Tax Bill May Chill Clean Energy Investments by JPMorgan to BofA

(Bloomberg) -- Clean-energy developers are learning the hard way that every line of the U.S. tax code is connected.

While the bill passed by Senate Republicans over the weekend would preserve crucial credits for wind and solar farms, it also imposes a minimum tax on foreign transactions for JPMorgan Chase & Co., Bank of America Corp. and other large investors that threatens to erode the value of those credits.

The issue hinges on an arcane but critical source of clean-energy financing that’s expected to reach $12 billion this year. The funding, known as tax-equity, comes from renewable-energy developers selling their tax credits to banks, insurance companies and others that apply them to their own bills from Washington. If those big lenders wind up with a minimum tax on foreign transactions, they may have less need for clean-energy credits.

“The impacts are potentially devastating,” American Council on Renewable Energy President Gregory Wetstone said in an interview. “It seems clear that none of this was intentional. Key folks are looking at how to fix it, and we are hopeful that they will.”

Tax Bill May Chill Clean Energy Investments by JPMorgan to BofA

First Solar Inc. sank 5 percent in New York Monday on the news, plunging the most in more than a month. SunPower Corp. declined 10 percent, and the Bloomberg Global Large Solar Index of 16 companies sank 3.2 percent.

More than half of developers aren’t able to use the tax credits themselves, so they’re dependent on tax-equity deals, said Amy Grace, an analyst at Bloomberg New Energy Finance. The rest sell them. If interest in tax equity from multinational banks and insurance companies falls, renewable energy companies may end up short on investors, said Gregory Jenner, a Washington-based partner at the law firm Stoel Rives LLP.

“Your neighborhood bank won’t be able to fill the gap,” Jenner said. “They don’t have the infrastructure like a JPMorgan, a US Bank or a Goldman.”

Overall lower tax rates called for in both the Senate and House bills may make the problem worse, said Ben Kallo, an analyst at Robert W. Baird & Co. If large corporations owe less to Washington, they will have less need for write-offs.

“The amount of tax equity financing available may decline given then the lower tax rate, which could potentially be negative for First Solar and SunPower,” Kallo said in a research note.

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