Tax Plan Takes Aim at (non-carbon) Energy

November 21, 2017

Still a moving target, but proposed tax “reform” will not only make the richest richer, (see above) it will take aim at disruptive new energy technologies, as well.

The goal: A lump of coal in everyone’s stocking.

Bloomberg:

The framework the White House proposed Sept. 27 “would disrupt the economics of clean energy projects as a consequence of making profound changes to the U.S. tax code,” according to a research report Monday from Daniel Shurey, an analyst with Bloomberg New Energy Finance.

Lower corporate tax rates would threaten the supply of tax equity, an esoteric type of financing that often accounts for half the cost or more of wind and solar projects. In these deals, renewable-energy developers sell portions of their projects’ tax credits to corporations — often banks and some insurance companies — that can apply the credits to their own tax bills. Lower tax rates for businesses would mean they need fewer write-offs.

“Will CFOs say this isn’t worth it and pull out of the market?” David Burton, a New York-based partner at Mayer Brown LLP, said in a phone interview.

Developers may raise about $12 billion in the tax-equity market this year, $7 billion for solar and $5 billion for wind, according to New Energy Finance. That would be down from about $14.8 billion last year.

Not everyone is concerned about the potential for disruption.

“2016 proved that there’s a tremendous amount of tax equity appetite for renewable-energy projects,” Jigar Shah, president and co-founder of Generate Capital Inc., said in a phone interview Wednesday. “Even if tax rates come down, there will be plenty of tax appetite for the foreseeable future. We have enough tax-equity buyers.’’

But if tax reform significantly reduces available tax-equity financing, chief financial officers might need to lean more on other — potentially pricier — sources of capital to make up the slack, Martin said.

Debt would be an obvious alternative. But some of the tax benefits of debt would be threatened if the deductibility of interest expense is revised, Shurey said. Power plants that are already financed may suffer if their deals include clauses on changes to the tax rate.

“If everything is priced according to the current tax rate, then your calculations don’t work,” Shurey said. “The economics of that project could be in trouble.”

The federal investment tax credit for solar and production tax credit for wind have been key growth drivers, and some clean-energy executives are concerned that Congress may terminate them to boost revenue to offset a tax cut. They were extended or revived in 2015, but with step-downs over the next few years.

ThinkProgress:

Republicans’ long-awaited tax bill, unveiled on Thursday, targets key renewable energy tax credits that have helped make clean energy a crucial high-wage job-creating sector in the United States.

The measure would slash the wind Production Tax Credit (PTC) by over a third, weaken the solar tax credit, and eliminate the $7,500 credit for the purchase of electric vehicles. The solar and wind credits were part of a major bipartisan deal reached in December 2015, in which the credits were extended for several years while being reduced or phased out over time.

“This proposal reneges on the tax reform deal that was already agreed to, and would impose a retroactive tax hike on an entire industry,” said American Wind Energy Association CEO Tom Kiernan in a statement. “The House proposal would pull the rug out from under 100,000 U.S. wind workers and 500 American factories, including some of the fastest growing jobs in the country.”

President Donald Trump called the tax bill, which he asserted will be enacted before years end, a “big, beautiful Christmas gift.” It is definitely a gift to the richest one percent of Americans, who get most of the tax cut. And it’s a big tax cut for the most powerful multinational corporations — as well as wealthy foreign investors.

But for the average American, it is a big lump of coal. Ninety-five percent of taxpayers would barely see their average after-tax incomes increase, as ThinkProgress’ Rebekah Entralgo has reported.

Washington Post:

Fortunately for the industry, the places best suited for onshore wind energy are concentrated in the Midwest and Great Plains — traditionally, rural strongholds for Republicans. Three GOP senators — Charles E. Grassley (Iowa), John Thune (S.D.) and Dean Heller (Nev.) — have come forward in opposition to altering the wind tax credits.

“It shouldn’t be re-opened,” Grassley said in a statement after the House bill was introduced. The tax proposal introduced in the Senate, and being debated on the Senate Finance Committee on which Grassley is a senior member, leaves the wind tax credits untouched.

Still, the specter of unwinding the tax breaks for wind has already spooked investors in the capital-intensive projects.

“The uncertainty with the House bill is freezing the deals that are underway,” said Tom Kiernan, chief executive of the utility wind lobbying group American Wind Energy Association.

Even though the Senate seems unlikely to slash the wind tax breaks, the incentives could end up being a horse that’s traded in conference as the two chambers hammer out the difference in their proposals — should the tax overhaul ever get to that stage.

 

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