The Internal Revenue Service (IRS) recently published a notice providing the inflation-adjustment factors and reference prices to be used in the calculation of renewable energy production tax credits under Internal Revenue Code (IRC) section 45 for 2020. That guidance provides the following:
- The production tax credit for electricity produced from wind, closed-loop biomass, and geothermal energy remains at 2.5 cents per kilowatt-hour (kWh) for 2020.
- The production tax credit for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic increased to 1.3 cents per kWh for 2020 from 1.2 cents per kWh in 2019.
- The production tax credit for refined coal increased to $7.301 per ton for 2020, up from $7.173 per ton for 2019.
Background
IRC section 45 statutorily allows a renewable energy production credit for any taxable year of 1.5 cents per kWh produced by a taxpayer from wind or closed-loop biomass and sold to an unrelated person during the 10-year period beginning on the date on which the facility is originally placed in service. The credit amount is reduced by one-half for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources.
IRC section 45 also statutorily allows a refined coal production credit of $4.375 per ton of qualified refined coal produced by a taxpayer and sold to an unrelated person during the 10-year period beginning on the date in which the facility is originally placed in service.
IRC section 45 provides that the 1.5 cent amount and $4.375 amount are to be adjusted annually for inflation.
Impact of IRS Guidance
This IRS guidance provides the inflation-adjusted amounts of production credits available for sales of electricity or refined coal during 2020. For 2020, the statutory 1.5 cent credit for electricity generation remained at 2.5 cents (and increased to 1.3 cents for specified resources), and the statutory $4.375 credit for refined coal is increased to $7.301.
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