The majority of the $370 billion in energy and climate funding is realized through two types of tax credits, both working to reduce the project costs:
The ITC reduces upfront investment costs for a wind, geothermal, solar photovoltaic (PV) or battery energy storage system that is installed during the tax year. Eligible costs include: the system itself (plus the balance-of-system equipment), installation costs, and certain interconnection costs (for projects 5 MW or less).
In contrast, the PTC generates tax credits per kilowatt-hour (kWh) of energy produced by a wind, solar or geothermal project for the first 10 years of a facility’s operation. Whereas the ITC is a lump sum accrued in the year the project commences operations, the PTC is an annual sum that varies according to the facility’s performance producing energy.
For a more detailed breakdown of the ITC and PTC in the Inflation Reduction Act, read our blog.