(Bloomberg) -- Tax credits cherished by the wind and solar industry remain under a rewrite of the tax code revealed by House Republicans, but the tax overhaul bill would trim the wind energy’s production tax credit by more than a third.
The bill, unveiled by House GOP leaders Thursday, also extends an estimated $6 billion tax credit for the nuclear industry, which would benefit Southern Co. Without the extension, the credit may have gone unused before a 2021 deadline. Southern’s Vogtle project in Georgia faces construction delays and is not on track to be completed before the deadline.
The bill also adds tax credits for other energy sources, such as geothermal, small-scale wind and fuel cells that were left out of a 2015 budget and spending deal.
The House tax overhaul would cut the wind industry’s 2.3-cent-per-kilowatt hour tax credit to 1.5 cents and also hardens a deadline for its phaseout -- changes estimated by congressional analysts to cut more than $11 billion in benefits to the industry over the next decade.
"The proposal could represent a significant hit to the wind energy sector," Kevin Book, managing director of Washington-based ClearView Energy Partners LLC, said in an email. The changes could cut 25 percent to 45 percent of the wind credit’s value over the next 10 years, he said.
Under the deal passed by Congress in 2015, the wind production tax credit begins phasing out this year before expiring in 2020. A separate, and unaffected, solar industry tax credit phases out before expiring in 2022. That will continue as planned, but a 10 percent tax credit for the solar industry that was supposed to be permanent for utility-scale and commercial projects would be ended by the bill after 2027, a move the solar industry vowed to fight.
The wind changes face gusty conditions, too.
“The wind energy production tax credit is already being phased out under a compromise brokered in 2015," Senator Chuck Grassley, an Iowa Republican, said in a statement. "It shouldn’t be re-opened. I’m working within the Senate Finance Committee to see that the commitment made to a multi-year phase-out remains intact.”
The legislation would end a $7,500 tax credit provided for consumers who purchase electric vehicles. In addition, it ends some minor tax breaks received by the oil industry, including a tax credit for marginal wells.
That credit, which only applies when prices dip below certain levels, allows companies to claim a $3-per-barrel credit for the first three barrels of daily production from marginal, low-production wells -- generally those that produce fewer than 15 barrels per day. It also applies to natural gas from marginal wells, with a 50-cent credit for the first 18,000 feet of daily gas production. Also eliminated is a tax credit for so-called enhanced oil recovery, which involves pumping water or carbon dioxide to help get more oil out of depleted or aging reservoirs.
But the oil industry would keep its largest targeted tax measures, as the bill would preserve the intangible drilling cost deduction, which allows for accelerated deduction of drilling costs, and the special accounting rules known as "last-in first-out," which allows oil stockpiles and other inventories to be valued at the most recent price when calculating profit and taxable revenue.
It’s possible the bill could change quickly, as Representative Kevin Brady, the Texas Republican who chairs the Ways and Means Committee, indicated he may rewrite the bill ahead of a Monday committee vote. Amendments are likely then, too. And then there’s the Senate, which may draft its own, separate legislation.
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