Reducing Inflation Act tax credits for solar and wind projects


President Biden signed into law the Inflation Reduction Act on August 16, 2022 (IRA). The IRA included a number of provisions to strengthen the Investment Tax Credit (ITC) and the Production Tax Credit for Wind Projects (PTC).

Elimination of Phasedowns

Under the previous law, the ITC and PTC were subject to gradual and progressive reductions in the applicable credit percentage, including the elimination of the PTC for projects after 2021. For the PTC, projects whose construction has started after December 31, 2021 were not eligible for PTC in total, while projects whose construction started after December 31, 2016, but before December 31, 2021, were eligible for “gradual” PTC “, linked to the start date of construction.

Similarly, the ITC was to drop from a rate of 30% for projects whose construction began before January 1, 2023 to a rate of 22% for projects whose construction began in 2023.

Under the IRA, solar projects beginning construction in 2022, 2023 and 2024 will be eligible for the full 30% ITC and will no longer be subject to the phased reductions described above.

For wind projects eligible for the PTC, the IRA extends the deadline for the start of construction until December 31, 2024.

It is important to note that for projects commissioned before 2022, the IRA does not retroactively change the rate of credit available for these projects. Thus, projects commissioned in 2021 will remain subject to phase shifts and will not be able to benefit from additional credits. On the other hand, projects commissioned in 2022, including projects commissioned before the adoption and enactment of the IRA, can benefit from higher ITC and PTC rates and thus benefit from additional credits.

Eligibility of Interconnection Costs and Storage Property for ITC

Historically, ITC was limited only to the costs (or, in a leasing transfer structure, the value) associated with power generation equipment. Thus, interconnection costs are traditionally ineligible for ITC. However, the IRA has expanded the definition of ITC-eligible “energy asset”, to include “amounts paid or incurred by the taxpayer for an eligible interconnector asset…”

“Qualified Interconnect Property” is defined by the IRA as tangible property (other than property associated with a Qualified Microgrid Controller), which: (i) forms part of an addition, modification or an upgrade to a transmission or distribution system that is required at or beyond the point of interconnection; (ii) is either built, rebuilt or erected by the taxpayer, or the cost of the construction, reconstruction or erection is paid or incurred by the taxpayer; and (iii) whose initial use begins with a public service pursuant to an interconnection agreement.

Additionally, batteries were historically only ITC eligible to the extent that they were part of an ITC project. Thus, stand-alone storage systems have traditionally not been eligible for ITC. However, the IRA changes the definition of “energy good” to now include certain “energy storage technologies”, defined generally as a good that receives, stores and supplies energy for conversion into electricity.

Transferability of credits

The IRA now allows a one-time transfer of tax credits to a taxpayer who is unrelated to the transferor (as defined in section 267(b) or 707(b)(1) of the Code), to beginning in 2023. IRA further provides that amounts received as consideration for such a transfer are excluded from the gross income of the transferor. A transferee can no longer transfer the credits. Credits that are subject to credit carryover or credit carryover under Code Section 39 are not eligible for transfer.

Although the portability rules provide for greater flexibility, a number of important questions remain, including the potential effects of portability on the tax fairness market. For example, while the IRA clearly states that a credit can only be transferred once, this rule would likely not prevent a transferee that is a flow-through entity from further allocating the transferred credit to its partners or shareholders. , but this issue is not specifically addressed. in the text of the IRA.

Although transferability provides additional flexibility in structuring investments and offers the possibility of avoiding the exit costs associated with traditional tax investments, it is important to note that transferability can limit the amount of equity that a promoter of project is able to lift. For example, pricing in the ITC space is driven, in large part, by the desire to monetize accelerated capital cost allowances. Thus, it is likely that traditional tax equity structures will continue to predominate in ITC transactions. On the other hand, PTC, which is calculated based on output rather than cost, does not depend on depreciation and is therefore more likely to benefit from portability.


The IRA extends the one-year credit deferral period under Section 39 to three years, and the 20-year credit deferral period to 22 years. With respect to PTCs, this appears to only apply to qualified installations commissioned after December 31, 2022.

New items 45Y and 48E

As noted above, the IRA extends the PTC until December 31, 2024, phasing out the PTC from 2025. The IRA also includes a phasing out of the ITC for projects beginning construction after 2024. However, the IRA text includes new Code Sections 45Y (Clean Electricity Production Credit, or CEPTC) and 48E (Clean Electricity Investment Credit, or CEITC), which effectively replace the PTC and ITC from 2025 .

The CEPTC and CEITC each provide a base credit as well as an alternate rate if the project meets certain requirements.


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