an amount of money that can be offset against a tax liability dollar-for-dollar. In RE development, federal tax credits have come in two basic flavors: Investment Tax Credit (ITC, based on investment amount) or Production Tax Credit (PTC, given per unit of energy produced).
Pros
Increases the return on investment of an energy investment.
Cons
Can over-incentivize a particular technology. For example, the PTC allowed for wind PPA rates to be set below other energy sources in the marketplace, causing a distortion.
Real Talk
Federal tax credits were necessary to drive early investments in solar and wind, but now that these are cost-competitive with traditional generation, the tax credits are being sunsetted. Moreover, project investors need to have a tax basis to take advantage of tax credits.