What you need to know about clean energy provisions in the Federal Tax Bill

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This fall, pretty much everybody had an opinion about the federal tax bill getting put together in Washington D.C. Whether you hated it, loved it -- or fell somewhere in between, the first major tax overhaul bill in years drew plenty of attention during the closing months of 2017.

As a conduit between clean energy businesses in Minnesota and both the state and federal government, Clean Energy Economy MN was watching the construction of the Federal Tax Bill closely. Here is what caught our attention in the first round of bills passed by the House and Senate.

House Bill Clean Energy Provisions:

  • Direct rollbacks to tax credits.
  • Reduced the value of wind production tax credit (PTC) by 40% by removing the inflation adjustment and rolled back the PTC amount to 1992 levels for projects that start construction after the tax bill would be enacted. (This would have made the credit go from $24 per megawatt hour to $15 per megawatt hour).
  • Changed the longstanding “safe harbor” guidelines adopted by the IRS and would have made it harder for future projects to qualify for higher PTCs by claiming they were already under construction.
  • Reductions would have applied retroactively, meaning they would impact existing and future projects.
  • Would have ended formerly permanent 10% solar investment tax credit (ITC) in 2027 but doesn’t otherwise change the phase-down schedule.
  • Completely eliminated the Electric Vehicle Tax Credit.

Senate Bill Clean Energy Provisions:

  • Included a BEAT provision (Base Erosion Anti-Abuse Tax) which means that tax equity financiers with international footprints would not be allowed to reduce their tax liability below a certain threshold, which essentially minimizes and in some cases eliminates the value of renewable energy tax credits. This provision was also retroactive, impacting existing and future projects.
  • Companies following the 20% Alternative Minimum Tax (AMT) can only claim production tax credits for 4 instead of 10 years. (ITC for solar is not affected).

After speaking with businesses across the state it was clear these provisions would have  an immediate chilling effect on wind and solar projects currently under consideration. After the House bill passed, a diverse coalition of nonprofits and businesses communicated their concerns, particularly the issues with the wind PTC. CEEM was part of this effort and submitted a letter to our entire congressional delegation outlining how the bill would adversely impact Minnesota’s clean energy economy.

After the Senate passed its version of the tax bill, our attention turned to helping explain a very complicated topic -- the BEAT provision. Essentially, this small clause in the bill will have a very big impact on the clean energy industry in Minnesota because of how most wind and solar projects are currently financed.

In fact, a full two thirds of the wind market and three quarters of the solar market are financed with tax equity. In 2016, the tax equity market for renewable projects was estimated at $11 billion according to consulting firm CohnReznick LLP.

Our executive director Gregg Mast released a statement detailing CEEM’s opposition to the BEAT provision in the Senate tax bill, saying:

“Tax equity financing is a critical tool used to make renewable energy investments attractive. By drastically changing the rules on businesses and investors – it adds uncertainty and will make renewable energy development much more expensive. That will curb market momentum, which has positioned Minnesota among the leaders in the Midwest in terms of clean energy jobs . We urge our Senate delegation to reject this harmful provision."

The final Tax Cuts and Jobs Act Bill was passed into law just days before Christmas and was signed by President Trump on December 22, 2017. The bill did not include some of the more harmful provisions that would hurt the wind and solar sectors. However, the bill retained the BEAT provision which could slow down the growth of Minnesota’s clean energy economy.

Final breakdown of clean energy provisions in the new federal tax bill:

  • The BEAT provision was softened by allowing renewable energy tax credits to offset 80% of the BEAT tax. This is an improvement over the original provision, but still a concern.
  • Wind PTC preserved. This tax credit will be phased out by the end of 2019 as was agreed to in the 2015 PATH Act.
  • Electric Vehicle Tax Credit preserved.
  • Solar Investment Tax Credit preserved.

– Posted By Amelia