IRS releases 2022 section 45 production tax credit amounts

Eversheds Sutherland (US) LLPThe 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 2022. That guidance provides the following:

  • The production tax credit for electricity produced from wind, closed-loop biomass, and geothermal energy increased from 2.5 cents (for 2021) to 2.7 cents per kilowatt-hour (kWh) for 2022.
  • The production tax credit for electricity produced from open-loop biomass, landfill gas, trash facilities, qualified hydropower facilities, and marine and hydrokinetic increased from 1.3 cents (for 2021) to 1.4 cents per kWh for 2022.
  • The production tax credit for refined coal has expired.

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, closed-loop biomass or geothermal energy 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 provides that the 1.5 cent amount is 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 during 2022. For 2022, the statutory 1.5 cent credit for electricity generation increased to 2.7 cents (and 1.4 cents for technologies entitled to one-half of the credit amount).

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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