On August 16, 2022, President Biden signed the “inflation Reduction Act of 2022”, including the largest single investment in clean energy in US history. This act adds several new energy tax credits to encourage the production of electricity using clean power and
reducing carbon emissions, with great benefits for investors, developers, manufacturers, and other participants in the clean energy infrastructure space.
The inflation Reduction Act of 2022 extends production tax credits through at least 2033 for wind projects that begin construction before the end of 2024, however the three-year extension to the production tax credits for wind projects comes with other qualification requirements, which the wind industry will need to adapt and accommodate.
Restoration of 100% Production Tax Credits for Wind Projects
The Inflation Reduction Act of 2022 eliminates the previous PTC phaseout for any wind project placed in service after Dec. 31, 2021, making these projects eligible to receive tax credits at full value, rather than the reduced values under the previous laws. However, the phaseout would continue to apply for any wind projects placed in service before Jan. 1, 2022. To qualify for the full PTC, wind projects must meet the new prevailing wage and apprenticeship requirements set by the act.
New Section 45Y Extends PTC Through at Least 2033
The Inflation Reduction Act of 2022 introduces a new Section 45Y that replaces the traditional Section 45 for projects placed in service during 2025 or later. Although the new Section 45Y shares some similarities with its previous version, there is one main difference. The new Section 45Y is technology-neutral and allows 10 years of PTCs for any electric generation facility with a zero or less greenhouse emissions rate.
Prevailing Wage and Apprenticeship Requirements
To qualify for the 100% PTC, wind projects will need to satisfy the prevailing wage and apprenticeship requirements for all laborers and mechanics employed by the taxpayer or for any contractor or subcontractor in the construction, alteration or repair of the facility. If the requirements are not met, the wind project would only be eligible for the base rate of 20% PTC.
A taxpayer must pay prevailing wages at the local rate for the construction of the facility and any repair or alteration of the facility during the entire 10-year PTC period, and ensure that no less than the applicable percentage of total labor hours is performed by qualified apprentices.
Should a project not comply, Section 45 contains mechanics for correcting failures to comply so that 100% of the PTC can be preserved. These measures include payments to the laborer for the difference between the prevailing wage and the wage paid, plus interest and a $5,000 per laborer penalty to be paid to the IRS. The penalty is increased to $10,000 per laborer if the failure was an intentional disregard of the new rules. Failure to employ apprenticeship laborers has similar corrective provisions, including a $50/ labor hour penalty paid to the IRS, or $500/ labor hour penalty if the failure was intentional disregard.
Find the complete Inflation Reduction Act here
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