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United States - Taxes and incentives for renewable...

United States taxes and incentives for renewable energy - KPMG Global Energy and Natural Resources.


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Investments and other subsidies

Production Tax Credit (PTC)

Applicable for wind, geothermal, landfill gas, trash combustion, open-loop biomass, closed-loop biomass, hydropower and wave tide.

  • The PTC provides a tax credit for the production of electricity from renewable sources and the sale of that electricity to an unrelated party.
  • Credit amount is:
    • USD cent (ct)2.3/kWh for wind, closed-loop biomass and geothermal
    • Ct1.2/kWh for other renewable energy resources.
  • Available for facilities that begin construction prior to 1 January 2015.
  • Available for a 10-year period beginning the year the facility is placed in service.
  • There are two methods that a taxpayer may use to establish that construction has begun:
    • A taxpayer may establish the beginning of construction when “physical work of a significant nature” is started, or
    • A taxpayer may establish the beginning of construction by meeting a safe harbor rule (as determined under Notices 2013-29, 2013-60, 2014-46 and 2015-25).
  • In general:
    • Work performed by the taxpayer and work performed for the taxpayer by other persons under a binding written contract that is entered into prior to the manufacture, construction, or production of the property for use by the taxpayer in the taxpayer’s trade or business (or for the taxpayer’s production of income) is taken into account in determining whether physical work of a significant nature has begun.
    • Whether a taxpayer has begun construction of a facility before 1 January 2015 will depend on the relevant facts and circumstances.
    • The IRS will closely scrutinize a facility. It may determine that construction has not begun on a facility before 1 January 2015 if a taxpayer does not maintain a continuous program of construction.
    • If a facility is placed in service prior to 1 January 2017, a taxpayer will be deemed to have maintained a continuous program of construction (Notice 2015-25).
  • The safe harbor rule provides that construction of a facility will be considered as having begun before 1 January 2015, if:
    • the taxpayer pays or incurs – within the meaning of Reg. section 1.461-1(a) 1) and (2) – 5 percent or more of the total cost of the facility before 1 January 2015; and
    • subsequently, the taxpayer makes continuous efforts to advance towards completion of the facility (as determined under Notice 2013-29).
    • If a facility is placed in service prior to 1 January 2017, a taxpayer will be deemed to have made continuous efforts to advance towards completion of the facility (Notice 2015-25).

Investment Tax Credit (ITC) in lieu of the PTC

Applicable for facilities that are eligible for the PTC and that begin construction before 2014.

  • The ITC is available in lieu of the PTC.
  • The ITC provides a credit for qualifying energy property.
  • The credit amount is 30 percent of the eligible cost basis of the property.
  • Eligible property is tangible personal property or other property that is integral to a PTC-eligible facility.
  • The definition of ‘begin construction’ is the same for the ITC in lieu of the PTC as for the PTC.

Investment Tax Credit (ITC)

Applicable for solar, geothermal, qualified fuel cell or micro turbine property, combined heat and power systems, small wind and geothermal heat pumps.

  • The ITC provides a credit for qualifying energy property.
  • The ITC for any taxable year is the energy percentage of the basis of each energy property placed in service during the taxable year.
  • Credit amount is:
    • 30 percent of eligible costs for fuel cell, solar, and small wind property
    • 10 percent of eligible costs for combined heat and power, micro turbine property and geothermal heat pumps.
  • The ITC is generally available for eligible property placed in service on or before 13 December 2016.

Grant in lieu of PTC and ITC

Applicable for tangible personal property or other property that is an integral part of a qualified facility (as defined by the PTC and ITC rules).

  • The American Recovery and Reinvestment Act of 2009 (ARRA) enacted a grant program which provides a cash grant in lieu of the PTC or ITC.
  • ARRA permits PTC or ITC projects to elect a grant of up to 30 percent of costs of construction of PTC or ITC energy property in lieu of tax credits.
  • Projects must begin construction before 2012 and submit a grant application no later than 30 September 2012.
  • Projects must be placed in service:
    • before 2014 for PTC-eligible facilities (before 2013 for wind)
    • before 2017 for other ITC eligible projects.

Operating subsidies

Quota obligation

Renewable Portfolio Standards (RPS)

This standard generally places an obligation on electric supply companies to produce a specified fraction of their electricity from renewable energy sources and enumerates mechanisms that are permitted to achieve compliance, such as renewable energy credits (RECs). Currently no federal RPS legislation has been enacted. A total of 29 states and the District of Columbia have an RPS. The states include Arizona, California, Colorado, Connecticut, Delaware, Hawaii, Illinois, Indiana, Kansas, Maine, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, Nevada, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Rhode Island, Texas, Washington and Wisconsin.

Taxes and Incentives for renewable energy

A 2015 KPMG report that provides updates on renewable energy promotion policies for over 31 countries.

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