The Energy 202: House GOP wants to water down tax breaks for wind energy. The Senate is unlikely to let it.

Source: By Dino Grandoni, Washington Post • Posted: Wednesday, November 15, 2017

Cattle graze in a pasture near a wind turbine in Adair, Iowa. (AP Photo/Charlie Neibergall)

When the House took its first pass at overhauling the tax code, it sent a chill through the swelling wind energy sector.

Included in the original draft, perplexingly to wind lobbyists, was language revisiting a bipartisan compromise extending the tax break for operating wind turbines through 2019.

Two years ago, Democrats won an extension for wind and solar energy tax credits as part of an end-of-year tax and spending package. In exchange, Republicans got a years-long ban on oil exports lifted.

But as part of its bid to revamp the tax structure, House Republicans decided to reopen that compromise, unilaterally.

While their tax plan targeted other breaks for solar and other renewable-electricity production, the potential changes to the subsidies for wind energy could have the most sweeping effect.

The House tax bill would make it more difficult for firms looking to build wind turbines from qualifying for a set of tax credits used to finance construction of the behemoth towers and blades, which often have high upfront costs. Even for developers that do qualify, the bill would trim the production tax credit for wind from $24 to $15 per megawatt-hour.

Fortunately for the industry, the places best suited for onshore wind energy are concentrated in the Midwest and Great Plains — traditionally, rural strongholds for Republicans. Three GOP senators — Charles E. Grassley (Iowa), John Thune (S.D.) and Dean Heller (Nev.) — have come forward in opposition to altering the wind tax credits.

“It shouldn’t be re-opened,” Grassley said in a statement after the House bill was introduced. The tax proposal introduced in the Senate, and being debated on the Senate Finance Committee on which Grassley is a senior member, leaves the wind tax credits untouched.

Still, the specter of unwinding the tax breaks for wind has already spooked investors in the capital-intensive projects.

“The uncertainty with the House bill is freezing the deals that are underway,” said Tom Kiernan, chief executive of the utility wind lobbying group American Wind Energy Association.

Even though the Senate seems unlikely to slash the wind tax breaks, the incentives could end up being a horse that’s traded in conference as the two chambers hammer out the difference in their proposals — should the tax overhaul ever get to that stage.

“The solar deals are moving forward but the wind deals — people are still working on them but they’re not closing,” said Keith Martin co-head of U.S. projects at the law firm Norton Rose Fulbright.

He added that he sees wind deals being delayed, although “nobody sees the whole market. All you can get is anecdotal evidence.”

If the House bill passed, some wind project already in the works — which the industry says totals $50 billion in investment over the past two years — might not qualify for the tax break.

An analysis by Bloomberg New Energy Finance found that the House tax plan, if passed, would slash U.S. wind development in half, from 38 gigawatts of new wind power through 2020 to only 19 gigawatts. Similarly, Goldman Sachs analysts found that the market would be reduced by more than half as well under the House plan.

The United States isn’t alone globally in tightening its belt when it comes to wind subsidies. European nations are too, which is putting a squeeze on turbine manufacturers globally.

Earlier this month, the Danish firm Vestas, the largest wind turbine maker, said its quarterly revenue dropped by 6 percent as compared to the same period in 2016. Siemens Gamesa Renewable Energy, another manufacturer, announced this month the elimination of 6,000 jobs, more than one fifth of its workforce, after its own disappointing round of earnings.

As another potential notch in the belt, the House bill adds to industry apprehensions.

“If you’re an investor, if you’re a bank, if you’re a tax equity provider, and you get a piece of legislation that challenges the provisions of that you thought we’re kind of sacrosanct, that’s a jolt,” said Chris Brown, Vestas’s North American president, who added that Vestas is “confident in our Senate support.”

“So you kind of stop and pause and say, what are we going to do?”