On April 14, 2022, the US Internal Revenue Service (IRS) published a notice, which provides the inflation-adjustment factor and reference price for the calculation of renewable electricity production tax credits (PTCs) under Internal Revenue Code (IRC) section 45 for calendar year 2022, as well as the amount of the PTC for 2022 as adjusted for inflation.

Using an inflation-adjustment factor of 1.8012, the notice provides that the PTC for electricity produced from wind, as well as closed-loop biomass and geothermal energy, increased from 2.5 cents per kilowatt hour (kWh) for 2021 to 2.7 cents per kWh for 2022. The notice also includes the PTC amounts for electricity produced from other qualified energy resources. Specifically, the PTC for electricity produced from open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources increased from 1.3 cents per kWh for 2021 to 1.4 cents per kWh for 2022.

IRC section 45 provides the PTC for any taxable year in the amount of 1.5 cents per kWh of electricity produced by a taxpayer from a qualified facility using wind or closed-loop biomass and sold to an unrelated person during the 10-year period beginning on the date on which the facility is originally placed in service. The credit amount is reduced by one-half for electricity produced from a qualified facility using open-loop biomass, landfill gas, trash, qualified hydropower, and marine and hydrokinetic resources.

IRC section 45 provides that the 1.5-cent amount is to be adjusted annually for inflation. Although it is premature to make predictions, in light of the current inflation trends, it is likely that we will see a further increase in the PTC for 2023. In any event, the current uncertainty around inflation (and thus the value of the PTC in future years) may make it difficult for sponsors and investors to model their expected returns with the customary degree of certainty.

Visit us at mayerbrown.com

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe - Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.