Senate Tax Bill Brings Good News for Renewables

After the the House’s version of a tax overhaul bill slashed clean energy credits, the industry expressed widespread anxiety. But the Senate’s draft mostly spares incentives for clean energy projects. 

The House bill proposed slashing the Production Tax Credit (PTC) for wind by over a third. It also eliminates a $7,500 credit for electric-vehicle purchases. The solar industry would see an end to the Investment Tax Credit after 2027 for commercial and utility-scale solar projects, and an end to the 10 percent credit for residential projects (which is already set to expire in 2021). Under current law, commercial projects would still benefit from a 10 percent tax credit after 2021.

The bill does extend a $6 billion nuclear credit to benefit the one nuclear project now underway, Georgia’s Vogtle plant. 

The Senate’s bill is decidedly more gentle. It keeps the $7,500 EV credit and the previously established credit step-down for solar and wind agreed to in 2015.

“The Senate bill, if passed as-is, I imagine would have no impact on the Investment Tax Credit or the Production Tax Credit,” said Gerald Feige, counsel in the tax group of Shearman & Sterling LLP.

Under the current agreement, wind projects that begin construction in 2017 receive 80 percent of the original tax credit, 60 percent in 2018 and 40 percent in 2019, before the credit expires. For solar, projects receive a 30 percent investment tax credit through 2019, 26 percent in 2020, and 22 percent in 2021. Past that year, commercial solar projects maintain a tax credit of 10 percent, while residential projects get zero.

After the House’s proposal, the renewables-friendly bill came as a surprise to many in the industry. Liam Donovan, a tax lobbyist at Bracewell LLP, told Bloomberg “it’s an epic head fake” in its approach to energy. 

But the clean energy industry isn’t complaining. 

"The Senate tax bill is encouraging news," said Luke Lewandowski, research manager at MAKE Consulting. "Market uncertainty has not lifted completely, but the Senate bill proposal sends a signal that there is strong support for the PTC."

According to the American Wind Energy Association, the policy certainty created by the PTC has spurred the 21 gigawatts of wind under construction or in late-stage development. “The Senate tax reform bill keeps a promise to America’s more than 100,000 wind energy workers and restores the confidence of businesses pouring billions of dollars into rural America,” said Tom Kiernan, AWEA's CEO, in a statement.

According to Kiernan, the House bill would create uncertainty and instability in the industry by changing rules already underway. 

The maintenance of the EV credit is also essential for the future of that industry, according to Ravi Manghani, director of energy storage at GTM Research. Manghani said the credit may not impact high-end Tesla models, but it can reduce the price for buyers of lower-end models by as much as 25 percent. 

“This credit is extremely critical to put the EV market in second gear,” said Manghani. “Without the tax credit, it's very likely investments in building EV manufacturing in Detroit may come to a grinding halt through end of this decade and delay the scale-related cost reductions, thereby proving to be a double whammy to future of EVs.”

Abigail Ross Hopper, the president and CEO of the Solar Energy Industries Association, said the group is pleased with the continuation of the credit ramp-down for solar.

Many Republican lawmakers who drafted the bill do have a clear stake in supporting clean energy. According to Morgan Stanley, 85 percent of wind projects are sited in Republican districts. 

Clean energy advocates may be mollified for now. But environmentalists are decidedly less happy. The League of Conservation Voters called the Senate bill “a scam” in part because of its breaks for corporations. 

The Senate’s bill now heads to the Finance Committee, where it could see additional amendments. If both the House and Senate move forward with their bills, the next step will be reconciliation. Drastic cuts are likely to face an uphill battle in the Senate.