November 27, 2021

Volume XI, Number 331

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November 24, 2021

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Renewable Energy Production Tax Credits: IRS Releases 2020 Inflation Factor, Reference Prices

In Notice 2020-38, the IRS recently released the inflation adjustment factor and reference prices for the 2020 calendar year, which are necessary for calculating the Section 45 renewable electricity production tax credits.

Based on the 2020 inflation factor of 1.6687, the 2020 tax credit amounts for renewable energy production and refined coal production are set forth below.

 Renewable Energy
Source or Coal
Production Activity

 Begin Construction Deadline

 2020 Credit Amount

 Wind

Dec. 31, 2016

 2.5¢/kwh

 

 Dec. 31, 2017

 Reduced by 20 percent

 

 Dec. 31, 2018

 Reduced by 40 percent

 

 Dec. 31, 2019

 Reduced by 60 percent

 

 Dec. 31, 2020

Reduced by 40 percent

 Closed-loop biomass

 Dec. 31, 2020

 2.5¢/kwh

 Open-loop biomass

 Dec. 31, 2020

 1.3¢/kwh

 Geothermal energy

 Dec. 31, 2020

 2.5¢/kwh

 Municipal solid waste (includes landfill gas and trash combustion facilities)

Dec. 31, 2020

1.3¢/kwh 

 Qualified hydropower

 Dec. 31, 2020

 1.3¢/kwh

 Marine &  Hydrokinetic

 Dec. 31, 2020

 1.3¢/kwh

 Refined Coal

 Dec. 31, 2011; which is a placed in service deadline

 $7.301/ton

2020 Reference Prices, No Tax Credit Phase-out

If the reference price for a particular energy source, as published by the IRS, exceeds a certain designated level, then the Section 45 production tax credit will be reduced or completely phased out. Based on the 2020 reference prices, there will be no phase-out for any of the renewable energy sources or refined coal production activities for the 2020 calendar year.

By way of example, the 2020 reference price for wind is 4.16 cents/kilowatt hour. Since this reference price does not exceed 13.35 cents/kilowatt hour (i.e., 8 cents multiplied by the 1.6687 inflation factor for 2020), there will be no phase-out during 2020 of tax credits realized from the sale of electricity produced from wind energy. 

Similarly, the 2020 reference price for refined coal is $48.58/ton. Since this reference price does not exceed $90.49/ton (i.e., $31.90 multiplied by 1.6687 inflation factor and 1.7), there will be no phase-out during 2020 for tax credits realized from the sale of refined coal.

Though the IRS still has not determined reference prices for electricity produced from closed-loop biomass, open-loop biomass, geothermal, municipal solid waste, qualified hydropower and marine and hydrokinetic energy, there will also be no phase-out during 2020 for tax credits realized from these renewable sources.

© 2021 BARNES & THORNBURG LLPNational Law Review, Volume X, Number 161
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About this Author

William Ewing Energy Industry Tax Attorney
Partner

Bill Ewing advises and represents clients in a wide range of transactions with a particular focus on the energy industry. With over 25 years of experience, Bill understands the art of the deal and knows what it takes to close important transactions successfully in the most tax-advantageous manner — all while maximizing his client’s opportunity for success.

Co-chair of the firm’s Renewable Energy group, Bill represents clients in the energy industry in a variety of transactions, including partnership investments, sale/leaseback transactions, financings, acquisitions and sales of...

404-264-4050
Ralph Dudziak Corporate & Finance Attorney
Partner

Trusted adviser and legal counselor Ralph Dudziak advises on financing and other corporate transactions, with an emphasis on the renewable energy sector. Ralph cares deeply about the clients he serves and the results he cultivates and achieves.

Ralph’s experience includes project finance and development, renewable energy project construction and term lending, tax equity financings, back-leverage financings, additional forms of secured lending, credit warehouses and securitizations, private placements and leasing. He also represents a variety of other business clients in myriad...

312-214-5618
Sean Honeywill Tax Attorney Barnes & Thornburg Atlanta, GA
Partner

Sean focuses on the representation of investors, syndicators, lenders and developers of tax-incentivized private equity transactions, with a particular emphasis on federal and state tax credit investments. 

He has an extensive background advising clients on the federal energy credit, low-income housing tax credit and rehabilitation credit.  A core part of his practice in recent years has focused on the structuring of real estate transactions related to state tax credits.

Sean also routinely handles tax credit related restructurings and portfolio acquisitions. For example, he...

404-264-4061
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