The clean energy sector in the United States is prosperous, and tax cuts have played a major role in it. There are two main tax credits: ITC, investment tax credit, PTC, or production tax credit, both of which provide great benefits for both manufacturers and developers. These ITC VS PTC’s tax credits are not only helping, but they also accelerate the development of new manufacturing technologies and processes.
Every person in the picture, also known as developers, manufacturers and tax credit buyers, needs to understand how these tax credits are formed for the economy that surrounds the clean energy market of the United States, and for this reason this article, we will dive into the ITC depth in PTC and how the company’s strategies in the energy markets.
ITC opposite PTC: Basics
But first, we need understanding ITC opposite PTCWhat they are, etc. Fortunately, the schedule is simply explained below, so it is easier to understand ..
| ميزة | Investment Tax Credit (ITC) | Production tax credit (PTC) |
| What is it | One -time credit on the basis of a percentage of the total project costs. | Continuous credit for all KWH for electricity resulting from qualified facilities (usually for 10 years). |
| How to be calculated | % Of capital investment in clean energy equipment. Base: 30 % (for projects ≤1 megawatts). The largest projects: 6 % base, up to 30 % if the wages/vocational training rules are met. Rewards: +10 % for local content, community tax credit, or small projects in low -income areas; +20 % for housing projects/low -income economic benefits. Max Itc = 50 % of qualified costs (only when stacked base + bonuses: local content, power community, low income) | Credit per kilo of an hour of electricity produced. PTC base at 0.3 -6 ¢/KWH, with a full price of 2.5-2.6 ¢/KWH if the wages/vocational training rules are met. An additional 10 % for the local content or the energy community site. |
| The timing of benefit | Immediate – It was received when putting the project in the service. | In the long run-it has been received over the first ten years of the project operation. |
| The most appropriate for | Capital dense projects seek to get a faster recovery (for example, solar energy, storage). | Projects with strong generation capabilities and long operating life (for example, wind, ground thermal energy, water). |
| Conscious energy projects | Solar energy, fuel cells, small winds, ground thermal energy, microturbines, Chp systems, and energy storage. | Wind, biomass, ground thermal energy, renewable natural gas, municipal solid waste, hydroelectric energy, naval/hydrocrotic. |
| Manufacturing credits | Section 48C Advanced Energy Credit: 6 % Base, 30 % if the wages/vocational training rules are met. It covers clean energy components, network devices, carbon capture, critical minerals, EVS, etc. | Section 45X advanced manufacturing PTC: a fixed dollar per unit, per watt, or % of the cost. It covers solar units, chips, rural turbines, spoons, battery components, and critical minerals. |
| Risk profile | Decreased risk (credit is associated with the submitted investment, not future performance). | Top risks (dependent on energy production in the long run and resource availability). |
| The strategic appeal in the integration and purchase operations | Attractive for buyers looking for the value of introduction and reduce risk. | Attractive for buyers looking for long -term cash flow and operational tracking. |
Now that you understand what it is, the question is, how does it affect the strategies of integration and purchase?
Impact on assessments of integration and purchase
The IRA (IRA) Law, which has become a law in 2022, allows the solar projects among tax credit (ITC) and production tax credit (PTC). Although these two differences are completely different, as we have seen earlier, does it really matter? Does any difference happen in the assessments of integration and acquisition? Well, there are some effects of it.
ITC projects: Introduction’s predictive benefits
ITC is calculated as a percentage of capital costs, and this has many predictive benefits. For example, ITC -backed projects often end. This is because buyers have immediate clarity about the amount of tax value that the project will generate. Looking at low risk, ITC solar projects are often preferred for investors, as they generally have returns in the short term.
PTC projects: the long -term upward trend
However, this does not mean that PTC -backed projects are not good, while the previous is short -term gains. PTC projects are preferred for long -term investors. These projects often attract investors who focus mainly on a long -term investment horizon, such as infrastructure or utility funds, for investors ready to counter operational risks. For these investors, PTC -backed projects can remain profitable for up to a decade, and the value rises in resource quality.
Credit liquefaction and transfer
Thanks to Economic inflation The reduction law, there is flexibility that allows the transfer and investment of tax credits. This game has completely changed the merger and acquisitions. For example, for projects backed by ITC, sellers can highlight the speed of value, making the market more liquid and raising the value of transactions. In particular, incentive accumulation such as the tax credit bonus of the energy community can increase the evaluations in ITC projects.
The transfer of buyers to buyers allows to lock fixed tax benefits for projects supported by PTC, even if they do not have enough tax responsibility.
The effects of the market for companies buyer
Now, let us understand what the market effects of the company’s buyer are here. While this in itself is a wide topic, the table below it simplifies it a lot.
| factor | Projects supported by ITC | PTC subsidized projects | Strategic effects of buyers |
| Diversify the portfolio | Providing advanced prior value-ideal for risk balance in heavy portfolios on performance-based assets. | Long-term paid returns are offered-useful for buyers looking for frequent cash flows. | The mixing of ITC and PTC assets helps buyers hedge between certainty in the short term and the upscale aspects of the long term. |
| Regional considerations | It is often concentrated in heavy solar states (southwest, southeast) and storage projects near demand centers. | It is strongly in line with the areas rich in wind or ground or water energy (the Middle West, the Great Plain, the Northwest Pacific Ocean). | Companies buyer may give ITC priority in sun or urban and PTC areas in abundant resource areas, on the facility scale. |
| Local energy markets | More attractive in areas with high demand on the network or relief needs than congestion, as the investment recovery is very important. | More valuable in market quality and strong resource quality and stable infiltration agreements. | Buyers must align the type of credit with local market conditions to increase the value of assets. |
| Different care concentration | Check the capacity of capitalist cost, compliance with the rules of wages/vocational training, and the reinforcement of reward credits (local content, tax credit reward for the energy community). | Check the expected output, resource quality studies, O & M assumptions, and vocational wages/training. | The strict due care ensures that the credits are provided and not at risk of Clawbacks, which directly affects the evaluation of the deal. |
| Risk profile/return | Low -risk revenues and attractive front loading for companies that seek to obtain fast recovery and reduce resource change. | The high -risk returns and dependence on the most attractive performance of comfortable buyers with long -term operational risks. | Credit structure helps corporate assets with tolerance with risks and capital strategy. |
خاتمة
ITC VS PTC affects the acquisitions and integration to a large extent. ITC -backed projects are suitable for value in the short term, while PTC -backed projects appeal to investors with a long -term horizon. The best advice is to invest in all who diversify the wallet and deny risk as possible.
