Tax Fixes We Need NOW to Save Clean Energy Jobs

Tax Fixes We Need NOW to Save Clean Energy Jobs

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As the nation grapples with the impacts of COVID-19, clean energy companies are among the list of industries struggling to stay solvent. Supply chain and workforce disruptions could cause clean energy projects to miss deadlines for tax credits they are counting on. At the same time, tax equity is drying up, threatening the financing clean energy projects require. In March alone, an estimated 16,500 renewable energy workers lost their jobs in states across the country.

For emergency relief, Congress should protect projects already underway by 1) extending the deadlines to receive the production and investment tax credits and 2) giving companies the option to receive cash payments in lieu of tax credits.

As we move beyond emergency relief and into economic stimulus, we should explore additional options to restructure and improve tax credits for clean energy technologies. We must invest in industries that can create thousands of good jobs and support a sustainable future. However, in this immediate rescue phase, we should focus on efforts that can preserve jobs and keep existing projects from failing.

Immediate Action for Clean Energy Industries

Clean energy companies face immediate threats from COVID-19 that imperil jobs and projects already underway. Supply chain disruptions are forcing companies to furlough workers and consider canceling projects outright. For example, turbine maker Siemens Gamesa announced that it will furlough around 300 employees in the Midwest due to supply chain issues. Meanwhile, rival turbine supplier Vestas pulled its 2020 financial guidance due to market uncertainty. 

Businesses are also dealing with disruptions to their workforce, whose protection from the virus is paramount. Many residential solar companies, which typically rely on in-person interactions, are having to lay off workers and adjust business models in order to minimize economic fallout.  The permitting process for some projects is also taking longer, with fewer personnel in government offices. At construction sites, even if workers are considered “essential,” there is no guarantee of keeping a full staff as the coronavirus spreads. 

To address these immediate concerns of clean energy companies, Congress should implement the following emergency relief efforts: 

1. Safe harbor for production and investment tax credits

Safe harbor means extending the deadline to qualify for tax credits for wind and solar projects, in this case from 2020 to the end of 2021. 

Under the existing PTC, utility-scale wind projects receive 1-2 cents per KWh, depending on the year in which they began construction, for the first 10 years of electricity generation. The projects have 4 years to begin producing electricity, so projects that started operating in 2016 have until 2020 to produce electricity in order to receive the tax credit. With current supply chain and workforce disruptions threatening to delay projects, it is crucial that we extend this deadline so that these projects can obtain the credit, which is foundational to the projects’ finances.

Safe harbor works similarly for the investment tax credit (ITC). Under the existing ITC, offshore wind, solar, and other qualifying technologies could receive a credit equal to up to 30% of total project costs. The value of the credit started decreasing at the end of 2019; today, the ITC is a 26% tax credit. These credits are allocated depending on when projects begin construction. So extending the deadline to kick off construction by an additional year will make a huge difference for projects that COVID-19 disrupts.

2. Cash in lieu of credit

We should give clean energy companies the option of direct pay – taking the tax credit as a cash payment in the form of a refund to the taxpayer in that taxable year – for a minimum of 18 months. All technologies that qualify for the PTC, ITC, and 45Q (credits for captured carbon) should be eligible. This would ensure that clean energy projects continue to move forward even as tax equity dries up. Congress provided this relief for almost 2 years in the 2009 stimulus, providing a critical bridge for over 100,000 clean energy projects at the peak of the recession. 

Renewable energy developers rely on “tax equity investors” to finance their projects. The developers trade the benefits of the tax credit for an equity investment to begin and complete the project. That way, investors receive the monetary benefits of the ITC or PTC, reducing their own tax liabilities. However, tax liability declines sharply during financial crises and ensuing recessions, as companies face losses or declines in revenue. The value of the tax credit diminishes, and the pool of investors shrinks. 

We saw this during the 2008 financial crisis, and we are seeing it again: Several tax equity investors are already leaving the market. In 2017, there were only around 35 tax equity investors, so the pool of investors can dry up quickly. By allowing investors to receive cash grants equivalent to the amount of credit they would have gotten under the ITC or PTC, we can ensure that clean energy developers can weather this storm. 

Looking Ahead to Recovery

While safe harbor and direct pay will help address some immediate concerns, COVID-19 could still seriously stunt the development of clean energy projects including renewables, storage, hydrogen, advanced nuclear, electric vehicles, and carbon capture. Tax policy has been one of the most effective tools at deploying clean energy and creating jobs since 2005, but it has its limitations during an economic recession. If businesses are not making a profit, their tax liability shrinks and the appeal of tax credits diminish. Some of this can be mitigated with provisions such as cash in lieu of credit, but these policies alone won’t be sufficient to overcome this economic downturn.

As we look ahead to recovery and discuss policies that can grow industries and create jobs, we should consider the role of tax credits as well as additional options to stimulate the growth of clean energy industries and opportunities for workers, including well-paying union jobs.