounts for electricity produced from other qualified energy resources. Specifically, the PTC for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources remained unchanged from 2021 at 1.3 cents per kWh for 2022 (rather than 1.4 cents per kWh as originally published).
IRC section 45 provides the PTC for any taxable year in the amount of 1.5 cents per kWh of electricity produced by a taxpayer from a qualified facility using wind or closed-loop biomass and sold to an unrelated person during the 10-year period beginning on the date on which the facility is originally placed in service. The credit amount is reduced by one-half for electricity produced from a qualified facility using open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources.
IRC section 45 provides that the 1.5 cent amount is to be adjusted annually for inflation. Although it is premature to make predictions, in light of the current inflation trends, it is likely that we will see a further increase in the PTC for 2023. In any event, the current uncertainty around inflation (and thus the value of the PTC in future years) may make it difficult for sponsors and investors to model their expected returns with the customary degree of certainty.
On May 5, 2022, the IRS issued corrections to this notice, revising the inflation-adjustment factor from the initially released 1.8012 to 1.7593 and reducing the PTC amounts accordingly.
Using an inflation-adjustment factor of 1.7593, the notice (as corrected) provides that the PTC for electricity produced from wind, as well as closed-loop biomass and geothermal energy, increased from 2.5 cents per kilowatt hour (kWh) for 2021 to 2.6 cents per kWh for 2022 (rather than 2.7 cents per kWh as originally published). The notice also includes the PTC amounts for electricity produced from other qualified energy resources. Specifically, the PTC for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources remained unchanged from 2021 at 1.3 cents per kWh for 2022 (rather than 1.4 cents per kWh as originally published).
IRC section 45 provides the PTC for any taxable year in the amount of 1.5 cents per kWh of electricity produced by a taxpayer from a qualified facility using wind or closed-loop biomass and sold to an unrelated person during the 10-year period beginning on the date on which the facility is originally placed in service. The credit amount is reduced by one-half for electricity produced from a qualified facility using open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources.
IRC section 45 provides that the 1.5 cent amount is to be adjusted annually for inflation. Although it is premature to make predictions, in light of the current inflation trends, it is likely that we will see a further increase in the PTC for 2023. In any event, the current uncertainty around inflation (and thus the value of the PTC in future years) may make it difficult for sponsors and investors to model their expected returns with the customary degree of certainty.
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