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Federal Tax Credits

We excel at optimizing your federal tax credit possibilities and offer comprehensive software solutions to ensure seamless compliance.

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Production Tax Credits

Federal Production Tax Credits (PTCs) are government incentives aimed at promoting renewable energy development. These credits encourage investment and growth in generation in the United States. PTCs incentivize the production of electricity from qualified renewable sources. To be eligible for PTCs, facilities must meet technical requirements and be placed in service before a specified deadline. The duration and availability of PTCs can vary based on legislation and political decisions. PTCs provide a per-kilowatt-hour tax credit for electricity generated, with the credit amount adjusted annually for inflation.

Project developers must meet specific Internal Revenue Service (IRS) requirements to claim the PTC, including proper record-keeping, IRS certification, and reporting obligations. KE Andrews can help with this service, as well as provide reporting software to meet your needs. It’s essential to stay updated on the latest IRS regulations and consult tax professionals when considering renewable energy investments and tax credits due to potential changes in availability and terms of federal incentives.

Inflation Reduction Act

The Inflation Reduction Act of 2022 is a significant climate legislation in the United States that promotes the transition to a clean energy economy. It provides funding, programs, and incentives to accelerate the deployment of new clean electricity resources. The IRA provides critical updates to the 45Q tax credit, which incentivizes the use of carbon capture and storage technologies. It also includes provisions such as the Investment Tax Credit (ITC) and Production Tax Credit (PTC), which reduce renewable energy costs and offer tax benefits for businesses and organizations. It also introduces the Clean Energy Production Tax Credit and Clean Energy Investment Tax Credit, which are technology-neutral and focus on greenhouse gas emission reduction.

Investment Tax Credits (ITC)

Federal Investment Tax Credits (ITCs) are government incentives aimed at promoting investment in renewable energy projects, focusing on the installation and development of renewable energy systems and qualified fuels. ITCs encourage the adoption of renewable energy technologies by providing a percentage-based tax credit on qualified expenditures, offsetting a portion of the project’s investment costs. Eligible projects involve the installation or construction of qualified renewable energy systems and must meet specific technical requirements and deadlines.

The credit rate varies based on the renewable energy technology and can be combined with other incentives or financing programs. Compliance with Internal Revenue Service (IRS) requirements, such as record-keeping and documentation, is necessary to claim the ITC. We have an in-house software solution, EDOiQ to help with this reporting. Some ITCs may undergo step-down schedules, gradually reducing their value over time. It’s important to stay informed about potential changes in availability and terms of federal incentives by consulting the IRS or tax professionals when considering renewable energy investments and tax credits.

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Tax Credit Monetization

The Inflation Reduction Act introduces the direct pay option, enabling non-taxable entities like governments and electric cooperatives to monetize tax credits, including renewable energy credits such as the ITC and PTC. These entities can treat the credits as refundable tax payments and receive direct payments from the IRS for any excess amount beyond their tax liability. Additionally, eligible taxpayers who are not tax-exempt can transfer a portion or all of certain tax credits, including the ITC and PTC, to an unrelated party.

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Federal Tax Credit Programs

Production Tax Credit for Electricity from Renewables

Provides a tax credit for the production of electricity from renewable sources. Facilities generating electricity from wind, biomass, geothermal, solar, small irrigation, landfill and trash, hydropower, and marine and hydrokinetic renewable energy.

 

Base Credit Amount

0.3 cents/kW, inflation-adjusted

 

 

Bonus Credit Amount

Credit is increased by 5 times for projects meeting prevailing wage and registered apprenticeship requirements. Credit is increased by 10% if the project meets certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by 10% if located in an energy community.

Investment Tax Credit for Energy Property

Provides a tax credit for investment in renewable energy projects.

 

 

Fuel cell, solar, geothermal, small wind, energy storage, biogas, microgrid controllers, and combined heat and power properties. For solar, includes (1) equipment that uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat, and (2) equipment that uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight or electrochromic glass that uses electricity to change its light transmittance properties in order to heat or cool a structure.

 

Base Credit Amount

6% of qualified investment (basis of energy property)

 

 

Bonus Credit Amount

Credit is increased by 5 times for projects meeting prevailing wage and registered apprenticeship requirements. Credit is increased by up to 10 percentage points for projects meeting certain domestic content requirements for steel, iron, and manufactured products. Credit is increased by up to 10 percentage points if located in an energy community.

Advanced Energy Project Credit

Provides an incentive for investments in advanced energy projects, as defined in 26 USC § 48C(c)(1).

A project that (1) re-equips, expands, or establishes an industrial or manufacturing facility for the production or recycling of a range of clean energy equipment and vehicles; (2) re-equips an industrial or manufacturing facility with equipment designed to reduce greenhouse gas emissions by at least 20 percent; or (3) re-equips, expands, or establishes an industrial facility for the processing, refining, or recycling of critical materials. This incentive requires a pre-approved application.

 

Base Credit Amount

6% of qualified investment (basis of energy property)

 

 

Bonus Credit Amount

Businesses can claim a 30% credit for projects meeting prevailing wage and apprenticeship requirements.

Advanced Manufacturing Production Credit

Provides a production tax credit for domestic manufacturing of components for solar and wind energy, inverters, battery components, and critical minerals.

This program is eligible to domestic manufacturers.

 

Base Credit Amount

Varies by technology

 

 

Bonus Credit Amount

None

Credit for Carbon Oxide Sequestration

Provides a credit for carbon dioxide sequestration coupled with permitted end uses within the United States.

This program is eligible for U.S. facilities within minimum volumes: 1,000 metric tons of CO2 per year for DAC facilities; 18,750 metric tons for electricity generating facilities (with carbon capture capacity of 75% of baseline CO2 production); 12,500 metric tons for any other facility.

 

Base Credit Amount

$17/metric ton of carbon dioxide captured and sequestered; $12/metric ton for carbon dioxide that is injected for enhanced oil recovery or utilized. Those amounts are $36 and $26, respectively, for direct air capture facilities.

 

 

Bonus Credit Amount

5 times the base amounts if the facility meets prevailing wage and apprenticeship requirements.

Credit for Production of Clean Hydrogen

Provides a credit for production of clean hydrogen. The credit value varies depending on the amount of CO2 emitted during production.  Construction must begin before January 1, 2025, and the credit can be taken over a 10-year period.

 

Base Credit Amount

Ranges from $0.12 per kilogram of clean hydrogen produced for the highest C02 emissions to $0.60 per kilogram for the hydrogen produced with the least CO2 emissions.

 

 

Bonus Credit Amount

5 times the base amounts if the facility meets prevailing wage and apprenticeship requirements.

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