Page 22 - North American Clean Energy March April 2018 Issue

solar power
22
MARCH•APRIL2018 /// www.nacleanenergy.com
e new Tax Cuts and Jobs Act was introduced
on November 2, 2017, in the U.S. House of Representatives by the Chairman of the Ways and Means Committee, Texas Representative Brady. After multiple revisions, this major tax reform legislation was signed into law by President Donald Trump on December 22, 2017. e new tax law institutes key changes that may drastically a ect the fast growing U.S. solar market.
Will Solar
by Matt Ji
Remain King?
Analyses have shown that the bill o ers two critical changes: the corporate tax
rate reduction; and rst year full depreciation tax write-o of equipment placed after September 27, 2017. From the perspective of a solar investor, these changes provide even more favorable terms which would spill over to the overall solar market activity.
e decrease of the corporate tax rate from 35 percent to 21 percent, has a paramount e ect on the economy by altering the ow and value of goods and services. Fundamental market behavioral changes are expected from the magnitude of these
tax cuts. 100 percent bonus depreciation will make infrastructure investments more attractive due to the increased time-value of immediate tax write-o bene ts. From a preliminary assessment of supply and demand, we can predict the following outcomes:
Total tax partnership investments from corporations will decrease in the short run.
A tax equity investor, rst and foremost, evaluates a project based strictly on the tax bene ts. erefore, when the corporate tax rate falls from 35 percent to 21 percent, the overall tax bene ts from depreciable and tax credit eligible assets like solar equipment would decrease substantially, by 40 percent. e sensitivity of even a slight tax rate decrease will impact the tax equity market. is will make these tax-advantaged investments far less economically attractive as a vehicle for corporate tax optimization, which has traditionally pushed e ective corporate tax rates down towards 15-22 percent. Now those projected renewable energy investments earmarked for 2018 may be at risk, and will be contingent on core business performance.
Infrastructure projects will go small.
While the larger corporate tax equity retreats, the smaller tax equities will
play a larger role in helping nance infrastructure in 2018 and beyond. 100 percent bonus depreciation of equipment, and the trend towards smaller tax equity appetite, will lead to a greater demand for smaller projects. Non-corporate pro ts are less easily syndicated than corporate pro ts. erefore, any unpooled source
of tax liability is better matched with smaller and less-costlier infrastructure projects, while barriers for establishing additional syndicate funds are still very high. We can assume that this move towards 100 percent bonus depreciation will counteract the need for syndication to achieve bigger scale projects - making smaller projects e cient on their own in achieving economic objectives.
Solar projects: smaller but more of them.
Solar projects are unique because they generate investment tax credits in addition to the 100 percent bonus depreciation. When the two mechanisms interact, the size of an ideal project for any given tax liability is reduced even further, resulting
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