PTC inflation adjustment

PTC inflation adjustment

June 23, 2023 | By Keith Martin in Washington, DC

Production tax credits for producing renewable electricity will be higher this year than in 2022, but the amount varies depending on when the project went into service.

The IRS announced the annual inflation adjustments in a notice in the Federal Register on June 21.

Production tax credits for generating electricity from projects that use wind, geothermal steam or fluid or closed-loop biomass (plants grown to be used as fuel in power plants) and were placed in 2021 or earlier are 2.8¢ a kilowatt hour in 2023, 0.2¢ higher than in 2022.

PTCs for the same projects, plus solar, put in service in 2022 or 2023 will be 2.75¢ a kilowatt hour because of a change the Inflation Reduction Act made in how the inflation adjustment works for newer projects.

The tax credits will be 1.4¢ a kilowatt hour in 2023 for generating electricity from open-loop biomass, landfill gas, trash, incremental hydropower and ocean energy placed in service in 2021 or earlier. Such projects qualify for PTCs at only half the full rate. They qualify for PTCs of 1.5¢ if placed in service in 2022 or later, except that incremental hydropower and ocean energy projects qualify for PTCs at the full rate if placed in service in 2023.

The credits are adjusted each year for inflation as measured by the GDP price deflator. They run for 10 years after a project is originally placed in service.

Projects must comply with wage and apprentice requirements or be exempted from them to claim credits at the full rates. (For more details on these requirements, see "IRS Issues Wages and Apprentice Requirements.")

The credits phase out if contracted electricity prices from a particular resource reach a certain level. That level for wind in 2023 is 15.1¢ a KWh. The IRS said there will not be any phase out in 2023 because contracted wind electricity prices were 3.74¢ a KWh going into 2023. It said it lacks data on contracted prices for electricity from the other energy sources.