WASHINGTON — The Republican tax bills moving through Congress could significantly hobble the United States’ renewable energy industry because of a series of provisions that scale back incentives for wind and solar power while bolstering older energy sources like oil and gas production.
The possibility highlights the degree to which the nation’s recent surge in renewable electricity generation is still sustained by favorable tax treatment, which has lowered the cost of solar and wind production while provoking the ire of fossil-fuel competitors seeking to weaken those tax preferences.
Whether lawmakers choose to protect or jettison various renewable tax breaks in the final bill being negotiated on Capitol Hill could have major ramifications for the U.S. energy landscape, including the prices consumers pay for electricity.
Wind and solar are two of the fastest-growing sources of power in the country, providing 7 percent of electricity last year. Sharp declines in the cost of wind turbines and photovoltaic panels, coupled with generous tax credits that can offset at least 30 percent of project costs, have made new wind and solar even cheaper than running existing fossil-fuel plants in parts of the country.
In different ways, direct and indirect, the House and Senate bills each imperil elements of that ascension. A Senate bill provision intended to stop multinational companies from shifting profits overseas could unexpectedly cripple a key financing tool used by the renewable energy industry, particularly solar, by eroding the value of tax credits that banks and other financial institutions buy from energy companies.
The House bill’s effects would be more direct, rolling back tax credits for wind farms and electric vehicles, while increasing federal support for two nuclear reactors under construction in Georgia. Fossil fuel producers are under little pressure in either bill and some would stand to benefit: The Senate legislation would open the Arctic National Wildlife Refuge in Alaska to oil drilling, while a last-minute amendment added by Sen. John Cornyn, R-Texas, would allow oil and gas companies to receive lower tax rates on their profits.
The tension between new and old energy was on display this week at a White House event to promote the Republican tax legislation, where a coal plant employee from North Dakota thanked President Donald Trump for a provision in the House bill that would drastically reduce the value of the production tax credit for wind.
“The production tax credit has destroyed the energy market, especially in the Midwest,” the employee, Jessica Unruh, who is also a state representative, told the president. “Wind production has really eroded our state tax base and replaced coal production when it comes to electricity production.”
The wind industry has warned that the House language, which would reduce the wind tax credit to 1.5 cents per kilowatt-hour, from 2.4 cents, and change eligibility rules, could eliminate over half of the new wind farms planned in the United States.
“We would see a drastic drop-off in wind installations,” said Michael Goggin, the senior director of research at the American Wind Energy Association. “We’re already seeing orders put on hold and projects not able to get refinancing. Even the threat of this bill is having a chilling effect.”
The tax bill joins a host of federal policy changes proposed by the Trump administration that could crimp the growth in clean energy. Those include a proposed Environmental Protection Agency rollback of President Barack Obama’s Clean Power Plan for reducing carbon emissions and the looming possibility that Trump will impose tariffs on imported solar panels, which could increase the cost of solar power.
“There is a perfect storm of bad news that impacts investor confidence in renewables,” said Trevor Houser, a former Obama administration climate official who now tracks energy economics as a partner at the Rhodium Group. “It is shaping up to be a pretty rough 2018.”
No one is predicting the demise of solar and wind deployment, which rely less each year on tax subsidies as their costs decline and were already preparing for a gradual phaseout of the subsidies by 2020. But the sudden changes could slow what had been a steady pace of adoption and raise electricity prices for consumers in states like California, which have set mandatory targets for the share of renewables in their electricity mixes. In states without such targets, including Texas, more expensive new renewable plants could lose out to natural gas generation.
“In the long run, we think wind and solar will become cheap enough to compete without subsidies,” said Amy Grace, a renewables analyst at Bloomberg New Energy Finance. “But in the short term, those tax credits have been important.”
The Trump administration has made no secret of wanting to pull the plug on tax preferences for solar and wind, contending 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.”
Congressional aides say the treatment of renewables will be an issue in the continuing negotiations between the Senate and House over a final bill. Lawmakers have begun the process of reconciling the two bills, which have several crucial differences beyond just the energy provisions.
In a potentially bad sign for the renewable industry, the list of Republican senators named to the conference committee Wednesday did not include Sen. Charles E. Grassley of Iowa, a longtime champion of the wind industry who has opposed the House’s efforts to curtail wind tax credits before a phaseout scheduled for 2020.
While the Senate version preserves the important tax credits for wind and solar, it includes a provision that could unexpectedly undermine their effectiveness — and has prompted major concern from the industry.
Currently, the companies that build wind and solar farms often do not have large enough tax liabilities to take full advantage of the renewable credits. So they will sell the credits to banks and other investors who can take advantage of 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.
But under a provision in the Senate bill known as the Base Erosion Anti-Abuse Tax, intended to prevent companies from outsourcing investment abroad, many of those same banks could face a new minimum tax that reduces the value of those wind and solar credits. That, in turn, could dry up demand for such tax-financing deals. Renewable companies may have to look elsewhere for financing, which could either increase costs or stop some projects.
Abigail Ross Hopper, the president and the chief executive of the Solar Energy Industries Association, said that the provision could negatively affect 39 gigawatts worth of new solar projects around the country — nearly as much as all of the solar power that has been installed to date.
“The jury is still out on whether this was a carefully crafted hits on renewable energy or an unintended consequence,” she said. “But we’re trying to make sure members understand what the impacts of these changes would be.”
In addition to repealing renewable incentives, the House bill would also scrap a key tax credit for electric vehicles. Currently, the federal government offers a tax credit worth up to $7,500 for anyone who buys an electric car, though the credit quickly phases out for any manufacturer that sells 200,000 such vehicles in the United States.
“That would definitely be a big blow to the electric vehicle market, which is just picking up steam,” said Jessica Caldwell, an analyst at Edmunds.com. While Tesla and General Motors are nearing their cap for the tax credit, repeal could significantly affect companies like Nissan, which was planning to introduce a new model of its all-electric Leaf in the coming year.
Sen. Dean Heller, R-Nev., has said he will work to oppose the House’s repeal of the credit. Tesla is building a major battery factory in his state.