IRS Releases 2023 Section 45 Production Tax Credit Amounts

The IRS on June 21, 2023, released 2023 production tax credit (PTC) amounts under Section 45 of the Internal Revenue Code. That guidance provides that:

• For facilities placed in service before Jan. 1, 2022, the credit for renewable electricity production for calendar year 2023 is 2.8 cents per kilowatt hour (kWh) on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass and geothermal energy, and it is 1.4 cents per kWh on the sale of electricity produced from the qualified energy resources of open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy.
• For facilities placed in service after Dec. 31, 2021, the credit for renewable electricity production for calendar year 2023 is 0.55 cents per kWh on the sale of electricity produced from the qualified energy resources of wind, closed-loop biomass, geothermal energy and solar energy, and the credit is 0.3 cents per kWh on the sale of electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy. These amounts increase from 0.55 cents and 0.3 cents to 2.75 cents and 1.5 cents per kWh, respectively, if prevailing wage and apprenticeship requirements are satisfied.
• For qualified hydropower and marine and hydrokinetic renewable energy facilities placed in service after Dec. 31, 2022, the credit for renewable electricity production for calendar year 2023 is 0.55 cents per kWh, or 2.75 cents if prevailing wage and apprenticeship requirements are satisfied.

Background

Section 45 allows a renewable energy PTC for generating electricity from certain energy resources. Prior to enactment of the Inflation Reduction Act (IRA), the credit was 1.5 cents per kWh for wind and closed-loop biomass facilities and half that amount for other facilities (note that the PTC was not available for solar facilities prior to the IRA). Following enactment of the IRA, the credit is 0.55 cents per kWh for wind, closed-loop biomass, geothermal and solar facilities and half that amount for other facilities (such credit amounts are increased five times if the prevailing wage and apprenticeship requirements of Section 45(a)(6)-(8) are satisfied). Such tax credit amounts are annually adjusted for inflation and published via IRS notice.

The difference in credit amounts for facilities placed into service after 2021 results from Section 45 changes made by the IRA. The IRA changed the manner by which Section 45 credits amounts are calculated for any facility placed into service after Dec. 31, 2021, by providing a different rounding rule compared to the rule for facilities placed into service before that date. The IRA also removed the reduction by half for the credit amount for qualified hydropower facilities and hydrokinetic renewable energy facilities placed into service after Dec. 31, 2022. Also note that the IRA allows bonus credit amounts not reflected in the previously mentioned credit amounts for the use of domestic content or if the project is located in an energy community.

Holland & Knight has published extensively on guidance for domestic content and energy communities.

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