By David Wojick
The big, beautiful new tax law creates a not-so pretty loophole that untold billions of dollars worth of renewable projects are going to try to squeeze through. Anytime you screw with the market, you get screwy results, and this is titanic screwing. Watching it could be great fun.
The specifics are simple enough. The massive federal subsidies for wind and solar will end soon, with one big exception. Any project that can get under construction in less than a year from now and come online by 2030 still gets all the goodies.
Given that the queue of proposed wind and solar projects tops a trillion dollars, there will be many billions worth that try to make the short-term construction deadline. That many of these likely will fail makes it especially interesting. It is a prescription for financial chaos.
Of course the huge immediate question is, what does it take to be under construction? The subsidies are in the form of investment and production tax credits so the IRS makes the rules. Happily, a similar but much smaller version of this issue occurred in 2013.
The IRS has a little rule book titled “Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit” here:
The rules are only for wind projects, but the application to solar looks simple, at least for big projects. Rooftop solar might be much more complicated and something to watch.
The simplest way to do it is called a “safe harbor” by the IRS. The developer just has to invest 5% of the project cost up front in actual development and then add “continuously” to that over time.
The 5% need not include any site development, so this works for projects that do not yet have a site which might be a lot of them. The developer just has to fund binding contracts for the stuff that will go into the site once actual construction begins.
Where this gets tricky is that the wind and solar components production capacity probably does not exist to supply all the stuff needed for everybody to meet the 5% requirement in less than a year from now. This could create a seller’s market with prices quickly rising to what the highest bidders will pay. There could be a lot of losers.
It is possible that promissory contracts to make the stuff will eventually be okay. as long as they are funded and binding. But then, the second requirement of continuous development becomes a problem. Development with what?
So a mad scramble to try and quickly spend a lot of money in less than a year seems likely. Whether it can be done remains to be seen.
It is also worth noting that in the long run renewables may not live or die in this scramble. The idea that renewables require subsidies may be incorrect to a considerable degree. This is because most states have energy transition mandates that, in effect, require buying more and more renewables output.
To begin with, 28 states have “renewable portfolio standards” that specifically require ever-increasing use of renewables. Others, like Virginia, have net-zero emission reduction laws that, for practical purposes, have the same result.
But how this works out without massive federal subsidies remains to be seen. Tax credit subsidies are invisible, never showing up on someone’s bill. Absent these subsidies, the cost of the mandates hits the ratepayers in a highly visible way.
Increasing electricity rates are already becoming a political issue. The long-term effect of ending the subsidies well might be ending the mandates once their true cost becomes clear.
It looks like the U.S. renewables industry is going to be scrambling financially. This is certain for the next twelve months and maybe long after that. Watching the mad scramble could be both enlightening and entertaining.
Now would be the time to use the green playbook, and drag out any needed approvals, then appeal any that seem to go through. Lawfare goes both ways.
Tom, You are right. However I think the readers of this site should unite in a considered effort to delay or stop every proposed solar or wind project. We have a lot of tools and lot’s of hands but we need a leader. Maybe you or Alex Epstein could lead. Here is my list of tools.
FERC: Lobby them to require any addition to any grid provide power 24-7-365 and prove that the added system won’t reduce the utility’s safety margin.
EPA: Lobby them to enforce all there rules (RECLA, CIRCLA, and many others) with studies and documentation.
Trump has said several times that any power source getting subsidies could not contain any Chinese made components. If this in enforceable in EO or law it would be a show stopper because all wind and solar projects use Chinese components.
Local Resistance: Local resistance has proven very effective in stopping wind and solar projects. We could set up a team to identify every project requesting subsidies and have a system to get the information to the local population with instructions about how to prevent need permits.
Law Fare: Take a page from the left’s play list and set up a fund to sue for any possible reason.
That is a start on the list, I invite additional tools and other suggestions for how to organize a resistance.
Jimmie Dollard
You are inciting a necessary counter insurrection.
I agree.
Shoveling Gold Bars Off The Titanic; Part Two.
Story tip:
https://www.sciencefocus.com/news/shortest-day-earth-rotation
The earth is speeding up!
Compare that with this:
https://www.livescience.com/planet-earth/earth-is-going-to-spin-much-faster-over-the-next-few-months-so-fast-that-several-days-are-going-to-get-shorter
The earth is speeding up due to climate change!
If the climate got colder, would the Earth slow down?
Yes, the science is settled; so we need to open all the fridge & freezer doors, stop cooking & only eat ice cream !!
See, I’m not a complete idiot … there are parts still missing.
“The earth is speeding up!”
OMG !!
We will all be flung into space (due to centrifugal force), where our blood will boil in our veins & our brains will explode like a hand grenade due to the lack of pressure.
Thanks for the heads-up.
I’m going on eBay to buy some ground anchors before they all sell out.
