Production Tax Credit and Investment Tax Credit for Wind Energy

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Production Tax Credit and Investment Tax Credit for Wind Energy

The Inflation Reduction Act (IRA), which became law on Aug. 16, 2022, extends and increases investment and production tax credits through 2024 for wind energy projects that begin construction prior to Jan. 1, 2025. In 2025, the tax credits for wind will be replaced with technology-neutral credits for low-carbon electricity generation, which in turn are slated to phase out in 2032, or when U.S. power sector greenhouse gas emissions decline to 25% of 2022 levels, whichever is later.

To receive the full production tax credit amount of 2.6 cents per kilowatt-hour or full investment tax credit of 30%, projects over 1 megawatt must satisfy apprenticeship and prevailing wage requirements. Facilities of under 1 MW are exempt from these requirements. The base credit amount for larger projects that do not meet the wage and apprenticeship requirements is 20% of the full credit amount.

Additionally, under the IRA, projects can receive stackable 10% (PTC) or 10 percentage point (ITC) bonus credits for either or both of the following:

Finally, for facilities under 5 megawatts, 1.8 gigawatts per year of additional allocated environmental justice bonus credits are available for:

The environmental justice bonus credits are stackable with the domestic content and energy community bonuses noted above but are not stackable with each other.

Renewable Energy Production Tax Credit (PTC)

The Production Tax Credit (PTC) allows owners and developers of wind energy facilities (land-based and offshore) to claim a federal income tax credit on every kilowatt-hour of electricity sold to an unrelated party for a period of 10 years after a facility is placed into service.

The IRA extends the renewable energy PTC through 2024; it previously expired for wind at the end of 2021. Wind energy projects placed into service after Dec. 31, 2021, that satisfy the new wage and apprenticeship requirements will receive an inflation-adjusted credit of 2.6 cents per kilowatt-hour for the first 10 years of electricity generation.

Residential Renewable Energy Tax Credit

Taxpayers who purchase and install a qualifying residential small wind electric system (100 kilowatts or less) may claim the Residential Renewable Energy Tax Credit for qualified expenditures on systems placed into service on or before Dec. 31, 2034. The law provides for a phase-down of this credit, as outlined below. Qualified expenditures include labor costs for on-site preparation, assembly, or original system installation, and for piping or wiring to interconnect a system to the home. The credit applies to existing homes, newly constructed homes, principal residences, and second homes but not rental properties. There is no maximum credit.

Business Energy Investment Tax Credit (ITC)

A federal income tax credit for capital investments in renewable energy projects, the ITC is a one-time credit based on the dollar amount of the investment and is earned when the equipment is placed into service.

Owners and developers of large land-based wind energy facilities can elect to claim the ITC instead of the PTC; however, the value of the credit depends on when the facility starts construction as well as other factors.

For projects beginning construction by Dec. 31, 2024, the IRA extends the ITC for up to 30% of the cost of installed equipment, subject to apprenticeship and prevailing wage requirements, and provides bonus credits for certain projects as noted above. This is significant for the offshore and distributed wind sectors, which are more capital-intensive and tend to benefit more from the up-front tax benefits than from the longer-term PTC.

Starting in 2025, the IRA will convert energy tax credits into emissions-based, technology-neutral tax credits available to all types of power facilities with zero or net-negative carbon emissions. It will begin phasing out either in 2032 or when total greenhouse gas emissions in the power sector decline to at least 75% below 2022 levels—whichever comes last.

Advanced Manufacturing Tax Credits

The IRA creates new advanced manufacturing production credits for companies that domestically manufacture and sell clean energy equipment in the United States between Dec. 31, 2022, and Dec. 31, 2032. Covered manufacturing for wind includes certain wind energy components, distributed wind inverters, critical minerals, and offshore wind vessels.

The advanced manufacturing production credit will be phased down beginning in 2030 and eliminated for components sold after 2032.

The IRA also reinstates a 30% Advanced Manufacturing ITC, providing $10 billion in credits to be competitively awarded to investments in property designed to produce or recycle clean energy components, including both facilities and major tooling. At least $4 billion in these credits must be awarded to investments made in energy communities, and the full credit is subject to the same apprenticeship and prevailing wage requirements as noted above.

Components produced in facilities that received the manufacturing ITC are not eligible for the advanced manufacturing production credits.

More Information

For more information about federal incentives for developing and investing in wind power, resources for funding wind power, and opportunities to partner with DOE and other federal agencies, see the U.S. Wind Industry Federal Incentives, Funding, and Partnership Opportunities fact sheet.

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