The Basics of the ITC vs. PTC for Commercial Solar Installation
May. 17, 2023
The United States government has a long history of supporting clean energy projects with tax incentives, like the investment tax credit (ITC) and the production tax credit (PTC).
The ITC has been available for commercial solar installation since 2006 and has played a vital role in growing the solar industry in the US. The PTC has also been in play for many years, but it did not apply to solar energy projects until the Inflation Reduction Act of 2022 was signed into law.
Now, for the first time, commercial solar projects have a choice between the investment tax credit and the production tax credit. In this blog, we’ll explain how the ITC and PTC for solar work so you decide which commercial solar energy tax credit is best for your project.
PTC vs. ITC Explained
There are two federal solar tax credits available to businesses and other entities like local governments, the production tax credit and the investment tax credit.
- The investment tax credit is calculated based on a percentage of the upfront cost of installing a commercial solar system.
- The production tax credit is calculated based on the amount of electricity a commercial solar system produces over time.
How Does the Investment Tax Credit Work for Commercial Solar?
The commercial solar investment tax credit is an upfront credit that reduces federal income tax liability by a percentage of your total solar installation costs. The value of the ITC has changed several times since its inception. It is currently worth 30% of your commercial solar installation costs and will be available at its 30% value (or more) for commercial solar projects that begin construction before 2033.
How Does the Production Tax Credit Work for Commercial Solar?
The PTC tax credit is a per kilowatt-hour (kWh) tax credit. With the production tax credit, you will receive a base credit amount for every kWh of electricity your system generates over the course of 10 years. Commercial solar panel systems that begin construction by 2033 are eligible for a 2.75 ¢/kWh production tax credit.
PTC vs. ITC Tax Credit: Which Is Better?
The ITC and the PTC are both excellent commercial solar incentives that will help your business save on solar panel installation. Which to choose depends largely on the size of your project and how much sunlight your panels receive.
The ITC is an upfront tax credit that does not vary based on system performance. This makes it ideal for smaller-scale commercial solar projects and large-scale projects that are not located in especially sunny areas. These projects will benefit more from a fixed, upfront incentive since their electricity production may not be high enough to really benefit from a production-based credit.
The PTC is based on system performance, which makes it ideal for large-scale commercial projects that are located in sunny areas and can be expected to produce large amounts of electricity year-round.
Boston Solar: Your Trusted Massachusetts Commercial Solar Installer
If you’re thinking about installing commercial solar panels, Boston Solar can help you choose the right tax credit option for your project. We are the leading commercial solar installer in Massachusetts with over 10 years of experience and 5,000+ completed solar installations. Don’t wait to make the switch to clean solar energy! Call us today to get started on your commercial solar project.
Don’t miss out on commercial solar incentives! Call 617-858-1645 or contact us to learn more about the ITC vs. PTC.