The tax bill just reconciled by the US House and US Senate keeps the traditional benefits afforded all energy forms, including oil and gas as well as wind and solar. It also extends the $7,500 tax credit given to buyers of electric cars.
Both chambers are expected to pass the revised and compromise $1.5 trillion tax package this coming week and to have it on the president’s desk before Christmas. While most of the American public’s focus is on who gets the gist of the tax benefits — corporate America or the middle class — energy and environmental professionals have their eye on the renewable tax credits that have long been a part of the tax code, albeit provisions that have historically been bargaining chips that have often left them with an uncertain future.
But even in a Republican-controlled Congress with a Republican in the White House, the tax credits will remain. However, the wind credit is expected to expire in 2020 and the solar credit in 2022 as part of a 2015 tax law. The current bill still includes the Base Erosion Anti-Abuse Tax (BEAT,) which treats the investment tax credits provided to the wind and solar industries as income.
Right now, projects are eligible to receive 30% tax credits — incentives that have led to the development of $50 billion in renewable energy facilities, say advocates. But instead of clawing back the whole credit, the bill would limit that to 80%.
““We are grateful for the elimination of provisions that would have decimated future renewable energy growth and even penalized past investment in wind and solar power, but we remain concerned about the potential impacts of the new Base Erosion Anti-Abuse Tax on renewable energy finance. Even as we recognize that important progress was made in the effort to repair those provisions, we also note that the applicability of the new tax was expanded by conferees,” Gregory Wetstone, chief executive of the American Council on Renewable Energy said.
“Business tax credits, like those for wind and solar power, can now be used to offset up to 80 percent of the BEAT tax,” he adds, “but we are uncertain how the marketplace will react to the fact that more multi-national firms may now be covered by the BEAT, and tax credits may not all be useable in any given year.”
Wind energy now accounts for about 6% of the energy mix while solar power makes up 1%, according to the US Energy Information Administration. While natural gas, nuclear and coal make up 34%, 30% and 20%, respectively, the renewable fuels have support in key Republican states. There are now 84,944 megawatts of installed wind capacity in the United States. Texas, an oil and gas state, has 20,000 megawatts of that.
On a practical level, the cost of wind and solar technologies has dramatically declined. That, in turn, has led to their impressive growth. Indeed, about 60% of the electricity added to the grid in 2016 came from wind and solar energy. Wind energy is employing more than 100,000 workers in all 50 states while the solar industry is doing the same for more than 200,000 people.
Under the 2015 tax bill, the renewable credits would gradually diminish through 2019. Wind and solar projects could opt instead to take a 30 percent investment tax credit that reduces their federal taxes dollar-for-dollar by what they put into the project.
The tax credits are spurring growth: Utilities announced new plans to develop and own 3,040 megawatts of wind capacity during the third quarter.
Meantime, project developers announced 1,337 megawatts of power purchase agreements (PPA) signed — deals where either other power companies or major businesses such as Google, Facebook, Apple, Intel and Amazon buy the output at fixed prices over a set number of years. As such, the wind association said that six corporate customers signed PPAs during the third quarter, accounting for 62% of total project capacity contracted.
While the renewable energy sector is breathing a sigh of relief that it could have completely lost its tax advantages, the reconciled measure leaves it less than satisfied:
“Despite progress on reducing the corporate tax rate, the final tax bill now before Congress is a missed opportunity to promote growth and provide market certainty for advanced energy businesses that employ more than 3 million workers across the United States,” said Malcolm Woolf, senior vice president for policy and government affairs at the Advanced Energy Economy.
“We are also disappointed that the bill does not level the playing field for other advanced energy technologies, such as fuel cells, storage, combined heat and power, geothermal, nuclear, and distributed wind,” Woolf continued. “But we understand that Congress intends to address this issue separately. Such legislation should adopt the House-passed approach of a phasedown of tax credits over several years. Short-term fixes fail to provide the market certainty needed to unleash the potential that these technologies can bring to the American economy.”