Federal Tax Credits for Datacenters
What federal tax credits are available for datacenter projects?
Datacenter projects can access IRA clean energy credits: Investment Tax Credit (ITC) of 30-50% for solar, storage, and clean energy, or Production Tax Credit (PTC) of $27.50/MWh for wind/solar generation. Bonus credits add 10% each for domestic content, energy communities, and low-income areas. Battery storage now qualifies for standalone ITC. These credits significantly improve BTM and on-site generation economics.
Key Data Points
- Base ITC: 30% (requires prevailing wage/apprenticeship)
- Max ITC: 50% (with Domestic Content and Energy Community bonus)
- PTC Rate: $27.50/MWh (inflation-adjusted)
- Battery Storage: Standalone ITC eligible (30% base)
- Transferability: Credits can be sold for cash (typically 90-95 cents/$)
Investment Tax Credit (ITC)
| Technology | Base ITC | + Prevailing Wage | + Bonus Adders | Max ITC |
|---|---|---|---|---|
| Solar PV | 6% | 30% | +10-20% | 50% |
| Battery Storage | 6% | 30% | +10-20% | 50% |
| Fuel Cells | 6% | 30% | +10-20% | 50% |
| Geothermal | 6% | 30% | +10-20% | 50% |
| Small Wind | 6% | 30% | +10-20% | 50% |
Base rate requires projects <1 MW. Projects >1 MW must meet prevailing wage and apprenticeship requirements for full 30% rate.
ITC Bonus Adders (Stack Up to +20%)
Domestic Content
+10%
Steel/iron 100% US-made. Manufactured products meet 40%+ domestic content (increasing to 55%).
Energy Community
+10%
Project in brownfield, former coal/fossil fuel community, or area with significant fossil fuel employment.
Low-Income
+10-20%
Projects in low-income census tracts or on tribal land. Additional 10% for certain community benefit criteria.
Production Tax Credit (PTC)
PTC Basics
- •Base rate: $27.50/MWh (2024, adjusted for inflation)
- •Duration: 10 years from placed-in-service
- •Applies to: Wind, solar (election), geothermal, marine, hydro
- •Bonus adders: Same as ITC (domestic content, energy community)
ITC vs PTC Election
Solar projects can elect ITC or PTC. Choice depends on:
- • ITC preferred: High capex, lower capacity factor, tax equity availability
- • PTC preferred: High capacity factor, strong production, long-term operation
- • Rule of thumb: PTC often better for >25% capacity factor
Datacenter-Specific Applications
BTM Solar + Storage
Behind-the-meter solar and battery systems can qualify for ITC:
- • Solar PV: 30%+ ITC
- • Battery storage: Now standalone 30% ITC
- • Combined system: Both qualify separately
- • Domestic content bonus available
Example: $10M solar + $5M storage = $4.5M+ in tax credits
Fuel Cells & Clean Hydrogen
Emerging technologies for datacenter backup and baseload:
- • Fuel cells: 30%+ ITC (replaces diesel backup)
- • Clean hydrogen production: PTC up to $3/kg
- • On-site electrolyzers may qualify
- • Hydrogen storage systems: ITC eligible
Note: Hydrogen PTC requires lifecycle emissions analysis
Key Qualification Requirements
Prevailing Wage Requirements
Required for full credit rate on projects >1 MW:
- • Pay Davis-Bacon prevailing wages during construction
- • Continue for alterations/repairs during credit period
- • Maintain records for IRS compliance
- • Correction/penalty procedures if violations occur
Apprenticeship Requirements
Required for projects starting construction after 1/1/2023:
- • 12.5% of labor hours by apprentices (2023)
- • Increasing to 15% for projects starting 2024+
- • Registered apprenticeship programs only
- • Good faith effort exception if unable to meet
Frequently Asked Questions
Can datacenters directly use these tax credits?
Yes, if the datacenter owner invests in qualifying energy assets (solar, storage, fuel cells). IRA also enables "direct pay" for tax-exempt entities and credit transferability, allowing monetization even without sufficient tax liability.
How does credit transferability work?
IRA allows selling tax credits to unrelated buyers for cash. Typically sells at 90-95 cents on the dollar. This enables project developers to monetize credits without complex tax equity structures.
What is the "energy community" bonus?
Projects in areas meeting energy community criteria get +10% ITC. This includes: brownfield sites, metropolitan statistical areas with 0.17%+ fossil fuel employment, or census tracts with closed coal mines/plants. Use IRS mapping tool to check eligibility.
How long will these credits last?
IRA credits phase out when US emissions targets are met (unlikely before 2032) or 2033 at earliest. The technology-neutral credits start in 2025 and continue until emissions reduction goals are achieved. Plan for credits through at least 2030.
Model Tax Credit Impact
Use our calculators to see how ITC/PTC affects your BTM economics and investment returns.
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