By Erin Mundahl
During the Obama administration, America’s energy began to get both greener and cleaner. The unexpected fracking boom created a glut of cheap natural gas, which many utilities used to power electric generators instead of coal.
In addition, America’s solar and wind power capacity also surged, after benefiting from a series of federal and state tax credits that subsidized new solar panels and other alternative energy options.
But now that the Republican-controlled House has released its new proposed tax reform bill, the alternative energy industry is watching the status of these tax credits very carefully.
The GOP tax reform bill looks to both cut taxes for individuals and small businesses, while maintaining revenues by closing loopholes. As part of this process, the new proposal would reduce tax credits for certain forms of renewable energy and specify an end date for these programs.
For wind energy, this means cutting a 2.3-cent-per-kilowatt hour tax credit down to 1.5 cents by ending an inflation adjustment. All told, over the course of the next decade, the new tax bill would cut more than $11 billion in benefits to wind energy. These credits would also be given a firm sunset date of 2020, though subsidies would begin to decline this year.
Tax Hike on Wind Industry?
The American Wind Energy Association has railed against the tax reform bill, calling the changes a “retroactive tax hike on an entire industry” and a change that reduces regulatory certainty.
“Private capital commitments supporting over $50 billion in manufacturing and construction activity are at serious risk under this plan. These investments were made based on the rules of the 2015 phase out. Changing the rules in the middle of the game would be disastrous for American workers building wind turbines and farmers and ranchers harvesting the wind,” said Tom Kiernan, CEO of the American Wind Energy Association in a statement.
Solar power also faces subsidy cuts, though to a lesser degree. Solar power will keep its 30% tax credit, with the caveat that the credit will expire in 2022. In addition, a planned permanent tax credit of 10% for utility and commercial solar projects would end in 2027. Members of Congress fought hard to preserve these subsidies and said that they were pleased that they remained intact even after the cuts.
“We have more work to do on clean energy policy in tax reform, but I am pleased with this baseline because we worked hard to preserve those tax credits for renewables,” said Rep. Carlos Curbelo, R-Fla., a founder of the bipartisan Climate Solutions Caucus.
In 2016, solar installation in the U.S. surged as the price per cell fell. Foreign manufacturers were able to supply more panels at lower prices and tax benefits at the state and local level made purchases more affordable. Despite the industry’s growth, it still relies on these subsidies to remain competitive with traditional generation.
A white paper published by the George Washington University Solar Institute in 2014 predicted that regardless of the specifics of any given tax reform proposal, “sector-specific policies for clean energy would still be required to maintain solar’s economic competitiveness.” These policies included changes to expensing and depreciation rules.
Solar Stock Prices Fall
The proposed changes were enough to spook the markets. On Nov.1, before details of the tax plan had even been released, stock prices for solar companies began to fall. Several large solar companies, including Vivint, a Utah-based solar installation firm, and Enphase, which supplies inverters for solar energy projects, saw stock prices fall by more than 5 percent.
Tesla Motors stock also fell by more than 8 percent after news that the tax bill would end a credit for electric vehicle purchases. The credit provided a $7,500 tax credit for those who purchased an electric car. Although the credit was limited to the first 200,000 cars sold by any particular manufacturer, so far none had reached that ceiling.
The change would also affect sales of the Chevy Volt, but on the whole, the end of the credit is largely symbolic given the small market share held by electric vehicles. Ending the tax credit is projected to increase revenues by only about $4 billion.
Trump Aligns With Conventional Energy
The subsidy cuts were not unexpected, however. The Trump administration has positioned itself as a friend to conventional energy, including coal, natural gas, and nuclear power. In addition, administration figures, including EPA head Scott Pruitt, have spoken about the need for the wind and solar power industries to stand on their own feet without the benefits of subsidies.
In fact, some clean energy supporters have welcomed tax reform out of hopes that it will spur research and development. A report released by the American Council for Capital Formation in early October took a cheerier view of tax reform, suggesting that higher rates of return on investment would spur the adoption of new technology. The ACCF also supported changes to incentivize research and development.
“Achieving proposed goals for global greenhouse gas emissions will require massive investment worldwide in new, low-carbon energy,” said former NERA Economic Consulting Senior Vice President W. David Montgomery. “Unless new and better clean energy technologies are developed, most of those goals will be prohibitively expensive to achieve. Incentives created through tax reform would help facilitate development and deployment of new energy technologies.”