NOTE

Renewable Energy Largely Spared in the Compromise Tax Bill

Hannah Hess and Trevor Houser | December 15, 2017

Late Friday afternoon, Republican lawmakers unveiled the final version of their bill to rewrite the tax code. Here is a guide to the fate of provisions that most impact clean energy, updating our breakdown of the House and Senate bills published last week.

Electric vehicles

Consumers would remain eligible for a federal tax credit of up to $7,500 per EV under the consensus deal reached by the conference committee. The House bill would have terminated that credit. The program is capped at the first 200,000 qualifying vehicles sold by each auto manufacturer.

Wind

The conference agreement preserves the Production Tax Credit (PTC), currently set at 2.4 cents per kWh, and maintains the 10% Investment Tax Credit (ITC) after 2027. Most importantly for wind developers, legislation unveiled today spares renewable energy tax credits from a provision in the Senate bill called the Base Erosion Anti-Abuse Tax (BEAT) that would have severely limited the market for renewable energy tax credits. The deal retains BEAT, which is intended to prevent “earnings stripping” where companies use cross-border payments to reduce their US tax liability. However, compromise language would allow companies to continue to take advantage of the PTC and ITC to offset up to 80% of the BEAT. It makes no changes to qualification criteria for wind projects, and a provision to extend the 30% ITC for small wind that expired in 2016 until 2021 that was in the House bill was left out of the conference agreement.

While this does not fully eliminate BEAT-related risk, and does nothing for small wind, the conference agreement is far better for wind overall than either the House or the Senate-passed bills.

Solar

The conference agreement does not include the solar ITC cuts that were in the House bill or the change in qualification criteria for solar projects. And the threat posed to solar finance by the BEAT provision in the Senate bill has been significantly reduced through the compromise discussed above.

Geothermal Electric

As with solar, for geothermal, the worst parts of the House bill (elimination of the 10% ITC after 2027) and the worst parts of the Senate bill (the BEAT provision) have both been addressed.

Nuclear

The 2005 Energy Policy Act provided a 1.8 cent per kWh tax credit for up to 6 gigawatts of new nuclear reactors. That credit is scheduled to expire in 2020, calling into question whether two AP1000 reactors Southern Company is adding to its Vogtle site will receive the credit (if they are completed). A provision in the House bill that would have extended the credit did not make it into the final deal.

Fuel Cells

Fuel cells companies arguably fared the best among the clean energy community in the House bill, winning a dearly sought extension of an expired 30% ITC. That provision didn’t make it through to the final conference agreement. Instead, fuel cell manufacturers will have to bank on a separate extenders package getting adopted next year.

Carbon capture

The conference agreement preserves the authority for state and local governments to issue private activity bonds (PABs) to fund projects with a public purpose, a provision that has been used to finance carbon-capture projects and was cut in the House bill.

CHP, Geothermal Heat Pumps, and Microturbines

Like fuel cells, CHP, geothermal heat pumps and microturbines had succeeded in winning an extension of an expired ITC (though at 10%, not 30%) in the House bill. This didn’t make it into the conference agreement. They will have to bank on a separate extenders package next year as well.