When Congress narrowly passed multi-year extensions of federal solar and wind tax credits at the end of 2015, almost no one expected to be talking about their death less than a year later.
But when Donald Trump and the Republican party dominated last week’s national elections and took control of Washington, speculation about the future of those tax credits began almost immediately.
Neither Trump nor his surrogates indicated during the campaign that they want to repeal federal tax support for wind, solar and other renewables. Trump himself has been all over the map on renewables — but has generally stayed away from declaring an end to government support. After all, his campaign was highly critical of government for not doing enough to support domestic industry.
Congressional Republican leaders haven’t expressed any particular willingness to kill the tax credits either. With the economic impact of wind and solar spreading to GOP districts across the country, a growing number of conservatives have come out in support of tax incentives for renewables (or at least tolerate the technology-specific credits).
So why suddenly all the speculation — especially since these credits were designed to be phased out anyway?
For the first time in 30 years, America’s tax system could get an overhaul. The last time Congress passed a comprehensive tax reform bill was in 1986, under the presidential leadership of Ronald Reagan. An alliance between Trump and House Speaker Paul Ryan is expected to result in another tax reform package.
And there’s one potential glitch. America’s first Investment Tax Credit (ITC) for solar was killed in 1986 in order to fund the Reagan tax cuts. It’s possible the same thing could happen under a new plan to slash corporate and individual income taxes.
If that happens, the U.S. solar market would be in for a dramatic reversal. To understand what America’s solar market would look like with and without the ITC, it’s helpful to revisit GTM Research’s pre-extension projections from last fall.
The tax credit was expected to support 25 gigawatts of additional solar installations — a 54 percent increase that amounted to $40 billion in new investment through 2020. By the time the ITC falls to 10 percent in 2020, GTM Research expects the industry to be adding 20 gigawatts of new capacity yearly. By comparison, 6 gigawatts of natural-gas power plant capacity were added in 2015.
Reversing those figures provides a rough estimate of what might happen to solar if the tax credit is cut. Installations could fall by roughly half.
This is an imprecise number. It depends on module prices (which have plummeted this year), equipment pricing, interest rates, and local policies. But it’s fair to say that around $30 billion in solar investment could be under threat if tax support is eliminated.
The utility-scale solar sector would take the biggest hit. That sector is currently in flux after project queues shifted in the wake of the ITC extension. But through 2020, it’s possible that a repeal of the tax credit could lower development by roughly 70 percent. (Once again, this assumes project activity and pricing modeled last fall.)
The wind industry offers a historical example. Developers anticipating the expiration of the Production Tax Credit installed more than 13 gigawatts of projects in 2013. After the credit lapsed in 2012, they ended up putting only 1,098 MW of capacity in the ground in 2013.
After the election, analysts at Roth Capital partners wrote they think there is a “meaningful” chance that the Investment Tax Credit and Production Tax Credit are targeted under tax reform.
“One of Trump’s goals is to pursue tax reform and reduce the corporate tax rate to 15%. With the GOP controlling the executive and legislative branches, there is a meaningful probability that this develops momentum. As a result, the Trump team will likely have to dig even deeper to get to 15%. We estimate that the value of the ITC is $40 billion to $50 billion, which is a large number that could pay for a corporate tax cut,” wrote analysts Philip Shen and Justin Clare.
At this early stage in the transition to a Trump administration, speculation is rampant and facts are minimal. According to a report from Utility Dive, an unnamed member of the Trump transition team said that “everything with renewables continues; the credits will remain in place.”
GTM has not yet been able to confirm this with the Trump transition team. But the industries that stand to benefit from tax support believe this will be the case.
“We don’t see solar as having a particular target on its back,” said SEIA spokesperson Dan Whitten. “It offers a lot of the principles that Mr. Trump espouses — jobs, economic development, competitiveness. Solar is a train that is moving forward very quickly. And there would no reason to stop it.”
Tax reform is also very complicated and could take a while to hammer out.
Ultimately, it may not be the tax credits that change solar’s economics. With the Trump administration promising to prioritize coal — and there are a number of things it could do to extend a lifeline to the industry in the power sector — the incremental value of photovoltaics may take a hit.
“Basically anything that would decrease the cost to produce natural gas or coal power would have a negative effect on the long-term competitiveness of solar. Some of this could be accomplished through executive action, including stripping down of EPA regulations, opening federal land to extraction and reducing royalties on commodities extracted on federal lands,” said MJ Shiao, GTM’s director of solar research.
But it’s still far too early to say how all this plays out.
This article was originally featured on greentechmedia.com.