The basics of ITC vs. PTC for the solar industry

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The US solar industry has had several versions of the Investment Tax Credit (ITC) since 2006. This one-time deduction for the construction costs of solar projects has had an impact on the growth of the industry. SEIA Report The US market has grown over 10,000% since the ITC was introduced.

Solar projects are now included in the IRA, so for the first time you can choose between the ITC and the Production Tax Credit (PTC). Although not tested with solar, PTC has been serving wind projects since his early 1990s, and there are many renewable energy tax equity experts with experience using this alternative credit. increase.

Jeff Chester, Global Co-Head of Energy Project Finance at the law firm, said: greenberg traurig.[The ITC] It was offered to solar power when it was small and there was not much production associated with solar power. It was to ensure that solar power would gain valuable credit that was not tied to production. “

Now that installation costs have fallen and solar array efficiencies have increased, a 10-year continuous credit associated with kilowatt-hour production could prove more beneficial to the solar market than ITC. Chester pointed out that it will take some time for the model to be established after the final rule is released by the Treasury Department, but most solar projects do not use the ITC, he uses the PTC. You already have a basic understanding of what you want to do.

“Many solar projects will benefit from PTC. For those projects, it is more valuable than ITC,” he said. “But it’s project by project. [Depending on] Given the cost per megawatt to build a project, there is a crossover point where ITC is more profitable than PTC. “

As currently proposed, the Solar ITC is a one-time 30% credit for the year the project is operational. Conversely, Solar PTC can be billed annually at the current commercial project rate of 2.6¢/kWh over a 10-year credit period, although rates will fluctuate in the future.

“In general, low-cost projects in strong resource areas choose PTC, while high-cost projects in marginal resource areas choose ITC. Of course, the decision is project-specific based on a variety of factors. It will be something,” American Clean Power Association.

Solar PTC will also offer additional benefits to more investors over time.

“In the case of an ITC, when the project goes into service, the tax investor has to be a partner of the project, it’s all or nothing, to get 100% of the ITC available for allocation. If you don’t partner on the project with the timing, it’s zero,” Chester said. “PTC is different. Tax he is an equity investor is entitled to receive PTC from the date he becomes a partner in the project and may occur at any time during the ten year period.”

While there are no compelling options for solar developers yet, new tax credit options will help the industry grow over the next decade.

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