Donald J. Trump’s proposal to spur the U.S. economy by slashing corporate taxes may put a damper on the rapidly growing clean-energy industry. Wind and solar companies depend heavily on financing from large banks, insurers and other backers that take advantage of federal credits through tax-equity financing — they’re expected to provide developers with about $14.8 billion this year, according to Bloomberg New Energy Finance. If corporate rates fall, as Trump has pledged if he is elected Tuesday, investors will have less need for write-offs through tax-equity investments. With wind and solar projects expected to need $56.2 billion in capital during the next president’s first term, a slump in the tax-equity market may leave developers short.
If corporations owe less to the government, “there will be less tax capacity to be taken up with tax equity,” said Keith Martin, a Washington-based attorney for law firm Chadbourne & Parke LLP who specializes in tax and project finance. With Clinton leading in the polls in the last day before the election, clean-energy shares are gaining. Vestas Wind Systems A/S, Europe’s biggest wind turbine supplier, climbed the most in more than two months, and SunPower Corp., the second-largest U.S. solar panel producer, rose the most in more than four months. That led the WilderHill New Energy Global Innovation Index of 94 companies, which increased the most in six weeks.
The prospect of a President Trump comes amid a rare increase in the providers, and supply, of tax-equity financing. Demand for tax-equity has almost always outpaced supply. In tax-equity deals, clean-energy developers sell a portion of their projects’ tax credits to companies — often banks — that can apply the credits to their own tax bills. Last year, Congress unexpectedly renewed two key incentives that drive tax equity: the investment tax credit and the production tax credit. Those 5-year extensions imbued the markets with what appeared to be a sense of long-term certainty, attracting new investors including insurance companies, said Daniel Shurey, a Bloomberg New Energy Finance analyst in New York. Martin said more than 35 investors have participated in tax-equity financings.
If Trump, a Republican, defies current polling and defeats his Democratic rival Hillary Clinton, clean-energy could lose that momentum. Trump has proposed dramatically cutting the business tax rate to 15 percent from 35 percent. Falling to 15 percent would probably require scouring the tax code clean of every loophole and incentive, including the production tax credit and investment tax credit, Martin said. A smaller cut could still leave the incentives in place but dull their effectiveness, though it’s not clear how much.
The investment tax credit, mainly used by solar developers, offsets development costs and would be directly impacted by a reduction in marginal tax rates — the lower the rate, the less valuable the credit, said Stephen Munro, a Bloomberg New Energy analyst in Washington. The production tax credit, used mostly by wind developers, would be more protected because it’s based on the volume of power produced, rather than the size of the investment, Munro said. To be sure, the goal of a tax cut is to stimulate the economy, and Trump’s plan, if successful, may increase companies’ profits and, in turn, their taxes. “It could increase the amount of companies that have tax liabilities.” said Joel Cohn, a Baltimore-based partner at CohnReznick LLP. That could spur “some interest in wind and solar tax credits.” Chadbourne & Parke’s Martin said the larger question is whether wind and solar credits would survive Trump’s tax plan. “Can you get to a 15 percent rate and still have a tax-equity market?” Martin said. “It just doesn’t seem realistic.”