The Trump administration’s decision to end the Clean Power Plan may be deeply symbolic, but the battle that matters most for renewable energy will be over taxes.
Wind and solar have been the fastest growing sources of electricity in the U.S. since 2014 as utilities closed a record number of aging coal-fired generators. That’s largely because it’s become cheaper to build renewable plants than keep coal plants open.
Clean-energy’s fiscal advantage stems in part from two tax credits that Congress extended in 2015. Both measures are scheduled to be phased out in the 2020s[*], but Environmental Protection Agency administrator Scott Pruitt on Monday called for them to be eliminated. That could upend wind and solar’s edge.
“Without tax credits, those economics no longer work,” said Amy Grace, an analyst at Bloomberg New Energy Finance.
Unlike the Clean Power Plan, tax credits cannot be unilaterally scuttled by the White House. But with Republican Congressional leaders pushing to rewrite the tax code, opponents of the wind and solar tax credits, including those in the Trump Administration, are jockeying to torpedo the measures.
“I would do away with these incentives,” Pruitt said, responding to a question about the effectiveness of renewable energy at an event in the heart of Kentucky coal country. “I’d let them stand on their own and compete against coal and natural gas and other sources.”
It won’t be easy to kill the measures, known formally as the Production Tax Credit and Investment Tax Credit. They have broad support from both Democrats and Republicans from rural districts where wind and solar have become a key source of jobs. Plus, the overall prospects for reforming the tax code remain murky amidst congressional gridlock and Republican infighting.
After Pruitt called for ending the credits for wind and solar, Iowa Republican Senator Chuck Grassley said on Twitter that he would “remind” the EPA chief that the credit for wind farms “will stay on books until 2020, like Congress planned.”
Carlos Curbelo, a Republican Congressman from Florida, went further, invoking Jeopardy! game show Alex Trebek as he opined on the odds of a successful repeal of the tax credits.
“Alex, I’ll take ‘things that are not happening for $800,”’ Curbelo wrote on Twitter.
Trump’s move to kill the Clean Power Plan has not dimmed investor enthusiasm for clean energy. Since the president signed the order to roll back the emissions-curbing rule, almost $30 billion has been spent on solar and wind projects.
In the third quarter alone, clean energy spending in the U.S. hit the highest level in two years, totaling $14.8 billion, data compiled by Bloomberg New Energy Finance show.
Renewables are now cheap enough to thrive without subsidies in some parts of the world, including Brazil and Mexico. A key reason is demand for electricity is growing in those regions.
In the U.S., renewables have become the cheapest source of power in some regions, even without tax credits. The problem is demand for electricity has stagnated. So wind and solar farms only make economic sense if they can be built for less than it costs to keep the generators spinning at existing coal plants. The tax credits – which begin phasing out this year for wind and in 2020 for solar – are necessary for that to happen, Grace said.
Meanwhile, developers are planning projects with the diminishing subsides in mind, said John Marciano, an attorney who specializes in energy and infrastructure finance for Akin, Gump, Strauss, Hauer & Feld LLP.
“If it is cut short prematurely,” Marciano said, “you will see a big decline in development.”
— With assistance by Chris Martin
[*According to the Department of Energy–funded Database of State Incentives for Renewable Energy, the 10-year PTC and up-front ITC provide 80% of the 2016 value for wind facilities claiming them in 2017, 60% in 2018, and 40% in 2019. The PTC and ITC will not be available for new wind facilities after 2019. For non-wind renewables, the PTC and ITC ended after 2016 without a phase-out. —NWW]