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Federal

Federal

Incentives/Policies for Renewables & Efficiency

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Renewable Electricity Production Tax Credit (PTC)   

Last DSIRE Review: 11/14/2014
Program Overview:
State: Federal
Incentive Type: Corporate Tax Credit
Eligible Renewable/Other Technologies: Landfill Gas, Wind, Biomass, Hydroelectric, Geothermal Electric, Municipal Solid Waste, Hydrokinetic Power, Anaerobic Digestion, Small Hydroelectric, Tidal Energy, Wave Energy, Ocean Thermal
Applicable Sectors: Commercial, Industrial
Amount:$0.023/kWh for wind, geothermal, closed-loop biomass
$0.011/kWh for other eligible technologies
Generally applies to first 10 years of operation
Eligible System Size:Marine and Hydrokinetic: Minimum nameplate capacity rating of 150 kW
Open-Loop Biomass Facilities Using Agricultural Livestock Waste: Minimum nameplate capacity of 150 kW
Carryover Provisions:Unused credits may be carried forward for up to 20 years following the year they were generated or carried back 1 year if the taxpayer files an amended return.
Expiration Date:Varies by technology
Web Site: http://www.irs.gov/pub/irs-pdf/f8835.pdf
Authority 1:
Date Enacted:
26 USC § 45
1992 (subsequently amended)
Authority 2:
Date Enacted:
Date Effective:
H.R. 8 (American Taxpayer Relief Act of 2012)
01/02/2013
01/02/2013
Authority 3:
Date Enacted:
IRS Notice 2013-29
04/15/2013
Authority 4:
Date Enacted:
IRS Notice 2013-60
09/20/2013
Authority 5:
Date Enacted:
IRS Notice 2014-46
08/08/2014
Authority 6:
Date Enacted:
Date Effective:
Expiration Date:
IRS Notice 2014–36
05/27/2014
01/01/2014
12/31/2014
Summary:

Note: This credit expired at the end of 2013. Projects that were not under construction prior to January 1, 2014, are ineligible for this credit. See below for more information about determining when construction has commenced on a project. 

The federal renewable electricity production tax credit (PTC) is a per-kilowatt-hour (kWh) tax credit for electricity generated by qualified energy resources and sold by the taxpayer to an unrelated person during the taxable year. Originally enacted in 1992, the PTC has been renewed and expanded numerous times, most recently by the American Recovery and Reinvestment Act of 2009 (H.R. 1 Div. B, Section 1101 & 1102) in February 2009 (often referred to as "ARRA") and the American Taxpayer Relief Act of 2012 (H.R. 8, Sec. 407) in January 2013.

The January 2013 legislation revised the credit by: (1) removing "placed in service" deadlines and replacing them with deadlines that use the beginning of construction as a basis for determining facility eligibility; (2) extending the deadline for wind energy facilities by one year, from December 31, 2012, to December 31, 2013; (3) extending the permission for PTC-eligible facilities to claim the Investment Tax Credit (ITC) through 2013 (also using the start of construction rather than placed-in-service date as a reference); and (4) revising the definition of the term "municipal solid waste" to exclude "paper that is commonly recycled and which has been segregated from other solid waste.” The definitional change for municipal solid waste applies to electricity produced and sold after the enactment date of the legislation (January 2, 2013) in taxable years ending after that date.

Tax Credit Amount

The tax credit amount is $0.015 per kWh in 1993 dollars for some technologies and half of that amount for others. The amount is adjusted for inflation by multiplying the tax credit amount by the inflation adjustment factor for the calendar year in which the sale occurs, rounded to the nearest 0.1 cents. The Internal Revenue Service (IRS) publishes the inflation adjustment factor no later than April 1 each year in the Federal Registrar. (For 2014, the inflation adjustment factor used by the IRS is 1.5088.) 

The table below outlines the credit amount as it applies to different resource types. The table includes changes made by H.R. 8 in January 2013, and the inflation-adjusted credit amounts are current for the 2014 calendar year, as published in the IRS Notice 2014-36.

 Resource Type

 Credit Amount

 Wind

 $0.023/kWh

 Closed-Loop Biomass

 $0.023/kWh

 Open-Loop Biomass

 $0.011/kWh

 Geothermal Energy

 $0.023/kWh

 Landfill Gas

 $0.011/kWh

 Municipal Solid Waste

 $0.011/kWh

 Qualified Hydroelectric

 $0.011/kWh

 Marine and Hydrokinetic

 $0.011/kWh

Tax Credit Duration

The duration of the credit is generally 10 years after the date the facility is placed in service, but there are two exceptions:

  • open-loop biomass, geothermal, landfill gas, and municipal solid waste combustion facilities placed into service after October 22, 2004, and before January 1, 2014, are only eligible for the credit for a 5-year period, and
  • open-loop biomass facilities placed in service before October 22, 2004, are eligible for the 5-year period beginning January 1, 2005.

