2022 IRA: Are PTCs Relevant for Solar's Middle Market?

You may have heard that many solar projects will choose Production Tax Credits (PTCs) over the ITC, but don’t be fooled! That’s generally only true for large-scale solar projects. PTCs are essentially irrelevant for projects under 5MW. Here’s why:

• ITCs are based on the project budget. As the $/W budget goes down, the ITC becomes less valuable. Utility-scale projects often have a budget at or below $1.00/Wdc, but mid-market projects often have a budget at or above $1.50/Wdc. This makes the ITC for mid-market solar projects >50% more valuable

• PTCs are based on production. As the kWh/kW production factor increases, the PTCs become more valuable. Utility-scale projects often use single-axis trackers, bifacial modules, and optimal azimuths, which allows them to approach the limits of efficiency. Mid-market projects often use fixed-tilt or rooftop mounts, monofacial modules, and good azimuths, resulting in production at only 60% efficiency and corresponding generation of 60% of the PTCs per each kW of solar capacity installed

• Some other, less impactful reasons also include: 1) Interconnection upgrade costs are now ITC eligible for projects under 5MWac but will not impact the PTCs value;  2) the low income community tax credit adders are only applicable for the ITC; and 3) middle-market solar tax investor partners probably aren't playing in the utility-scale space, so they probably also won’t have familiarity with PTCs

It’s all an efficiency game — the more efficient the budget and production are per kW installed, the more a PTC election would make sense. In the middle market, the only scenarios where we see PTCs potentially making sense are for projects >5MWdc with production factors at or above 1,800 kWh/kW.

Think your project may be the exception? Let’s chat.

You can check out all of our Inflation Reduction Act analyses on the Conductor Solar blog roll.