Governors' Wind Energy Coalition

For all of the bipartisan goodwill that was on display at the end of 2015 when Congress reauthorized and extended multiple tax credits for renewable energy technologies, it is disappointing to now see so many lawmakers willing to renege on those agreements.

Despite the fact that the renewable energy sector agreed two years ago to a phase-out of those extended benefits, in exchange for market certainty, many in the House and Senate are now ready to impose new tax structures that will upend one of the nation’s fastest growing industries, and endanger billions of dollars of investment in projects that would diversify and strengthen our nation’s energy infrastructure and delivery.

First, the House, in an extremely narrow vote, last month approved, as part of a major tax reform bill, provisions that would shorten the terms of qualification for a production tax credit (PTC). This would define the start of a wind facility to be at construction, essentially putting a retroactive tax bite on projects already underway or in the planning stage.

The House measure would also end by 2027 a 10-percent investment tax credit (ITC) for utility-scale and commercial solar projects, which lawmakers had agreed in 2015 would be permanent.

The Senate’s version of tax reform legislation at first appeared to offer clean energy advocates some hope by leaving the PTC and ITC for renewable technologies alone.

However, in a move that some say was inadvertent, Senate tax writers inserted provisions that would seriously devalue renewable energy tax credits. The Base Erosion Anti-Abuse Tax (BEAT) provisions aim to target “earnings strippings,” the process by which large companies with overseas operations reduce their tax bills through cross-border payments that they can then deduct from their taxes in the United States. The BEAT program is designed to circumvent that stripping with a minimum tax of 10 percent of taxable income, then up to 12.5 percent by 2026.

But clean energy groups say the BEAT program would have a devastating, if unintended, impact on wind and solar energy development, putting at least $12 billion in investments at risk and collapsing the tax equity market.

Sen. John Thune (R-SD), a member of the Senate Finance Committee, said prior to the tax reform bill’s passage that he and others would work to exempt renewable energy tax credits from BEAT provisions (just as research and development tax breaks are exempt). However, the language remained in the tax reform bill that passed out of the Senate in a 51-49 vote during the pre-dawn hours last Saturday morning and is now headed to a House-Senate conference committee.

Investors, developers, manufacturers and corporate energy consumers in the U.S. renewable energy sector know that the BEAT provisions will undermine their ability to use production and investment tax credits, which only have value if they can be monetized. Major financial institutions have indicated that a BEAT program would prevent them from participating in tax equity financing, the principle mechanism for monetizing credits. For multi-national companies covered under the BEAT provisions, the renewable tax credits would be subject to what is, essentially, a 100-percent tax.

25x’25 lauds the intent of the BEAT provision authors to promote U.S. investment and job growth. But the program would virtually punish renewable energy tax credit recipients who invest in U.S. projects, and it would severely reduce American wind and solar energy investment, which now totals nearly $50 billion annually. Job creation – solar employment last year ran 12 times that of the U.S. economy and now totals more than 260,000; wind employs more than 100,000 – would be stymied.

Navigant Consulting projects that maintaining stable investment policy through the five-year PTC phase-out will create $85 billion in economic activity and help grow another 50,000 American jobs, including 8,000 jobs at U.S. factories, through 2020.

The 25x’25 Alliance urges stakeholders and all renewable energy advocates to reach out to their elected representatives in Washington and call on them to amend the BEAT program to exempt production and investment tax credits from the calculation of the base erosion tax, just as it has done so for research and development tax credits. BEAT’s potential to harm – unintentionally, many say – what is now a vigorous and growing renewable energy sector is unacceptable.