How it works
Congress sets the credits in the tax code, and the Treasury and IRS write the rules for claiming them. The ITC is a percentage of a project's eligible capital cost, claimed once when the project is placed in service. The PTC pays a rate per kWh generated, adjusted for inflation, for the first ten years of operation. A project elects one or the other. Bonus amounts can apply for meeting wage and apprenticeship rules, using domestic content or siting in qualifying energy communities.
Most developers lack enough tax liability to use the credits themselves. They have traditionally brought in a tax equity investor, who funds part of the project in return for the credits. Since 2023, credits can also be sold for cash to an unrelated buyer, typically at a discount to face value. Legislation in 2025 shortened the eligibility window for wind and solar, while storage keeps credits for longer. Current rules need checking for each project.
Why it matters
For a US developer, the credit can cover a large share of capital cost, so it shapes the whole financing. The election between ITC and PTC can move equity returns by points, depending on output and cost. Deadlines and bonus qualification drive construction timing and procurement. For a buyer, credits lower the PPA price a developer can offer. Contracts need to say who bears the risk if a credit is lost or reduced.
A worked example
A 100 MW solar project costs $100 million, all assumed eligible. A 30% ITC returns $30 million once. At a 25% capacity factor, it generates 100 × 0.25 × 8,760 = 219,000 MWh a year. A PTC at an illustrative 2.75 cents/kWh pays 219,000,000 kWh × $0.0275 = $6.02 million a year for ten years. Discounted at 8%, that is about $6.02 million × 6.71 = $40.4 million. Here the PTC is worth more.
Illustrative figures.
Across markets
India has no comparable national tax credit for renewable generation. Support comes through competitive tariff auctions, accelerated depreciation, viability gap funding for battery storage and concessions on inter-state transmission charges. In Europe, the main support is a contract for difference or a premium, awarded by auction and paid per MWh. The cost falls on the state budget or on consumers through levies, rather than on the tax system.