The U.S. photo voltaic business has had some model of an funding tax credit score (ITC) since 2006. This one-time credit score on the price to construct a photo voltaic undertaking has been influential to the expansion of the business, with SEIA reporting the U.S. market has grown by greater than 10,000% because the ITC was launched.
Now, for the primary time, photo voltaic tasks could have a alternative between the ITC and a manufacturing tax credit score (PTC), due to its inclusion within the IRA. Whereas untested in photo voltaic, a PTC has been supplied to wind tasks because the early Nineteen Nineties, and there are lots of renewable power tax fairness professionals with expertise utilizing this different credit score.
“Wind got here alongside earlier than photo voltaic,” mentioned Jeff Chester, international co-head of power undertaking finance for the legislation agency Greenberg Traurig. “[The ITC] was supplied to photo voltaic when photo voltaic was smaller and there wasn’t a number of manufacturing related to photo voltaic. It was to make sure that photo voltaic had a invaluable credit score not tied to manufacturing.”
Now with set up prices coming down and photo voltaic arrays turning into extra environment friendly, a 10-year, ongoing credit score associated to kilowatt-hour manufacturing might show extra helpful to the photo voltaic market than an ITC. Chester famous that it’s going to take a while for fashions to be established after closing guidelines are launched by the Treasury Dept., however there’s already a fundamental understanding that almost all photo voltaic tasks will wish to take the PTC as a substitute of the ITC.
“Many photo voltaic tasks will profit from the PTC. For these tasks, it will likely be extra invaluable than the ITC,” he mentioned. “But it surely’s on a project-by-project foundation. [Depending on] the cost-per-megawatt to construct the undertaking, there’s a crossover level the place the ITC is extra helpful than the PTC.”
As it’s recommended as we speak, the photo voltaic ITC is a one-time 30% credit score given within the yr a undertaking is positioned in service. Conversely, the photo voltaic PTC could be claimed yearly over the 10-year credit score interval on the present price of two.6¢/kWh for industrial tasks, with fluctuating charges going ahead.
“Typically, lower-cost tasks in sturdy useful resource areas will go for the PTC, whereas higher-cost tasks in additional marginal useful resource areas will choose the ITC. In fact, the choice might be project-specific primarily based on quite a lot of elements,” mentioned John Hensley, VP for analysis and analytics for the American Clean Power Association.
The photo voltaic PTC can even present further advantages to extra traders over time.
“For the ITC, the tax investor must be a associate within the undertaking when the undertaking is positioned in service, and it’s all or nothing — you get 100% of the allocable ITC. In the event you’re not a associate within the undertaking on the proper time, you get zero,” Chester mentioned. “The PTC is totally different. The tax fairness investor is entitled to the PTC from the date it turns into a associate within the undertaking, and that may occur at any time within the 10-year interval.”
The dominant alternative for photo voltaic builders stays to be seen, however new tax credit score choices will solely assist the business develop over the following decade.