For months, the renewable energy industry speculated how the new tax bill would alter the fate of the Federal Investment Tax Credit and Production Tax Credit. Thankfully, the Tax Cuts and Jobs Act that President Trump signed into law did not devastate the financing of most solar and wind developments.
Under the original bill, there was the threat of the Production Tax Credit (PTC) and Investment Tax Credit (ITC) being completely removed from the tax code, but fortunately the PTC and ITC were kept intact and remain unchanged. These tax credits serve as the mechanism for a large proportion of financing the renewable energy capital stack. Corporations create a partnership with developers of tax credit eligible renewable energy projects by investing in the project company in return for the credits and other financial benefits of the project. Clocktower Tax Credits plays an important role in such transactions by representing developers in presenting their renewable energy project to a network of Fortune 500 Investors in order to source tax equity. While the elimination of the PTC and ITC was always a concern, an unexpected outcome was a new provision in the tax bill known as the Base Erosion Anti-Abuse Tax (BEAT) that would be detrimental to the financing of renewable energy projects.
The consequence of the original BEAT provision mandated that there be a minimum tax for international corporations, which would have resulted in the PTC and ITC becoming worthless for certain tax credit equity investors. By having a mandatory minimum tax, corporations that normally would have invested in renewable projects would lose the incentive to offset their tax base, and renewable energy projects would lack a major source of the capital stack. A late exception was added to this provision which allows tax credits for wind and solar developments to offset 80% of the BEAT levy. We are still waiting to ascertain the impact of the BEAT provision on tax equity supply.
While there was more legislation that would have slowed instead of fostering the growth of renewable energy, the impact of the changes was not as drastic as expected. Going into 2018, the industry can now focus on creating better technologies, growing the workforce, and retaining confidence in financing renewable energy projects.
For more information, please contact Nathan Howe at (978) 460-4244 or NHowe@ClocktowerTC.com.