PUBLISHED Nov.20, 2017
The House of Representatives last Thursday passed a tax overhaul bill that slashes incentives for wind power projects, turning the focus to the Senate, which is considering its own tax reform legislation that would leave those incentives in place.
“There is $50 billion of investment at risk,” Evan Vaughan, spokesman for the American Wind Energy Association (AWEA), told Utility Dive.
While the House bill poses a considerable threat to the wind industry, analysts contacted by Utility Dive believe the friendlier Senate version will prevail, at least when it comes to wind-specific items. But broader changes that exist in both bills could have a mixed impact on the wind power sector.
AWEA tracks wind power development in the U.S., and at the end of the third quarter, there were 29,634 MW of projects under construction or in advanced development. That is the largest number of projects in the development pipeline since AWEA began tracking projects. AWEA CEO Tom Kiernan said the bill would “kill” over half the planne
The flow of U.S. wind power development has been lumpy over the past couple of decades as developers have rushed projects into development to beat the expiration of the production tax credit (PTC), which has had a two-year shelf life and has gone through a biennial ritual of expiration and renewal since 1992. That cycle was broken in 2015 when Congress extended the PTC (and the investment tax credit for solar power) by five years, on a schedule that calls for the PTC to end in 2020.
The House tax reform bill (HR 1) keeps that schedule and the PTC itself intact, but changes two crucial details. It retroactively ends the inflation adjustment and it changes the definition for construction start.
Removing the inflation adjustment rolls back the PTC to 1993 levels, lowering the value to 1.5 cents/kWh from the current 2.4 cents/kWh. “It is a retroactive tax hike,” Vaughan said.
The construction start date sets an eligibility deadline for the PTC. That is particularly important in the current environment because developers have been rushing to get their wind projects into construction ahead of each step-down. In 2018, for example, the PTC credit is set go down to 60% of the value of the credit.
The Internal Revenue Service administers the PTC and sets the eligibility requirements. Under existing IRS rules, there are two ways to qualify for the PTC: physical work of a significant nature or the 5% safe harbor rule. Most developers have taken the safe harbor option, under which a project qualifies for the PTC if the developer spends 5% of capital costs by the eligibility deadline.
The House tax bill retroactively removes the safe harbor option, meaning that developers that have already qualified for safe harbor would have to requalify under the revised rules of the new tax bill, and that would put them into the next step-down to the PTC, cutting the tax credits they would receive by 20%.