Overview of Section 45 - Production Tax Credit for Electricity from Renewables (pre-2025)

The Renewable Electricity Production Tax Credit (PTC) is a federal tax incentive available under Section 45 of the U.S. tax code, aimed at promoting the generation of electricity through renewable energy sources. The PTC grants a corporate tax credit ranging from 1.5 cents to 2.75 cents per kilowatt-hour (kWh), depending on the energy source, for qualified renewable energy facilities. Specifically, the tax credit applies to facilities using landfill gas, open-loop biomass, municipal solid waste, small irrigation power, wind, closed-loop biomass, and geothermal energy. This credit is applicable for ten years following the installation of the equipment.

New regulations under the Inflation Reduction Act of 2022 include updated labor standards for projects exceeding 1 megawatt (MW) that were initiated after 2021. These projects receive a base tax credit of 0.3 cents/kWh or 0.55 cents/kWh, which can be increased to the full credit amount if specific wage and apprenticeship criteria are met. Moreover, the act introduces additional bonuses for using domestic materials and for projects located in designated energy communities.

For smaller projects under 1 MW, eligibility requirements are less stringent, with construction needing to commence between January 1, 2022, and December 31, 2024. Larger projects have a specific construction window from January 30, 2023, to January 1, 2025.

The legislation also permits non-taxable entities like local or tribal governments and nonprofits to benefit from the PTC through a direct pay option for projects initiated between January 1, 2023, and January 1, 2033.

The IRS has issued several notices to clarify these provisions, including detailed guidelines on wage and apprenticeship requirements (Notice 2022-61) and the criteria for establishing the start of construction (Notices 2013-29 and 2013-60).