NCPA - National Center for Policy Analysis

The Impact of Three Tax-Reform Proposals on Energy Plants

October 1, 2015

There is a general consensus that the United States tax code needs to be reformed and in recent years Senators Wyden, Senator Coats, and Senator Baucus and Representative Camp have proposed tax reforms in 2001, 2013 and 2014. In 2013, energy subsidies amounted to about $22 billion, and were generally divided into three categories:

  • Credits and deductions.
  • Cost-recovery mechanisms.
  • Alternative business structures.

Estimates are based on these three tax plans regarding the financial performance of three energy facilities, a wind-power project, a combined-cycle gas turbine, and a solar-photovoltaic project were startling. Although these tax plans are as diverse as the projects on which they were implemented it is important to note several key findings:

  • Even if a tax plan is not energy-specific, its impact could be as significant as if it did target a specific energy producer. In all three cases simplifying the depreciation provisions in the tax code creates income-tax distortions.
  • Changing the depreciation rules can impact wind and solar energy generation more than gas-fired energy generation.
  • New tax provisions must be carefully scrutinized as a new measure can change the impact of other unrelated tax provisions.
  • The effective value of tax credits is decreased when tax-equity financing is implemented, resulting in only half of the possible value of both production and investment-based tax credits being realized.

Source:  Jason Burwen, "The Impact of Three Tax-Reform Proposals on the Financial Performance of Energy Plants," American Energy Innovation Council, September 2015.

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