Tax reform clouds US renewables outlook

Uncertainty over tax reform legislation poses risks for US renewables, though the sector may avoid some of the more devastating changes proposed to the tax code.

The tax bill passed by the Senate includes two significant changes that, if they become law, could set back the solar and wind industries. One proposal, called the Base Erosion Anti-Abuse Tax (BEAT), could reduce the value of renewable tax credits and spur financial institutions to stop participating in tax equity financing, according to the American Council on Renewable Energy.

“As drafted, the BEAT program would have a devastating, if unintended, impact on wind and solar energy investment and deployment,” ACORE, an advocate for the sector, wrote in a letter to the Senate.

Another proposal in the Senate bill would set both the corporate alternative minimum tax and the corporate tax rate at 20 percent. The identical rates could also hurt the value of certain tax credits on which the industry depends.

The House bill targeted wind and solar credits directly, even retroactively downgrading some renewables credits.

While both houses of Congress have passed their own plans, a final bill will be hashed out through the reconciliation process. In its 2018 outlook on the sector, Fitch warned of policy uncertainty, with Greg Remec, a senior director at the ratings agency, saying the proposed changes “would reduce the value of production tax credits and, in turn, diminish the value of new renewable energy projects”.

But not all investors are panicking. John Breckenridge, who heads the clean energy infrastructure team at Switzerland-based Capital Dynamics, says concern over the House bill’s cuts have receded since the Senate proposal saw the credits restored. He expects that the AMT issue will also be corrected in the final bill.

“At this point, it does not look like there is any sort of catastrophic aspect to it as far as the industry goes,” Breckenridge told Infrastructure Investor. “We would have preferred to have something more supportive, but out of this administration it is probably impossible.”