Legislation Leads to Uncertainty in the Renewable Energy Sector

New legislation along with the expiration and phase-down of the Renewable Energy Production Tax Credits (“PTC”) have lead to uncertainty in the renewable energy sector. PTCs play a significant role in a project’s viability. The value of the PTC was $24/MWh for projects that commenced construction in 2016 or earlier, however, for projects commenced in 2017 and each year after the PTC is reduced by 20% each year until it is phased out. The phase-down may deter developers from beginning new projects; however, it is not certain as many companies and industries have initiatives and incentives in place to promote clean energy. Additionally, the Base Erosion Anti-abuse Tax (“BEAT”) introduced by the Tax Cuts and Jobs Act (“TCJA”) could affect investors’ willingness to participate in renewable projects. So far, the impact of BEAT has been minimal; however, the overall impact will be determined over time. Specifically, for solar projects, the Section 201 Solar Tariff will have a large impact on the development of solar projects in the U.S. The Section 201 Solar Tariff is a 30% tariff on imported solar panels in year one and is eventually phased down to 15% by year 4. Surrounding the announcement of the tariff, several U.S. manufacturers have announced expansions to operations. However, the ramped-up production could come at a premium. Overall, continuing improvements in efficiencies, reduced capital costs, and initiatives and incentives in other industries could prove to offset the challenges that face the renewable energy sector and keep renewable technologies competitive with fossil fuel generation technologies. The near future will tell whether renewable technologies can remain competitive, or if the challenges facing the industry make development of fossil generation a more attractive option.

Further Reading:

Gretz, Daren. (2018, April). Financial Challenges Impacting the Renewable Energy Industry. Power Engineering. pp. 12

Life in the Wind Industry as the PTC Phases Out and New Markets Phase in – https://www.windpowerengineering.com/dw-sync/life-wind-industry-ptc-phases-new-markets-phase/

Trump Levies Graduated Tariffs Starting at 30%, Exempts 2.5 GW in Cells – https://www.pv-magazine.com/2018/01/23/trump-levies-graduated-tariffs-starting-at-30-exempts-2-5-gw-in-cells/

The New Base Erosion Minimum Tax – https://www.mwe.com/en/thought-leadership/publications/2018/01/the-new-base-erosion-minimum-tax

Renewable Electricity Production Tax Credit (PTC) – https://www.energy.gov/savings/renewable-electricity-production-tax-credit-ptc