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AUTHOR:Peter Maloney@TopFloorPower
PUBLISHED: Nov 30, 2017

Dive Brief:

A new provision in the tax cut bill that is headed for a vote in the Senate could undercut the financing mechanism that has been a major driver in the rapid growth of renewable energy projects.

Four trade organizations representing a broad swath of the renewable energy industry sent an urgent letter to members of the Senate, asking them to reconsider the Base Erosion Anti-Abuse Tax (BEAT) provision, which they say could have a “devastating” effect on renewable energy projects.

The BEAT provision is designed to make it harder for corporations to dodge taxes, but it would also sweep up tax credits — such as the renewable energy Production Tax Credit (PTC) for wind power projects and the Investment Tax Credit (ITC) for solar projects — making the credits more difficult to monetize.
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Dive Insight:

Until recently, the renewable energy industry had been hopeful that the Senate’s tax cut bill would leave in place existing incentives for wind power.

The House’s version of the tax cut bill makes changes in the calculation of the PTC that could “kill” over half of planned wind farms, Tom Kiernan, CEO of the American Wind Energy Association, has said.

Members of the renewable energy industry took some comfort in the prospect that the House provisions would never make it past the Senate, where there is strong support for wind power. Until last week.

It appears that the BEAT provision was inserted in a last minute mark-up of the Tax Cut and Jobs Act in the Senate finance committee on Thanksgiving eve.

The provision means that the Senate bill “keeps the credits alive, but eliminates their value,” Greg Wetstone, president and CEO of the American Council on Renewable Energy, told Utility Dive.

“This should not be happening now,” he said. “It came out of nowhere.”

Wetstone pointed out that the BEAT provision would affect $50 billion in annual investment in renewable energy projects. His organization is one of four that sent a letter to members of Senate. The others are the American Wind Energy Association, Citizens for Responsible Energy Solutions, and the Solar Energy Industries Association.

“We do not believe it fair or appropriate for Congress to reduce the value of tax incentives that have been relied upon in good faith by investors and developers,” they wrote in the letter.

The BEAT provision targets “earnings stripping” — cross border payments multi-national companies make to overseas affiliates to reduce their tax bills. The provision aims to close that loophole by setting a minimum tax of 10% of taxable income.

The provision would require every company to quantify 10% of their taxable income, including cross-border payments and, in a second calculation, quantify their tax liability, excluding any tax credits. If the tax liability is less than the taxable income calculation, the government would collect the difference as a tax. The provision applies to all tax credits, except research and development credits.

The BEAT provision would make it harder for “banks and other large companies that are the principal source of tax equity for renewable energy to know, when closing on tax equity investments, whether they will receive the tax credits on offer for making the investments,” Keith Martin, a partner with Norton Rose Fulbright, wrote in a blog post.

“Any large bank or insurance company in the tax equity market is potentially affected,” Martin told Utility Dive. That could include JPMorgan, Bank of America, Citibank, Goldman Sachs, Morgan Stanley and foreign banks such as RBC, Credit Suisse and BNP.

Because the BEAT calculations would have to be performed every year, they would, in essence, be retroactive. Wind projects collect the PTC over a 10-year term. So, in any given year, a tax equity investor would not know the value of a tax credit until the end of the year.

Solar projects are often funded with the ITC, but the value of that credit would not be certain at the outset of the project — only at the end of the year in which construction is completed.

The BEAT tax would apply starting in 20118, but “credits would be clawed back on [PTC] deals closed as far back as 2008,” Martin said.

The letter argues that the retroactive nature of the BEAT provision would mean that companies holding tax credits would try “to sell them immediately, even at great discounts, a phenomenon that would flood the marketplace and further damage tax equity markets.”

Wetstone says the trade groups are advocating that the BEAT provision be revised so that the PTC and ITC are given the same treatment as R&D tax credits. That, the trade groups say, would restore the certainty that underpins the tax equity market and, by extension, the growth in renewable energy investment.