Production tax credit
In the USA, a “production tax credit” (PTC) for industrial wind turbines was established in 1992 and first applied to facilities built in 1993. It provided a tax credit to a facility for 10 years of 1.5 cents per kWh of electricity generated. Every year it is adjusted for inflation, e.g., to 2.6 cents in 2018.
After the initial legislation expired after 1999, the PTC was allowed to lapse for a year, as it was again after 2001 and 2003. As the wind industry lobby has noted, wind development dropped precipitously in years when the PTC was not available to help energy companies avoid taxes.
In 2015, legislation ended the PTC for non-wind renewables after 2016 and established a phase-out for wind. Facilities first claiming the PTC in 2017 would get 80% of its value, in 2018 60%, and in 2019 40%. After 2019, new facilities could not claim the PTC. However, in late 2019 the PTC (and ITC – see below) was extended to the end of 2020, at the 2018 rate.
The PTC can be claimed for the year in which construction began (called “safe harbor”) if continuous progress is made towards completion for and operation begins within up to 4 years (called “continuity safe harbor”). For example, if a project commenced construction in 2019, the developer could claim the 2019 PTC if the facility is operational before the end of 2023 and then take advantage of the tax credit until 2033. In late May 2020, in response to the SARS-coronavirus-2 shutdowns, the Internal Revenue Service extended the continuity safe harbor to 5 years for projects started in 2016 or 2017 (i.e., they have until the end of 2021 or 2022 to complete construction and become operational to claim the 2016 or 2017 PTC) and extended the safe harbor by 3.5 months for projects that would have begun construction (i.e., services or property paid for) from September 16, 2019, to October 15, 2020. In late June 2021, the continuity safe harbor was extended again: to 6 years for projects started in 2016–2019 and 5 years for projects started in 2020.
In December 2020, Congress extended the PTC and ITC – at the 2018 rate – for onshore projects starting construction in 2021.
In August 2022, the Senate voted to similarly extend them for onshore projects starting construction before January 1, 2025. The credit was reduced to one-fifth, however, unless a project pays prevailing wages and hires a certain number of apprentices (at least 1 if 4 or more employees, then 10% in 2022, 12.5% in 2023, and then 15%). The credit can be increased by 10% (20% for offshore) if all of the components and their materials are produced in the USA (unless that would increase the cost more than 25% or they are not available in sufficient quantity or quality). A further 10% increase is available for projects in brownfields or areas with at least 0.17% employment in or 25% of tax revenues from coal, oil, or natural gas and with unemployment at or above the national average or a closed coal mine or power plant (since 2000 or 2010, respectively). A 10% percent increase is also available for projects in low-income or Indian communities or as part of low-income benefit project.
It appears, however, that these provisions apply only to projects of less than 1 MW, or up to 5 MW in the case of low-income benefit.
Investment tax credit
As an alternative, facilities eligible for the PTC can claim an “investment tax credit” (ITC), in which a projected value of the PTC over its 10 years (namely, 30% of the capital investment) is taken up front.
In August 2022, the ITC was extended to projects beginning construction before January 1, 2035. The 6% ITC (at one-fifth) is reduced to 5.2% for projects beginning construction in 2033, and to 4.4% for projects beginning construction in 2034.
- American Wind Energy Association. 2015. “Wind Energy and the PTC”.