So sad I thought I was losing weight
One of the more amusing points in the second article is that as trees grow leaves, carbon is transported further from the axis and this speeds up the planet.
I wonder if any figure skaters have used that technique. Seems they always pull their arms in to spin faster.
The comments against the second article have good insights posted. Most ridicule the author, who has no background in science, engineering, or technology. She has an Arts degree.
Truer words . . .
David, I envy your ability to find the mad scramble entertaining, I too wish them all the worst luck possible, but meanwhile I’m sickened by the continued waste of limited capital resources on junk power that does nothing positive for the environment and only makes electricity more expensive. Meanwhile, I’m working on following your lead.
The loophole has two requirements.
Even if the first can be fiddled under present IRS guidance, the second will be difficult to meet for two reasons. The manufacturing capacity is likely not there in just a 3.5 year time completion frame. And intermittency tolerant buyers will have to be lined up in advance of ‘continued’ investment. That may not be so easy given the 24/7 AI/data center nature of projected future electricity demand growth.
I don’t personally think there are going to be a lot of renewable projects squeezing thru this small renewable loophole.
Possible larger loophole: Presidential elections in 2028 and rule changes….
Anything is possible, but if the current administration continues with progress AND does not make a major screw-up, we could have to wait until 2036 for rule changes.
It’s a crap shoot, of course.
The smart developers will wind down “renewables” and move that capital into gas, coal and nuclear instead of pissing it away on projects they will never get funding to complete. Unless they are just going to take the financial hit and write it off as losses for tax purposes.
Well I will put some extra beers on ice…just in case I have to celebrate or drown my sorrows…the game is on.
Might want to have some popcorn at ready.
Someone has written, in response to the urgent question —
An answer something like this:
If your enemy [PRC – CCP – PLA] has declared its intention to undermine you, on every front,* and then shows signs of carrying out that stated intention, then perhaps it’s time to take serious countermeasures.
From its first days in office, there was declared a National Energy Emergency.
In that interpretation, security trumps other considerations / niceties.
The Congress, divided and utterly compromised as it is, has done all it could in the OBBB.
[ Holman Jenkins has compared this to approaching its (Oliver) ‘Cromwell Moment’. ]
Implementation & enforcement of the same is a whole ‘nother story.
——————————
*Border invasion front: (migration)
Tariff war front: (trade)
China wants to sell green energy products. They want the West to deindustrialize and be dependent upon China.
Apologies, we’ve forgotten to cite the source:
The Cromwell reference:
Other relevancies, briefly excerpted:
Conclusion:
DJT as the disrupter-in-chief.
Amen, brother.
People forget. Trump was elected in 2016 to be disruptive. People were tired of the same old crap and wanted a new future. Dems nearly neutralized DJT. This time around, more experience and wiser, DJT is on the offensive and is putting the government uni-parties on their back heels.
Not going to be easy. Like every President, there are things people agree to and things they do not. Like everything throughout history, there are the means employed to achieve policy objectives that are agreeable and others that seem either not well thought out or just plain disagreeable.
Grab the beer and popcorn and watch the show. Individually, we are flotsam and jetsam on the tides of history.
We should have ended those green subsidies immediately.
Well, we never should have mandated them in the first place. And yes, I know, ending immediately would create a bit of chaos, but that’s no reason to keep throwing good money after bad.
Strategic lawsuits should be filed to delay the permitting process. Wildlife impacts, impact of connections to grids on neighboring lands, normal permitting issues (noise pollution, environmental impacts, full analysis of impact on grid, demonstration of financial stability of vendors, etc., etc.). For normal projects, permitting requires years, even without lawfare delays; so interested parties should throw sand in the gears of the greenwashing machine to help save taxpayers billions.
Oh, my does this mean it can’t sustain itself without massive government help and $$$, but it is supposed to be dirt cheap electricity!!!
“Wind and solar are free” — Nick Stokes
Stop building wind and solar they can’t compete with fossil fuel and nuclear period. Put all electricity generation on a level field. Wind and solar would be gone in months. No preference for the grid, no guaranteed price, no pay for non production, no environmental forgiveness in other words no advantage to any form of energy production. Do this and renewables would be nothing but an ugly dream in 2026. It is that simple.
Same rules for depreciation and energy credits regardless of technology.
If natural gas gets a tax break, the same equivalence should be applies across the board.
Yes. Level the playing field.
Using tax laws to affect behavior is one the stupider reasons to have tax policy at all.
The best that can be said is that the government is not your mommy and daddy.
The worst that can be said is why is the government more than willing to offer bribes under the guise of law?
This should keep employment rates humming along over the next few years. Makes it a little more difficult for the next Democrat Presidential candidate (Newsom?) to point to a rough economy in 2028. Incumbent parties tend to win during favorable economic conditions. This should ensure that the regulatory climate post 2028 remains diminished.