UPDATED: Congress passes $1.1T omnibus spending bill with solar, wind tax credit extensions

Dive Brief:

UPDATE: The Senate has passed the omnibus bill by a vote of 65-33, Reuters reports. Utility Dive's original post on the House vote follows. 

  • The U.S. House of Representatives has passed a $1.1 trillion spending bill that includes provisions to extend federal tax credits for wind and solar generation. After doubts arised last night that party leaders would not be able to muster the votes for the package, House lawmakers voted Friday morning 316-113 to approve the bill.
  • The spending bill is the result of a deal brokered between party leaders to lift the 40-year-old oil export ban and make permanent a series of tax cuts in return for the renewable tax credit extensions and other Democratic priorities. The Senate is expected to vote on the bill later in the day.
  • The bill would extend the existing tax credits for wind and solar generation facilities for five years, then gradually decrease the credits until they phase out. GTM Research estimates the deal would boost solar installments 54% over the existing policy, which would allow the solar investment tax credit to lapse at the end of 2016.

Dive Insight:

After reports of party leaders scrambling to whip votes for the $1.1 trillion spending bill and an accompanying $680 billion package of tax cuts, it appears legislators have largely fallen in line. The House passed the tax package Thursday night and approved the government funding bill on Friday morning 316-113. 

The bill now moves to the Senate, where a vote is expected Friday, and then to President Obama's desk. The White House has indicated he would sign the bill. 

If the bill is passed without changes, it would be a big boost to the wind and solar industries.

Under the language of the bill, the solar ITC would remain at 30% through 2019, then decline to 26% in 2020, 22% in 2021, and finally to 10% for non-residential and third-party owned residential systems, and 0% for host-owned residential. The bill includes a “commence construction” provision, allowing projects to come on-line by the end of 2023 and still qualify for larger credits.

For wind facilities, the current $0.023/kWh federal production tax credit would remain next year. Any wind facility that begins construction before 2020 could be eligible for tax credits, Ed Einowski, a partner at the law firm Stoel Rives, said in an email to Utility Dive. 

"However, if construction begins in 2017, the credit is reduced by 20%, 40% if construction begins in 2018, and 60% if construction begins in 2019," he wrote. "These changes do not apply to any technologies except wind."

While some environmentalists criticized lifting the ban on oil exports, a key GOP priority, renewable energy producers widely praised the deal, which is expected to have a particularly significant impact on the solar sector. The move to lift the ban on oil exports would be a boon for the U.S. oil and gas industry, which is struggling as crude prices approach seven-year lows. 

GTM Research estimated this week that the ITC extension would foster $40 billion in incremental investment in solar between 2016 and 2020. And the firm said the impact would be most significant in the utility sector: An ITC extension would increase utility-scale deployments 73% through 2020.

“Given price trends in the utility solar sector, the five-year ITC extension will likely result in utility-scale solar contracts being signed for less than $0.04/kWh regularly over the next two years,” said Cory Honeyman, senior analyst at GTM Research.

In the distributed solar market, GTM said residential installations will see a 35% boost, while commercial solar will increase by 51% over a non-extension scenario.

GTM Research
 

Einowski expects the extensions to help eliminate some of the regulatory uncertainty surrounding renewables for utilities. 

"From the utilities perspective, it will also assist with the planning process many are involved in to displace fossil fuel loads with renewable power as it would take the pressure off to sign up renewables at favorable prices before the subsidies expire and permits a more measured approach," he wrote.

Analysts from the Council on Foreign Relations expect the deal to have a positive environmental impact, despite increased fossil fuel.

"Extension of the tax credits will do far more to reduce carbon dioxide emissions over the next five years than lifting the export ban will do to increase them," CFR analysts Varun Sivaram and Michael Levi, wrote in a post Friday.

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