The wind energy industry is warning that $10.9 billion worth of Texas projects could be threatened by a U.S. House vote Thursday.
The House is scheduled to decide on tax reform that includes retroactively slashing the wind energy production tax credit. And, that's worrying industry leaders in Texas, which has lead the U.S. in electricity produced by wind farms and has a large percentage of the nation's wind projects currently in the pipeline.
A "yes" vote in the House this week would not automatically be a deal killer for the wind industry. The Senate's plan keeps the existing tax credits, which are being phased out by 2019. If the House and Senate versions differ on the tax credits, the versions would have to be reconciled later this year.
"It would be a devastating blow," said Michael Rucker, CEO of Colorado-based Scout Clean Energy, about the House version. "By completely changing the tax credit and start of construction guidelines, most of these projects become unfeasible."
The American Wind Energy Association estimated that $50 billion in projects nationwide and 60,000 jobs are at stake. Tom Kiernan, CEO of the American Wind Energy Association, said there are also $6 billion in wind energy transactions that were expected to close by year's end but are now frozen.
Many prominent conservative groups and think tanks have opposed renewable energy tax credits as anti-free market. They often criticized the credits as corporate welfare benefiting billionaires such as Warren Buffett and industrial powerhouses such as General Electric.
In an op-ed column in The Hill last year, Grant Kidwell, senior policy analyst at Americans for Prosperity, argued that many wind projects are just tax credit grabs. The tax credits are collected for the first 10 years of a project's operations. "Those investing in wind stand to reap guaranteed profits, while taxpayers and ratepayers have to pay more in the end," he wrote.
The House plan also calls for eliminating tax credits for solar energy and electric cars.
The industry does have an important Republican backer in Sen. Chuck Grassley of Iowa, the original author of the tax credits. His state generates nearly 37 percent of its electricity from wind. Republican Sen. John Thune of South Dakota, which gets nearly 22 percent of its energy from wind, is also an industry supporter.
And in Texas, it was the Republican leadership — including former Texas Gov. Rick Perry — that facilitated construction of transmission lines to connect wind-rich West Texas to the state's electricity grid. Texas had about 24,000 wind energy jobs in 2014, according to industry reports.
The credits were created by Congress in 1992 but have lapsed several times over the years. In 2015, Congress and the industry agreed to start the phase-out of the wind tax credits. And that led to the current rush of new projects.
Deals struck by the end of 2016 qualified for 100 percent of the tax credit. This year's projects were eligible for 80 percent. The percentage would drop by 20 percentage points in each of the next two years before disappearing.
The Senate plan doesn't mention the wind tax credit, essentially keeping the status quo. In the House plan, a key element of the tax credit is eliminated and would cost projects substantially more money.
The biggest concern for the wind industry is the "safe harbor" provision that allows companies to secure the tax credit by putting down what's essentially a 5 percent down payment on the project.
If a developer spent 5 percent of the project costs -- such as buying turbines or steel for towers -- by the end of 2016, that company qualified for the 100 percent tax credit. The House proposal would retroactively eliminate that provision and force projects to re-qualify for the credit by starting actual work on the projects.
That would result in an automatic tax credit cut since the deadline for getting 100 percent has long passed. Projects started next year would qualify for a 60 percent credit.
The House plan would also roll back the inflation adjustments for the tax credit. So, the new base credit would be 1.5 cents per kilowatt hour rather than the current 2.4 cents.
The plan would hit some projects twice. A company could have planned a wind farm expecting to get 100 percent of a 2.4 cent per kilowatt hour credit. Instead, the project would need to re-qualify and potentially get 60 percent of a 1.5 cents per kilowatt hour credit.
Kiernan said he never expected to deal with such uncertainty after the bipartisan tax credit phase out was approved in 2015.
"We're the only industry that proposed and supported tax reforming ourselves in advance," he said. "We thought we were being a leader and role model. ... As someone else said, 'This feels like cruel and unusual punishment.'"