Neutral Technological Tax Credits for ITC and PTC Regimes

During this webinar, McDermott partners Heather Cooper and Joel Hugenberger invited Jay Chang, CEO of CCA Group, to discuss how the new tech-neutral tax credit will work and how it may affect the industry moving forward.

Below are the key points from the discussion:

1. The recently introduced technology-neutral tax credits (for both the Investment Tax Credit (ITC) and Production Tax Credit (PTC) schemes) are unique in that they can be applied to any facility that produces energy as long as greenhouse gas emissions from that facility are net zero. At this time, emission classes have not yet been established by the Internal Revenue Service (IRS), although carbon dioxide sequestration may be taken into account in calculating the emissions rate under the new technology tax credit regime. neutral. (Further guidance on this topic is expected before 2025.) However, traditional renewable energy installations (me., solar and wind) will be treated as having net zero emissions. However, all technologies will have the option to select ITC or PTC and will not be restricted by their respective industry (as was previously the case).

two. In general, technology-neutral tax credits will follow the ITC and PTC mechanism; there will be 30% ITC and 100% PTC, each with possible adders or penalties against each, respectively. Technology-neutral tax credits will also be subject to the same salary and apprenticeship rules that apply to current tax credits in relation to PTCs and ITCs.

3. The technology-neutral ITCs and PTCs are applicable to projects commissioned after 2024 (me., as of January 1, 2025). The old ITC and PTC regimes are set to apply to projects starting construction before or during the year 2024. For those projects that overlap between the two periods, it is unclear which regime would apply. Taxpayers are still awaiting additional guidance from the IRS regarding this query.

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Four. Technology-neutral PTCs are available to taxpayers without their having to provide evidence of a production sale. Now, as long as the output is verified by a third-party meter reader, a taxpayer can take advantage of these new credits. Additionally, taxpayers can now claim these technology-neutral tax credits for new additions to existing facilities (which could be particularly beneficial for facilities that could be expanded after 2024).

5. To note, assuming greenhouse gas emissions reach a target of 25% of current rates by 2022, technology-neutral ITCs and PTCs will begin to phase out starting in 2034. Projects beginning construction in 2034 will have entitled to 75% of tax credits. In the following year, projects will be entitled to 50% of the tax credits, and projects will be entitled to 0% of the tax credits in 2036. However, if the proposed greenhouse gas emissions target is not achieved by 2034, this proposed timeline will be extended. .

6. In the past, renewable technologies have had to quickly adapt to new laws and regulations that are passed every two to three years. However, now that tax-equity backers and investors have a longer way to go to take further advantage of these tech-neutral tax credits, this will not only create more certainty in this space, but also allow for exponential growth, hopefully to attract more risk aversion. players who were initially hesitant to get involved in this field.

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