Congressional tax negotiators have reached a tentative deal that would mostly shield the renewable energy industry from a provision that threatened to dry up a $12 billion tax-equity market, said Senator John Thune, the chamber’s No. 3 Republican.

The Base Erosion Anti-Abuse Tax provision, or BEAT, included in the Senate’s version of the tax bill would impose a minimum tax on foreign transactions for financial institutions such as JPMorgan Chase & Co. and Bank of America Corp., which could undercut the value of solar and wind tax credits to them.

In an interview, Thune, who’s also on the Senate Finance Committee, said a compromise had been reached that would allow those businesses to get most, but not all, of the value of those tax credits. Wind and solar developers often sell their tax credits to more profitable companies such as banks; the minimum tax provision would have cut their value to those financial institutions.

Solar panel installers
SolarCity Corp. employees install solar panels on the roof of a home. Michael Nagle/Bloomberg

“It’s a fix that I think everybody in the end can live with, and will allow the credits that have been used to finance these projects to continue to be used to finance these projects,” said Thune. “We were going to make sure the wind industry, for example, wasn’t adversely impacted.”

The full tax measure hasn’t been agreed to yet so the agreement is still tentative, Thune said.

Wind, Solar Risk

Major financial institutions told groups including the American Council on Renewable Energy that they would no longer participate in tax-equity financing if the measure from the Senate bill was adopted, said Greg Wetstone, the Washington-based group’s president, said in an email.

“Almost overnight, you’d see a devastating reduction in wind and solar energy investment and development,” Wetstone said.

In addition, Thune said the $1.5 trillion tax legislation, expected to receive votes in both chambers of Congress next week, preserves a phase-out of tax incentives for both the solar and wind industries that was passed as part of a 2015 bill that also lifted the 40-year-old ban on U.S. crude oil exports.

Producers of fuel cells, small-wind and geothermal heat pumps, which were left out of that 2015 legislation, will again be disappointed in this compromise tax measure. Thune said those credits may be dealt with in a subsequent “tax extenders” package. But it’s unclear that Congress will have the time or inclination to pass that legislation.

“Deferring consideration of the tax credits for fuel cells and other energy ‘orphans’ may have been necessary to get a tax bill finished on schedule,” said Stephen Munro, an analyst at Bloomberg New Energy Finance. “Based on recent history, I’m skeptical they will be reinstated.”

—With assistance from Christopher Martin

Bloomberg News