Process for Claiming Tax Credit

The credit is claimed by completing Form 8835, "Renewable Electricity Production Credit," and Form 3800, "General Business Credit." For more information, contact IRS Telephone Assistance for Businesses at 1-800-829-4933.

Determination of Commencing Construction 

The IRS has issued guidance on how it will evaluate whether construction has commenced for the purpose of the year-end 2013 deadline in IRS Notices 2013-292013-60, and 2014-46 (please see the full text of these notices for complete information on determining the commencing of construction). The guidelines establish two methods—a “physical work” test and a 5% safe harbor—to determine when construction has begun on a qualified facility. Meeting the criteria of either method is sufficient to demonstrate that construction has commenced. In addition, “[b]oth methods require that a taxpayer make continuous progress towards completion once construction has begun,” which is satisfied if the facility is placed in service before January 1, 2016. In general, a fully or partially developed facility may be transferred without losing its qualification under the Physical Work Test or the Safe Harbor for purposes of the PTC or ITC.

Physical Work Test

The physical work test provides that a taxpayer may establish the beginning of construction by beginning "physical work of a significant nature.” The physical work test is based on the nature of the work performed rather than the amount or cost of the work; if the work performed is of a significant nature, then “there is no fixed minimum amount of work or monetary or percentage threshold required to satisfy the Physical Work Test” (Notice 2014-46).

Notice 2013-29 provides several examples of actions that constitute work of a significant nature, including:

  • for a facility that produces electricity from a wind turbine, the beginning of the excavation for the foundation, the setting of anchor bolts into the ground, or the pouring of the concrete pads of the foundation;
  • physical work on a custom-designed transformer that steps up the voltage of electricity produced at the facility to the voltage needed for transmission; and
  • beginning construction of roads integral to the activity performed by the facility including onsite roads used for moving materials to be processed (e.g., biomass) and roads for equipment to operate and maintain the facility. 

Safe Harbor

Safe Harbor with respect to a facility is demonstrated by showing that 5% or more of the total cost of the facility was paid or incurred before January 1, 2014.

If less than 5% of the total cost of the facility was paid or incurred prior to January 1, 2014, Safe Harbor is not fully satisfied; however, if a taxpayer paid or incurred at least 3%, the Safe Harbor may be satisfied and the PTC (or ITC) may be claimed with respect to some, but not all, of the individual facilities comprising the project. Specifically, “a taxpayer may claim the PTC or ITC on any number of individual facilities as long as the total aggregate cost of those individual facilities at the time the project is placed in service is not greater than 20 times the amount the taxpayer paid or incurred before January 1, 2014” (Notice 2014-46).


 
Contact:
  Public Information - IRS
U.S. Internal Revenue Service
1111 Constitution Avenue, N.W.
Washington, DC 20224
Phone: (800) 829-1040
Web Site: http://www.irs.gov
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Disclaimer: The information presented on the DSIRE web site provides an unofficial overview of financial incentives and other policies. It does not constitute professional tax advice or other professional financial guidance, and it should not be used as the only source of information when making purchasing decisions, investment decisions or tax decisions, or when executing other binding agreements. Please refer to the individual contact provided below each summary to verify that a specific financial incentive or other policy applies to your project.

While the DSIRE staff strives to provide the best information possible, the DSIRE staff, the N.C. Solar Center, N.C. State University and the Interstate Renewable Energy Council, Inc. make no representations or warranties, either express or implied, concerning the accuracy, completeness, reliability or suitability of the information. The DSIRE staff, the N.C. Solar Center, N.C. State University and the Interstate Renewable Energy Council, Inc. disclaim all liability of any kind arising out of your use or misuse of the information contained or referenced on DSIRE Web pages.

Copyright 2013 - 2014 North Carolina State University, under NREL Subcontract No. XEU-0-99515-01. Permission granted only for personal or educational use, or for use by or on behalf of the U.S. government. North Carolina State University prohibits the unauthorized display, reproduction, sale, and/or distribution of all or portions of the content of the Database of State Incentives for Renewables and Efficiency (DSIRE) without prior, written consent.