How the House Tax Bill Would Impact Wind, Solar, Electric Vehicles and Utilities
House Republicans unveiled a massive tax reform bill last week. While it wasn’t as damaging to renewables as many feared, the changes still pose a threat.
Wind and electric vehicles stand to lose the most. Lawmakers are looking to slash tax credits for wind by more than a third and eliminate the $7,500 federal credit for electric-vehicle purchases. The Senate is crafting its own version of the bill, however, so many of the proposals in the House version may never become law.
“This bill is going to get written in the Senate, because a lot of this stuff is not going to survive,” said Greg Jenner, a tax attorney at Stoel Rives who works with renewable energy companies. “The sad thing is, it creates uncertainty in the marketplace — just the fact that this proposal is out there.”
Here’s our breakdown of how the 429-page House tax bill could impact wind, solar, utilities, electric vehicles and more.
Wind: PTC rollback and new rules for construction
The plan delivers “a mighty one-two punch” to the wind industry, said Anthony Logan, a market analyst at MAKE Consulting who wrote about the bill’s wind implications for GTM earlier this week.
Lawmakers are pushing for a reduction of the Production Tax Credit, which is already on a phase-out schedule. Projects that started construction in 2015 and 2016 are currently eligible for a PTC of 2.4 cents per kilowatt-hour.
The House tax bill would roll back the PTC amount to 1.5 cents per kilowatt-hour for new projects by doing away with inflation adjustments. By no longer taking inflation into account, the current 2.4-cent rate drops to 1.5 cents, which was the base rate when the credit was enacted in 1992.
Under the terms of a 2015 extension, the credits are already in the process of being phased out. Projects that begin construction in 2017 will receive 80 percent of the credit’s 2.4-cent value, projects that begin in 2018 receive 60 percent, and projects in 2019 receive 40 percent. The credits are scheduled to end completely for projects that break ground after 2019.
The plan deals a second blow to wind developers by changing PTC requirements for “continuous construction.” Many projects that began construction in 2016 or earlier would no longer qualify for the full 2.4-cent credit unless developers can prove continuous construction. If they can’t, they would have to officially restart construction at a later date and be subject to the new 1.5-cent per kilowatt-hour rate, plus the phase-out reduction.
The bill would be “changing the rules in the middle of the game” because investors cannot go back in time to meet the revised requirements, said Tom Kiernan, CEO of the American Wind Energy Association, in a statement.
“No American job is safe if Congress can change the terms of business contracts years after agreements are signed and billions of dollars are spent. Private capital commitments supporting over $50 billion in manufacturing and construction activity are at serious risk under this plan,” said Kiernan.
Experts say the continuous construction changes are unlikely to be adopted because U.S. law frowns upon retroactive changes in legislation.
“It’s never going to get through the Senate,” said Jenner. “Retroactive changes are offensive, from a policy standpoint, especially without any notice.”
A report released by Morgan Stanley last week said the Senate is unlikely to pass changes to the tax credit, noting that 85 percent of wind projects are in Republican jurisdictions.
Sen. Chuck Grassley (R-Iowa) issued a statement last week saying he’s working to block the proposed changes. He told reporters last year that he would fight to preserve the PTC, saying President Trump will “have to get a bill through Congress, and he’ll do it over my dead body.”
Solar: Full repeal of the ITC after 2027
It’s a long way off, but the GOP plan would repeal the 30 percent Investment Tax Credit (ITC) for commercial and utility solar projects that begin construction after 2027.
The credit is currently scheduled to step down to 26 percent in 2020 and 22 percent in 2021.
After 2021, the residential credit is set to expire, while the commercial and utility credit is supposed to remain at 10 percent permanently. Under the new House bill, that 10 percent credit would disappear for projects started after 2027.
It’s hard to tell what the impact would be 10 years out, but “it can’t be good news for the solar industry,” said Jenner. He noted that scrapping the ITC would also have a negative effect on battery storage, which benefits from the credit when it’s paired with a solar project.
Like the wind industry, the solar industry would have to adhere to the bill’s new continuous-construction requirement to qualify for tax credits. With no step-down in ITC rates until 2020, the rule wouldn’t have the same retroactive effect that it does for wind, because current solar projects won’t be subject to reduced credit rates if they restart construction anytime soon.
While not a tax issue, the looming Section 201 trade case filed by Suniva and SolarWorld threatens to do more immediate damage to the U.S. solar industry, making it the main focus of lobbying efforts.
“The big question is how many resources are going to be dedicated to lobbying for the Section 201 outcome, versus any effort spent on adjusting what has been proposed in the House tax bill for the ITC,” said Cory Honeyman, the associate director of GTM Research’s solar practice.
Repeal of the $7,500 federal tax credit for electric vehicles
The House bill would terminate a $7,500 federal credit for electric-vehicle purchases. Experts say the move could cripple the emerging EV market, especially when it comes to sales of lower-priced electric cars like the Chevy Bolt, Nissan Leaf and Tesla Model 3.
Changes in the bill would throw the EV market “into disarray” and “squander the progress we’ve made” on energy innovation, said Michelle Robinson, director of the Clean Vehicles Program at the Union of Concerned Scientists, in a statement. “Electric vehicles are a new industry, and the electric-vehicle purchase incentive has been a vital part of getting it off the ground.”