Amid the flurry of news leading up to the inauguration of President Trump, Treasury Secretary nominee Steven Mnuchin said last week that he supports the existing phaseout of the Production Tax Credit for wind energy.
Sen. Chuck Grassley (R-Iowa) questioned Mnuchin on his support for leaving the tax incentive as structured, while working on a broader tax reform proposal.
“As we discussed, Congress has effectively put in place transition rules for some alternative energy, including wind," Grassley said. "The Production Tax Credit is scheduled to phase out over the next few years, ending in 2020. Based on our conversation, I believe we are in agreement that you would support the current phaseout as part of any tax reform proposal.”
“On this point, I absolutely agree with you," said Mnuchin. "We do need to have phaseout rules when we change things. I support the phaseout of that as you suggested.”
Financial firm UBS said Mnuchin's comments were reassuring. "While this remains a very preliminary announcement, we think this suggests that the new administration is likely to leave the current PTC phaseout schedule unchanged," analysts wrote in a note to investors.
Mnuchin did not specifically address the Investment Tax Credit (ITC) for solar, but his position on the PTC is likely a positive for the solar industry. Both tax credits were passed as part of a large spending package at the end of 2015. The ITC is currently scheduled to ramp down incrementally through 2021, and remain at 10 percent permanently beginning in 2022.
According to Katherine Hamilton, principal at 38 North Solutions, there continues to be support for the solar and wind incentives in Congress.
"I have heard from sources close to House and Senate leadership that they consider the PTC and ITC transitioned and are not inclined to re-litigate," she said. "That said, it will be important for those who have been positively impacted by those credits -- farmers, ranchers, small and large businesses, and homeowners -- to continue to demonstrate the economic benefits of solar and wind to their bottom line."
Patrick Currier, partner and co-founder of consulting firm S2C Pacific, and former senior energy counsel to the House Committee on Energy & Commerce, echoed that it's unlikely the ITC and PTC will be changed. One reason is that the clean energy incentives came in exchange for crude oil exports in a hard-fought negotiation where both parties compromised in a manner rarely witnessed, Currier said.
"The leaders who were at the table for this deal understand the nature of this agreement and would be unwilling to unwind it, despite some likely attempts from the anti-subsidy crowd in the House," he said. "So if this is not a White House priority, as Mnuchin has publicly indicated, then I don’t expect Congress to unwind it."
Currier also pointed out that Mnuchin is a former partner at Goldman Sachs, and that Wall Street loves the PTC. "Goldman and other firms used to buy up as much tax equity (PTC) as they could from project developers. Developers got cash and in exchange Wall Street firms took the tax credits to reduce their tax burden," he said. "Those deals aren’t as prominent as they once were, but no doubt Mnuchin understands the upside for financial firms."
The solar and wind industries have seen record growth in recent years, thanks in large part to federal incentives. These industries now support hundreds of thousands of jobs and are poised to create thousands more under current tax policy. President Trump has made job creation in America a top priority on his agenda, which is another reason the ITC and PTC are likely safe.
"[Trump] is unlikely to single out wind and solar tax credits or otherwise show such targeted hostility to an industry that is investing in U.S. infrastructure and creating U.S. jobs," said Currier.
He added that there are several caveats to consider, however. First, the ITC for solar doesn't phaseout completely, for utility-scale and commercial-scale projects the ITC will remain at 10 percent indefinitely after 2022. Some anti-subsidy lawmakers may go after the permanent ITC, said Currier, but he didn't give that good odds.
Another caveat is that Mnuchin could revise rules with respect to "commence construction" dates or "in service" requirements that would limit the availability of tax credits for wind and solar projects, without changing dollar amounts or timetables. Furthermore, with President Obama's Clean Power Plan (CPP) effectively dead, wind and solar developers will lose the early incentive program offered under the CPP starting in 2021, which aligned with the ITC and PTC phaseouts.
"Wind and solar saw value in striking a deal to get a favorable phase out, knowing that they were going to have CPP to fill the gap on the back end," said Currier. "So, given likely decline or at least delay of CPP implementation, it would actually benefit the wind and solar industry to seek a reworking of the deal. Wouldn’t that be something."