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Kent Moors

Kent Moors

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk management, emerging market economic development, and market risk assessment. His…

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U.S. Congress Slashes Support For Renewables And EVs

With all the rhetoric about governing for all Americans, sometimes politics is just about picking winners and losers.

Take the ongoing soap opera of who in the energy sector is likely to gain or lose benefits from the current Congressional tax plan.

While retaining at least $15 billion in tax subsidies for fossil fuel producers (coal, crude oil, natural gas), the House of Representatives plan would slash support for both renewables and the electric car industry.

The primary move criticized by both the renewable community and environmentalists are the proposed changes to the renewable electricity production tax credit (PTC).

This credit provides benefits to generation of wind, solar, geothermal, and other types of renewable energy.

Now, the PTC is already scheduled to be phased out in three years (by 2020).

Both wind and solar energy producers have been factoring this into forward guidance as more cost savings are introduced into the renewable sector.

But the House tax plan would accelerate the cut by more than a third. An analysis just completed by an industry player concludes the proposed change could reduce the credit’s value by up to 45 percent.

The renewables industry is quick to point out that the PTC has created hundreds of thousands of jobs nationwide, spawned significant ancillary economic investment, and resulted in the U.S. becoming a major center for wind and solar power development. Related: Is Peak Permian Only 3 Years Away?

But apparently that’s not enough, and it’s now on the chopping block – as far as the House is concerned.

The Senate, however, may be planning something else.

Here’s who the winners and losers will be…

Wind Power Took the Largest Hit – for Now

As the House’s tax plan was revealed, the market’s reaction centered on one power source in particular – wind.

Thursday, Vestas Wind Systems AS (VWDRY) declined 16.4 percent. The entire reason was a reduced guidance from the company based entirely on the proposed House acceleration of the PTC removal.

If there was any doubt about what markets in general, and renewable energy investors in particular, hate most, it was evident in Thursday’s overreaction…

Uncertainty.

The proposed change to the wind energy tax credit doesn’t have to become law for it to negatively impact the industry.

It’s enough that investors are unsure if the credit will remain, and they move their money elsewhere. This type of financial uncertainty has long plagued the wind industry, as Congress has been required to renew the credit every few years.

But wind providers are hardly alone among the renewables feeling the pinch.

Solar energy companies don’t fare much better. The House plan would also repeal the Investment Tax Credit for big solar projects that start construction after 2027.

The House Republicans also propose eliminating the $7,500 credit for electric vehicle purchases.

On the other hand, coal, oil, and natural gas producers don’t face the same uncertainty. Their subsidies remain.

A study by Oil Change International released this month provides the latest U.S. subsidy figures. It found that federal subsidies in 2015 and 2016 averaged $10.9 billion a year for the oil and natural gas industry and $3.8 billion for the coal industry.

By contrast, the PTC amounted to $3.3 billion last year, according to a Congressional Joint Committee on Taxation estimate (you can find the full estimate here).

Related: Venezuela’s Oil Rival Calls For Full U.S. Sanctions

And remember, the renewable energy credits are being phased out, unlike the fossil fuel industry’s permanent subsidies.

Meanwhile, the Senate Thursday unveiled the overview of its tax plan.

With some Republican support there emerging to keep the PTC in particular essentially as is, the Senate’s tax plan may not include all of the cuts in renewable support.

At the moment, anyway.

Meanwhile, in red states like Texas and Oklahoma, wind and solar are the leading sources of new employment.

The electric vehicle credit is also reportedly preserved in the Senate bill.

Congress is up against a tight deadline, racing to pass tax reform before the annual recess in mid-December.

To make matters even harder, according to the latest projections from the non-partisan Congressional Budget Office, the House plan would add over $1 trillion to the national debt.

In such an environment, politicians need ways to cut expenses or government subsidies. This is going to be one fiscal hard road to travel.

For its part, the Administration’s position remains somewhat curious.

Earlier this year, Secretary of the Interior Ryan Zinke told an oil and gas conference that “The president and myself, we don’t pick winners and losers,” adding “We don’t favor oil and gas over any other industry. We just want to make sure the field is even, and America can use its resources.”

How that squares with accelerating cuts in renewable subsidies while keeping them for fossil fuels is an open question.

By Kent Moors

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  • Lee James on November 13 2017 said:
    My understanding is that production incentives for renewable energy are intended to be phased out as the cost of installing renewable energy falls. Seems to me that renewable energy is showing great promise, but the industry not surprisingly has a little ways to go.

    Now, a kind of vindictiveness against renewable energy has set in. And the special incentives that have always been present for petroleum production remain in place, unquestioned.

    Thank you for this article, bringing us up to date on the current flavor of today's energy winners and losers.
  • Tom on November 14 2017 said:
    So called renewable energy is not cost effective. The core of the earth is made of iron carbide. Carbon is perpetually making its way to the surface and renewing our supply. Regardless of the man made global warming carbon superstition the nation that uses the most cost effective energy is most productive and has the highest standard of living.
  • Lee James on November 15 2017 said:
    Interesting about Iron carbide at the earth's core and its potential for coming to the surface as an available fuel source.

    The main idea here seems to be to suggest a mechanism for sustainable carbon-based fuel production. Sounds like a kind of holy grail, but the idea of iron carbide at the earth's core is currently classed as a "candidate" idea (It's theoretical). And, I'm not sure that I understand how long carbon-hydrogen chains are formed -- crude oil is not pure carbon.

    Crude oil is likely quite finite, from any of our perspectives.

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