Now Congress Is Playing Favorites in the Energy Market

With all the rhetoric about governing for all Americans, sometimes politics is just about picking winners and losers.

Take the ongoing soap opera of who in the energy sector is likely to gain or lose benefits from the current congressional tax plan.

While retaining at least $15 billion in tax subsidies for fossil fuel producers (coal, crude oil, natural gas), the House of Representatives plan would slash support for both renewables and the electric car industry.

The primary moves criticized by both the renewable community and environmentalists are the proposed changes to the renewable electricity production tax credit (PTC).

This credit provides benefits to generation of wind, solar, geothermal, and other types of renewable energy.

Now, the PTC is already scheduled to be phased out in three years (by 2020).

Both wind and solar energy producers have been factoring this into forward guidance as more cost savings are introduced into the renewable sector.

But the House tax plan would accelerate the cut by more than a third. An analysis just completed by an industry player concludes the proposed change could reduce the credit's value by up to 45%.

The renewables industry is quick to point out that the PTC has created hundreds of thousands of jobs nationwide, spawned significant ancillary economic investment, and resulted in the United States becoming a major center for wind and solar power development.

But apparently that's not enough, and it's now on the chopping block - as far as the House is concerned.

The Senate, however, may be planning something else.

Here's who the winners and losers will be...

Wind Power Took the Largest Hit - for Now

As the House's tax plan was revealed, the market's reaction centered on one power source in particular - wind.

On Nov. 9, Vestas Wind Systems AS (OTCMKTS: VWDRY) declined 16.4%. The entire reason was a reduced guidance from the company based entirely on the proposed House acceleration of the PTC removal.

If there was any doubt about what markets in general, and renewable energy investors in particular, hate most, it was evident in last Thursday's overreaction...


The proposed change to the wind energy tax credit doesn't have to become law for it to negatively impact the industry.

It's enough that investors are unsure if the credit will remain, and they move their money elsewhere. This type of financial uncertainty has long plagued the wind industry, as Congress has been required to renew the credit every few years.

But wind providers are hardly alone among the renewables feeling the pinch.

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Solar energy companies don't fare much better. The House plan would also repeal the Investment Tax Credit for big solar projects that start construction after 2027.

The House Republicans also propose eliminating the $7,500 credit for electric vehicle purchases.

On the other hand, coal, oil, and natural gas producers don't face the same uncertainty. Their subsidies remain.

A study by Oil Change International released this month provides the latest U.S. subsidy figures. It found that federal subsidies in 2015 and 2016 averaged $10.9 billion a year for the oil and natural gas industry, and $3.8 billion for the coal industry.

By contrast, the PTC amounted to $3.3 billion last year, according to a Congressional Joint Committee on Taxation estimate.

And remember, the renewable energy credits are being phased out, unlike the fossil fuel industry's permanent subsidies.

Meanwhile, the Senate yesterday unveiled the overview of its tax plan.

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With some Republican support there emerging to keep the PTC in particular essentially as is, the Senate's tax plan may not include all of the cuts in renewable support.

At the moment, anyway.

Meanwhile, in red states like Texas and Oklahoma, wind and solar are the leading sources of new employment.

The electric vehicle credit is also reportedly preserved in the Senate bill.

Congress is up against a tight deadline, racing to pass tax reform before the annual recess in mid-December.

To make matters even harder, according to the latest projections from the nonpartisan Congressional Budget Office, the House plan would add over $1 trillion to the national debt.

In such an environment, politicians need ways to cut expenses or government subsidies. This is going to be one fiscal hard road to travel.

For its part, the administration's position remains somewhat curious.

Earlier this year, Secretary of the Interior Ryan Zinke told an oil and gas conference that "the president and myself, we don't pick winners and losers," adding, "we don't favor oil and gas over any other industry. We just want to make sure the field is even, and America can use its resources."

How that squares with accelerating cuts in renewable subsidies while keeping them for fossil fuels is an open question.

New Oil Tax Set to Cost Americans at the Pump: Paul Ryan is set to introduce a new tax to Congress, and it will cost Americans an additional 30 cents or more per gallon at the pump. Investors like Bill Gates, Warren Buffett, and George Soros have collectively sold billions of oil stocks recently. Now a former intelligence operative is stepping forward to explain why this is the end for Big Oil. Click here to continue.

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About the Author

Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.

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