• U.S. Renewable Energy InvestmentU.S. investment in renewable energy gained momentum after the Energy Policy Act of 2005 increased tax credit rates from 10% to 30%. A complex tax equity market with layered limited liability company (LLC) structures emerged to capitalize on the substantial tax benefits, attracting investors seeking large tax deductions. However, this investment structure became popular primarily among large financial institutions due to high tax expertise requirements and initial commitments to absorb significant amounts of tax credits.
• The Inflation Reduction Act of 2022 significantly changed this environment by expanding the scope of tax credits from individual household electric vehicles (EVs) to large-scale carbon capture, utilization, and storage (CCUS) facilities. The introduction of transferability and direct pay provisions allowed for a more flexible investment structure, attracting a diverse range of investors.
• The core mechanism of the Inflation Reduction Act's tax credit system directly reduces investors' tax liabilities through using credits. Although this mechanism requires specialized investment and financing structures, optimal structuring can yield substantial first-year tax credits. These credits typically range from 30% to 70% of construction costs and include additional incentives.
• However, tax credits must be claimed directly through the investor's corporate tax returns and may be subject to recapture by the IRS through audits. As a result, shareholders must carefully manage corporate structures and address various tax and accounting issues to maintain appropriate investment forms.
• The Investment Tax Credit (ITC) and Production Tax Credit (PTC) are specialized tax incentives designed specifically for renewable energy projects. The PTC has been applied to solar energy projects, so investors can now choose between the ITC and the PTC based on factors such as power output, investment costs, and expected returns.
• Investments in the energy sector significantly impact on the overall economy, contributing approximately $1.9 trillion to GDP growth, creating an average of 1.2 million additional jobs annually, and stabilizing electricity prices.

Table of Contents

1.Background of the U.S. Renewable Energy Tax Credit

1.1 Emergence of the IRA

1.2 Renewable Energy Support Mechanisms under the IRA

2.Renewable Energy Investment Utilizing Tax Credits

2.1 U.S. Tax System and Characteristics of Tax Credits

- U.S. Tax System

- Tax Credit Features

2.2 Renewable Energy Tax Credit Elements and Methods

- Business Entity Structure

- Practical Application of Tax Credits

- ITC Recapture Risk

- Power Plant Investment

2.3 ITC and PTC for Renewable Energy Investments

2.4 PTC for Manufacturers

3.Economic Impact

4.Conclusion