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June 4, 2021

Restoration of full production and investment tax credits, new credits for electricity transmission investments, nuclear energy generation included in Biden Administration's FY2022 budget

The Biden Administration's FY2022 budget and Treasury Green Book proposes to restore the IRC Section 45 production tax credit (PTC) and the IRC Section 48 investment tax credit (ITC) to their original amounts beginning in 2022 and then phase them down over five years.

The Administration's proposal would also allow a direct-pay option, under which taxpayers could receive cash in lieu of tax credits. The exact mechanism for receiving the direct payment has not yet been outlined.

New proposed credits include:

  • A tax credit of 30% for electricity transmission investments
  • An allocated PTC for electricity generation from eligible existing nuclear power facilities that bid for the credits
  • A stand-alone storage tax credit

Renewable energy credits

When enacted, the PTC originally allowed taxpayers to claim a credit equal to $1.5 cents (adjusted annually for inflation) per kilowatt hour of renewable electricity produced at a qualified facility. The ITC originally allowed taxpayers to claim a credit equal to a percentage, generally 30%, of the basis of certain energy property placed in service during the tax year. The amount of tax credits available under both sections is phasing down and depends on the year in which a project begins construction. Taxpayers cannot claim both the PTC and ITC for the same property. Special rules apply when a taxpayer that is eligible for the PTC may elect to claim the ITC instead. Taxpayers may also claim a nonrefundable credit for the purchase of certain residential energy efficient property.

Administration's proposal

The Administration's proposal would restore the PTC's original $1.5 cents per kilowatt hour for qualified facilities commencing construction after December 31, 2021, and before January 1, 2027. Starting in 2027, the PTC would phase down over five years to zero.

The proposal would also restore the full ITC tax credit rate of 30% for eligible property that begins construction after December 31, 2021, and before January 1, 2027. Starting in 2027, the ITC would phase down over five years to zero.

According to the Green Book, the proposal would extend the ITCs for solar and geothermal electric energy property, qualified fuel cell power plants, geothermal heat pumps, small wind property, offshore wind property, waste energy recovery property, and combined heat and power property. Starting in 2022, the ITC could also be used for stand-alone energy storage technology that stores energy for conversion to electricity and has a capacity of at least five kilowatt hours.

Taxpayers would have a direct-pay option to elect a cash payment in lieu of the business tax credits.

The proposal would also extend the residential energy efficiency credit and expand residential energy efficient property to include qualified battery storage technology of at least three kilowatt hours of capacity installed in a residence. This credit has been phasing down from 30%; beginning in 2022, the credit would return to the original 30% rate for property placed in service after December 31, 2021, and before January 1, 2027, and would be phased out over the next five years.

Electricity transmission investments

According to the Green Book, "there is no credit for investments in transmission infrastructure used to deliver electricity from where it is generated to where it is used."

The Administration's proposal would create a tax credit equal to 30% of a taxpayer's investment in qualifying electric power transmission property placed in service after December 31, 2021, and before January 1, 2032. The proposal would also allow a direct-pay option to elect a cash payment in lieu of the business tax credits.

Qualifying property would include overhead, submarine and underground transmission facilities meeting certain criteria, including a minimum voltage of 275 kilovolts and a minimum transmission capacity of 500 megawatts. It would also include any ancillary facilities and equipment necessary to operate the facility.

Nuclear power facilities

Under IRC Section 45J, PTCs are available for the operation of new nuclear power facilities. According to the Green Book, "there is no credit for generation of electricity from existing nuclear power facilities." The Administration's proposal would create an allocated PTC for eligible existing nuclear facilities that bid for the credits, with $1 billion in credits available each year for allocation. Eligible facilities would identify the minimum credit sufficient to maintain operations in a two-year window. Eligibility would depend on factors such as demonstration of financial losses, a good operating and safety record, and an increase in air pollutant emissions if the facility ceased operations.


The Administration's proposals refresh old incentives and introduce new ones. For wind, solar and other IRC Section 45 and IRC Section 48 property, the extensions of nonrefundable credits would allow deals to be structured in ways that are familiar, likely minimizing confusion and allowing for quick adoption.

The possibility of electing direct pay of the tax credits would be a relatively dramatic change (the likes of which have not been available since the ARRA 1603 grant program under which Treasury made payments in lieu of investment tax credits to eligible applicants for specified energy property used in a trade or business or for the production of income). The details of the direct-pay program, which have not yet been spelled out, will be important to follow as many industry participants will remember the delays in receiving 1603 funds and the extensive back and forth with Treasury over the amount.

Additionally, a direct-pay program would not allow tax equity investors to monetize the depreciation deduction, which could result in lower outside capital for projects that are currently contemplating tax equity. Whether direct pay makes sense will likely depend on project size and the program's efficiency.

It is reasonable to think that the availability of a direct-pay incentive could limit the need for tax equity financing, especially for smaller energy installations (e.g., distributed solar) whose transaction costs are high relative to the amount of tax incentives available and the limited depreciation being generated on those projects. During the 1603 program, it was still common to monetize depreciation and allow for a mark-up by selling the project at fair market value rather than having it self-constructed.

New incentives for transmission property are a nod to the reality that the nature of the nation's grid is in flux as older energy resources are retired and newer, more varied technologies (in both type and geography) continue to come online. This credit is based on when property is placed in service and not, like many of the other renewable energy incentives, on the beginning of construction. Given that much of the transmission property is owned by regulated entities, we do not anticipate a tax equity market developing, as tax equity has traditionally been challenging to combine with regulated entities.

Lastly, the proposal's stand-alone storage tax credit would be helpful because it would likely clarify some of the uncertainties with the rules around ITC and storage projects. While the storage incentive is not necessarily targeted towards renewable energy, we would expect that a stand-alone storage tax credit would allow for additional integration of renewable energy facilities onto the grid given concerns around the intermittency of some technologies.


Contact Information
For additional information concerning this Alert, please contact:
Tax Credit Investment Advisory Services
   • Michael Bernier (
   • Dorian Hunt (
   • Robbie Harvey (
Americas Power & Utilities Tax Group
   • Mike Reno (
   • Brian Murphy (