IRS Announcement 2022-23 updates the  production tax credit (PTC) rate  to  2.75 cents a kWh for wind, solar, geothermal and closed-loop biomass power plants placed in service after 2021. This is a 0.15 cents increase from the 2.6 cents rate that was previously announced for the electricity sold this year. The new 2.75 cents rate applies to a qualified facility placed in service after December 31, 2021. Therefore, facilities placed in service prior to 2022 are still subject to the 2.6 cents rate.

As discussed in our Q&A blog post on the Inflation Reduction Act (IRA),[1] this Announcement was vital to answer the question as to in what order (i) the inflation adjustment, (ii) the 5x multiplier, and (iii) the rounding adjustment are applied. The IRS confirmed that the reading results in a PTC for 2022 of 2.75 cents. There were doubts, as the Senate Finance Committee staff interpreted the section as to result in a PTC of 2.5 cents.[2] It was vital the guidance was issued, as for some projects the difference between 2.5 cents and 2.75 cents per kWh could mean the project is built or not.

Pursuant to section 45, PTCs are claimed for 10 years on the electricity output from the date the facility was originally placed in service.[3] Section 45(a) as amended by the IRA provides that the PTC is equal to 0.3 cents multiplied by the kilowatt hours of electricity produced by the taxpayer and sold to an unrelated person during the taxable year.

Under section 45(b)(2) as amended by the IRA, the 0.3 cent amount is adjusted by multiplying such amount by the inflation adjustment factor for the calendar year in which the sale occurs. If the 0.3 cent amount as adjusted for inflation is not a multiple of 0.05 cent, the amount is rounded to the nearest multiple of 0.05 cent. Then, in the case of any (i) facility with a maximum output of less than 1 megawatt, (ii) a facility that is constructed prior to the date that is 60 days after guidance on prevailing wage and apprenticeship requirements[4] is issued, or (iii) a facility satisfying the prevailing wage and apprenticeship requirements,[5] the credit amount is multiplied by 5.

For the electricity generated from open-loop biomass facility, landfill gas facility, a trash facility, or a marine and hydrokinetic renewable energy facility, the PTC rate is 1.25 cents for electricity sold in 2022 and for facilities placed in service in 2022. The PTC rate for such project is less than half the rate that applies to wind, solar, geothermal and closed-loop biomass.

[1] See https://www.projectfinance.law/tax-equity-news/2022/august/qa-on-the-inflation-reduction-act/#_ftnref17.

[2] See Senate Finance Committee, Subtitle D — Energy Security, Part 7 – Incentives for Clean Electricity and Clean Transportation (“2.5 cents/kilowatt hour (inflation adjusted values)”). https://www.finance.senate.gov/imo/media/doc/Summary%20of%20Subtitle%20D%20-%20Energy%20Security.pdf.

[3] See I.R.C. § 45(a).

[4] As determined by I.R.C. § 45(b)(7)-(8).

[5] These requirements are discussed at https://www.projectfinance.law/tax-equity-news/qa-on-the-inflation-reduction-act#a7.