Why the wind and solar lobby is terrified of the Senate tax plan

Source: By Dino Grandoni, Washington Post • Posted: Friday, December 1, 2017

President Trump joins Sen. John Barrasso (R-Wyo.) and Senate Majority Leader Mitch McConnell (R-Ky.) as they head into the weekly Senate Republican Policy Committee luncheon on Tuesday. (Photo by Chip Somodevilla/Getty Images)

The version of the tax overhaul approved by House Republicans earlier this month contained a lot of red meat for redder members of Congress.

In that chamber, many GOP lawmakers are opposed to the federal government lending a helping hand to renewable energy. The House tax proposal, which passedthe chamber in the middle of November, would partially or completely roll back tax breaks meant to encourage wind and solar development nationwide.

The Senate version, on the other hand, doesn’t mention the wind and solar tax credits. In this political environment, with Republicans in control of Congress, the wind and solar lobby was more than happy to see the tax breaks left untouched.

But the upper chamber’s version of the bill, which on Wednesday cleared a key procedural hurdle and moved closer to a final vote, contains a provision that the wind and solar industry worries would inadvertently upend investment in renewable energy.

The effect of the Senate tax bill on the wind and solar sector is likely unintentional — or so renewable advocates hope. Despite the motives, the energy tangle is a telling sign of the frantic speed with which Congress is attempting to rewrite the U.S. tax code, and indeed much of American life, with meager debate.

“We don’t normally speak in these hyperbolic terms,” said Greg Wetstone, president and chief executive of the lobbying group American Council On Renewable Energy (ACORE). “What this bill would do is bring that investment to a screeching halt.”

Here’s why: When an electric utility or another company wants to erect wind turbines or solar arrays for large-scale electricity generation, it will more often than not partner with a large financier, such as Goldman Sachs or Google, to help fund the project.

In exchange, the company agrees to give the financial institution the wind or solar credit it gets from the government. That allows those financiers, often multinational corporations with their own considerable tax burdens, to lighten their loads.

Here’s where the Senate tax bill comes in: A new tax in the legislation — called the base erosion anti-abuse tax, or BEAT — is designed to discourage multinational corporations from moving profits and jobs offshore.

But the formula for calculating multinationals’ obligation under that new tax sweeps up the wind and solar credits, too. For every dollar earned through a wind or solar tax credit, the government could levy an additional dollar through the BEAT tax, potentially canceling out renewable subsidies going forward and retroactively.

“[T]he way the tax is calculated could claw back tax credits that US companies were awarded for investing in renewable energy projects in the past,” Keith Martin, a tax and finance lawyer at Norton Rose Fulbright, wrote in a note laying out his concern. “It would also make it harder for banks and other large companies that are the principal source of tax equity for renewable energy to know, when closing on tax equity investments, whether they will receive the tax credits on offer for making the investments.”

Solar and wind representatives in Washington, including the American Wind Energy Association, the Solar Energy Industries Association and ACORE, sent a letter to senators urging them to exempt their tax credits.

“While we are grateful that the Senate tax proposal leaves the current phase-down schedules for wind and solar energy tax credits unchanged, the bill’s BEAT provisions undermine our capacity to use renewable energy tax credits,” the letter read. “We respectfully, and urgently, ask that the BEAT program be amended.”

Financial institutions that invest in renewables, many of which are members of ACORE, have indicated they need to bolt from the renewable investment market if that tax becomes law, Wetstone said.

Peter L. Kelley, vice president of public affairs at the American Wind Energy Association, added by email, “Otherwise it could kill over half the wind projects in America, cause factory layoffs and break construction contracts already signed, and deprive farming communities of a cash crop they’re counting on.”

This month, a group of GOP senators from wind-swept states — Charles E. Grassley of Iowa, John Thune of South Dakota and Dean Heller of Nevada — said they wouldoppose the alteration that the House made to the production tax credit benefiting onshore wind energy. Their stance on the Senate language, however, is unclear.

Now, Grassley and other senators like Rob Portman (R) of Ohio, have asked the nonpartisan Joint Committee on Taxation to score the effect such an exemption would have on the overall tax package, according to a person who has spoken to one of the senator’s offices.

Unlike the House proposal, which explicitly targeted renewables, there’s no indication the hit on wind and solar in the Senate version was intentional.

“That’s our hope,” Wetstone said. Then he added, “But the fact that this problem has not been fixed raises concerns.”