Much remains unknown about the tax bill House Republicans plan to unveil this week. Politico recently reported that even “rank-and-file House Republicans are increasingly alarmed by the secrecy shrouding the massive tax bill.”
The closed process has left solar, wind and other clean energy companies scrambling to discover how the bill might affect their industries. Representatives from solar and wind companies in particular are concerned that Republican lawmakers, in search of revenue to pay for tax cuts for corporations and high earners, might scrap federal tax incentives for their industries agreed to in December 2015.
On October 30, Bloomberg's Ari Natter reported that the federal Investment Tax Credit (ITC) for solar and Production Tax Credit (PTC) for wind appeared to be safe. In a tweet posted after a meeting of the Ways and Means Committee, the House’s tax-writing committee, Natter quoted Rep. Carlos Curbelo (R-FL): “Most if not all members want to honor the commitments that have been made in the past.”
At the meeting, Rep. Tom Reed (R-NY), author of a bill to restore the ITC for a batch of energy technologies left out of the December 2015 deal, argued in support of the wind and solar tax credits. “We’ve made the case,” he said. “I think it’s gaining some traction, but nothing is done until it’s done.”
We’ve already been tax-reformed
Solar and wind industry representatives say that having already reached a bipartisan deal to phase out tax credits for their industries, lawmakers should look elsewhere for revenue.
“We’ve already been tax-reformed,” said Dan Whitten, VP of communications for the Solar Energy Industries Association (SEIA), at a panel discussion held at the Society of Environmental Journalists annual conference in early October.
“We have a deal that was a bipartisan deal, [with] strong Republican support, that called for the scaling back of our incentives. Our hope and belief is there’s enough support on the Hill for our ramp-down to hold the deal, and not include that in a tax reform package," said Whitten.
“That deal was one of the most successful tax policies in recent years,” added Peter Kelley, VP of public affairs at the American Wind Energy Association, speaking on the same panel. “It has galvanized a lot of economic growth. As they...try to get votes for a tax reform package, they’ll be looking for things that increase political support for the final deal, not decrease political support.”
He went on: “Certainly, the business community does not want to have a retroactive tax increase on any industry. We’d be against a retroactive tax increase, and I think we’d have a lot of company.”
In an interview, Rhone Resch, former president and CEO of SEIA, cautioned the solar industry to watch for relevant provisions that could emerge as bargaining chips during negotiations. One to watch, he said, is the permanent 10 percent ITC for commercial solar projects. (After 2021, the ITC for residential solar goes away, while the commercial credit remains at 10 percent.)
“The permanent 10 percent [credit] is certainly something we’re going to have to work hard to protect,” said Resch.
The fate of federal tax incentives for wind and solar will be a telling indication of whether the industries’ expanding geographic reach translates into dependable political support. According to AWEA’s 2016 market report, 88 percent of new wind capacity is in states that voted for President Trump, and three-quarters of U.S. congressional districts have operational wind energy projects or active wind-related manufacturing facilities.
Corporate tax cuts and tax equity project funding
Another concern for clean energy companies is the potentially negative impact a sharp reduction in the federal corporate income tax rate could have on tax equity investment in projects. The White House and Republicans in Congress have proposed reducing the corporate tax rate from 35 percent to 20 percent.
Clean energy project developers often sell their projects’ tax credits to third-parties that apply the credits to reduce their own tax bills.
“We run a real risk of seeing tax equity start to dry up and a change in how we finance solar projects due to a decreased corporate tax rate,” said Resch. “All our tax equity investors that have existed previously did so because they had large tax burdens.”
He added that when the economy plunged into recession in 2008 and 2009, tax equity largely disappeared. Congress authorized a grant program allowing companies to receive a cash grant from the Treasury Department in lieu of tax credits as a stopgap until tax equity returned.
“In this case,” Resch said, “if Congress lowers the tax burden, we’d have the same effect. And you’d see a significant drop-off in tax equity investors in projects -- at least among traditional investors.”
“You do have a lot of new players...coming into the space -- utilities, large energy companies, other investors -- that will still have tax appetite at a lower rate. We may need to pivot faster than we’ve done in the past. We certainly might not be able to rely as much on traditional tax equity investors, but there will still be some tax appetite out there. It’s just going to be more expensive and harder to get," explained Resch.
Master limited partnership legislation resurfaces
And then there are the provisions companies want added -- or restored -- to the tax code. On October 25, Senators Chris Coons (D-DE) and Jerry Moran (R-KS) reintroduced bipartisan legislation enabling clean energy companies to form master limited partnerships. A companion bill, HR 4118, was reintroduced in the House by Representatives Ted Poe (R-TX) and Mike Thompson (D-CA).
According to the co-sponsors, MLPs “combine the investment advantages of corporations and the tax advantages of partnerships.” Currently this business structure is permitted only for fossil-fuel-based energy projects.
“Clean energy technologies have made tremendous progress in the last several decades, and they deserve the same shot at success in the market as traditional energy projects have experienced through the federal tax code,” said Coons in a statement. “Updating the tax code in this way will help increase parity and ensure that these energy technologies can permanently benefit from the incentives that traditional energy sources have depended on to build infrastructure for more than 30 years.”
Orphaned technologies want federal tax credits restored
Also uncertain is the fate of the so-called “orphaned” energy technologies left out of the December 2015 tax extenders package. The 30 percent ITC for the orphaned technologies, including small wind turbines, expired at the end of 2016.
“It’s salt in the wound,” said Mike Bergey, president of Bergey Windpower, in an interview. Bergey Windpower is an Oklahoma-based manufacturer of small wind turbines.
“Congress, in their infinite wisdom, extended the solar credits in the 2015 omnibus budget bill, but didn’t extend the small wind credits. Which means that a homeowner in Oklahoma who installs an imported solar system gets a 30 percent tax credit, but if they install a made-in-Oklahoma small wind turbine for the same utility bill reduction application, they get nothing," said Bergey.
“That’s disappointing to us and the 300+ companies in America we buy goods and services from. We are working hard with our trade association [DWEA] and other associations in this basket of orphaned technologies -- combined heat and power, fuel cells, geothermal heat pumps -- to get that remedied,” he said.
Bergey is cautiously optimistic about the pending legislative fix for the orphans: HR 1090, introduced by Rep. Reed. The bill has more than 100 co-sponsors in the House, with more Republican (62) signatories than Democrats (52). The bill would restore and phase down the ITC -- to 26 percent or 22 percent, depending when the project comes on-line -- for the orphaned technologies through the end of 2021.
“Most of the legislators in Washington express support, some very strong support, for remedying the situation,” said Bergey. “We’re hopeful that if not in the tax bill they’re working on now that there will be some sort of tax extenders package at the end of the year or during the debt ceiling extension.”
“HR 1090 is gaining a lot of needed support with 114 co-sponsors,” Jennifer Jenkins, executive director of the Distributed Wind Energy Association, said in an email. “I am being told that something is possible to move by the end of the year, but it is still unclear to which vehicle we will be attached. I wish we knew more -- this is an absolute game-changer for the orphaned technologies should we not get a solution this year.”
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