How the Senate Tax Bill Could Hurt the Commercial Solar Industry

As you probably know by now, the highly controversial new GOP Tax Bill passed in the Senate on Saturday morning.  What you probably don't know is that in its passing, a provision was included that has the potential to be very harmful to the renewable energy industry.  Now clean energy investors and stakeholders are pleading lawmakers to modify the bill to protect investment in American Renewables.

 

The said harmful provision, known as the Base Erosion Anti-Abuse Tax (BEAT), would subject companies with overseas operations to a minimum tax on projects in the US.  This tax would override any tax credits available to companies, such that credits like the 30% Federal Solar Tax Credit on solar projects could not be applied or would be overridden.  According to experts, this would scare away tax equity investors, as they would have no incentive to invest in renewable energy projects because they would no longer be able to use the ITC or PTC tax credits against their BEAT liability.  

 

Simply put, tax equity investors love solar investments because they get to utilize the tax credits and receive a share of the energy income.  It's a good return on investment for them as the tax credits typically pay off the initial capital investment over a period of five years, all while the investor is collecting profit from the energy income.  It's a good deal for them that typically provide an Internal Return on Investment of 10-15% after tax return.

So with the tax credits eliminated, offshore tax equity investors, who represent around 12 billion dollars in potential investments in renewable energy, will have no incentive to invest.  The tax equity marketplace would collapse as a result, which would create a very unstable environment for renewable energy investors.  This would cause many solar projects to be abandoned.

 

In addition to BEAT, a last-minute provision written just hours before the release of the bill could subject more corporations the Alternative Minimum Tax. That provision would potentially move most US Corporations from the regular Corporate Income Tax to the Alternative Minimum Tax, which would make fewer tax credits available to fewer companies.  AMT is a supplemental income tax that is in addition to baseline income tax that applies to companies or trusts with certain exemptions or special circumstances, so many investors may be una

 

Regarding the bill, Malcolm Woolf, senior vice president of policy for AEE Advanced Energy Economy (AEE), a business organization working to make renewable energy affordable, had this criticism of the bill: "The bill passed by the Senate also undercuts tax equity investment opportunities for wind and solar. We strongly oppose any legislation that risks billions of dollars in investment and hundreds of thousands of American jobs. We will continue to work with the Senate and House to ensure that the tax bill sent to the president is a pro-growth plan for an advanced energy industry that already employs more than 3 million people across our nation.”

 

So it remains to be seen what will happen in the final version of this bill.  Rest assured that leaders in the solar and wind energy businesses are fighting hard to get rid of the BEAT provision and save the renewable energy industry.  Let's hope those in Washington realize what's at stake.