Tax Bill Largely Preserves Incentives for Wind and Solar Power

Source: By BRAD PLUMER, New York Times • Posted: Monday, December 18, 2017

A wind turbine blade at a Siemens plant in Fort Madison, Iowa. Provisions to roll back renewable energy incentives were removed from final tax legislation. Timothy Fadek/Corbis, via Getty Images

WASHINGTON — The final text of the Republican tax bill made public Friday largely preserves key tax credits for wind and solar power and electric vehicles, reversing language in earlier versions that could have slowed the growth of renewable energy across the United States.

The last-minute changes, made as lawmakers reconciled the House and Senate versions of the tax legislation, reflect the growing political clout of the wind and solar industries, which now provide more than 7 percent of the nation’s electricity and are two of the fastest-growing energy sources.

“As wind and solar projects have soared in the U.S., in both red and blue states, so has the industry’s influence in Washington, D.C., on both sides of the aisle,” said Dan W. Reicher, director of the Center for Energy Policy and Finance at Stanford.

While some industry groups said they still had concerns about a technical change in the final bill that could negatively affect a key financing tool used for wind and solar projects, they expressed relief that most of the major incentives for renewable energy had survived the negotiations.

For years, Congress has offered tax credits for wind and solar projects that can offset 30 percent or more of the total costs. When combined with the falling costs of wind turbines and photovoltaic panels, these incentives can make new wind and solar even cheaper than running existing fossil-fuel plants in parts of the country.

The initial version of the House tax bill, passed in November, would have scaled backtax credits for wind and solar power, as well as those for electric vehicles. The wind industry had warned that those proposed changes would have eliminated over half of the new wind farms planned in the United States.

But those rollbacks were removed from the final legislation. Several Republican senators, including Charles E. Grassley of Iowa and Dean Heller of Nevada, had opposed the House bill’s changes. Wind turbines now provide more than one-third of Iowa’s electricity, and Mr. Grassley, who has expressed doubt about global warming, has nonetheless emerged as a staunch defender of wind power. Tesla is building a major battery factory in Nevada, and Mr. Heller has argued that the electric-vehicle credits are needed to support a fledgling industry.

With only a slim majority in the Senate, Republican leaders could not afford to alienate lawmakers in their own party who favored these clean energy provisions.

Not everyone was entirely pleased with the final outcome. The American Council on Renewable Energy, an industry trade group, said it “remained concerned” about changes that lawmakers had made to an arcane provision known as the Base Erosion Anti-Abuse Tax, which is intended to stop multinational companies from shifting profits overseas.

In its original form in the Senate tax bill, that provision could have derailed the financing of new renewable projects. Many companies building wind and solar farms sell their tax credits to multinational banks and other investors who can use them to lower their own tax burdens. Roughly two-thirds of wind projects and three-fourths of solar projects in the United States are supported by such tax-equity financing. By imposing a minimum tax on multinational investors under certain conditions, the initial Senate bill could have drastically reduced demand for such credits.

Senator Charles E. Grassley of Iowa on Capitol Hill. Wind turbines now provide more than one-third of his state’s electricity. Pete Marovich for The New York Times

After the Senate bill was passed, both tax-equity investors and renewable companies aired their concerns with Senator Rob Portman, Republican of Ohio, who was on the conference committee to reconcile the House and Senate bills. Ohio has become a major manufacturer of wind turbine components, and a recent survey found the state had more than 105,000 jobs in various clean-energy industries.

In the end, lawmakers made significant tweaks to this provision, allowing multinational banks and other investors to use wind and solar credits to offset as much as 80 percent of the minimum tax. But they also made a separate change that could end up applying the minimum-tax provision to a broader set of investors — a change that caught renewable advocates off guard and could potentially shrink the market for tax-equity financing.

“We’re grateful that Congress eliminated most of the provisions that would have been devastating to the renewable energy sector,” said Gregory Wetstone, president of the American Council on Renewable Energy. “But on this one complicated issue, which is important for financing, we have an uncertain result.”

It remains unclear how much of an impact this latest change could have on wind and solar growth. One possibility is that financial institutions could find ways to adjust to the new rules and continue to fund wind and solar projects as before. Or Congress could tweak the provision further in subsequent legislation.

The intense scrutiny toward the tax bill highlights how much the recent growth in renewable energy still depends, to some extent, on policy choices. A new report from GTM Research and the Solar Energy Industries Association found that solar installations in the United States had declined this fall, in part because of “political uncertainty.” In addition to the tax bill, the Trump administration is contemplating new tariffs on solar imports that could raise the price of photovoltaic panels.The administration has made no secret of wanting to roll back tax preferences for solar and wind, arguing that those industries should have to compete on their own merit.

“I would do away with these incentives that we give to wind and solar,” Scott Pruitt, the chief of the Environmental Protection Agency, said in October. “I’d let them stand on their own and compete against coal and natural gas.”

Congress does not plan on subsidizing renewable energy indefinitely. Under tax legislation passed in 2015, the credits for wind will phase out by 2020 and for solar by 2022. Both industries say that they have been preparing for this eventuality for years by cutting costs, but that changing the rules so suddenly in the current tax bill would have created major disruptions for projects that are already underway.

The final text of the tax overhaul makes one other major change to energy policy, by opening the Arctic National Wildlife Refuge in Alaska to oil drilling, a longtime goal of Senator Lisa Murkowski, Republican of Alaska.

By contrast, other proposed energy changes were stripped out of the final text. The tax bill originally passed by the House had included an additional extension of tax credits for technologies like nuclear power, fuel cells and carbon capture. Southern Company, which is currently building the only two new reactors in the country, has said that extending the nuclear tax break was essential for its plans to go forward.

Some lawmakers have said that the nuclear credit and other energy provisions could be taken up in separate legislation next year.