The Question: To Claim (or not to claim) the CHP Federal Tax Credit?

By District Energy posted 02-25-2020 13:52


Power Engineering


The Bipartisan Budget Act of 2018 passed by Congress on February 9, 2018 included an extension through January 1, 2022 of the 10 percent federal tax credit for the owner of combined heat and power (CHP) plants, also known as cogeneration.

The 10 percent tax credit for CHP originally expired at the end of 2016.  For many organizations contemplating energy-efficient upgrades to their physical plants (such as hotels, healthcare facilities or manufacturing facilities), the extension of the federal tax credit could make CHP more attractive.

Anecdotally, many organizations are unaware that the boiler units or heat recovery systems they buy for their physical plants could be eligible for a federal tax credit.  In some organizations, this may be because the employees in charge of upgrading the physical plant may not be in contact with the organization’s accountants.  Even if they are aware of the existence of the tax credit, they may incorrectly assume that only completely new CHP systems, as opposed to capital improvements to existing eligible systems, are eligible for the credits or that the size limitation in the CHP rules applies to an entire facility rather than to each separate CHP system inside the facility.

If the organization where the CHP unit is installed is unable or unwilling to own the CHP system or take the tax credits, the developer of the CHP system can retain ownership of the system and claim the tax credits or otherwise form a joint venture with a tax equity investor in a similar partnership structure as is used for solar investment tax credits.

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