ACORE’s US PREF Releases Analysis of How Successful Tax Policy is Important to Continued Private Sector Investment in High-Growth Renewable Energy Sector
Modified Accelerated Cost Recovery System has helped lower consumers’ electricity costs, create high-paying American jobs, enhance energy independence, and reduce greenhouse gas emissions
For Immediate Release – December 9, 2013
Washington, DC – Today, the US Partnership for Renewable Energy Finance (US PREF) released a white paper entitled MACRS Depreciation and Renewable Energy Finance that underscores the importance of the U.S. tax code’s existing cost-recovery system for renewable energy growth – and illustrates that the system’s elimination could reduce the number of projects that could get built while substantially increasing the cost to consumers. PREF members met last week with policymakers on Capitol Hill to discuss this issue in the context of broad tax reform.
Under a tax reform discussion draft released in November by Senate Finance Committee Chairman Max Baucus (D-MT), today’s cost recovery system - known as Modified Accelerated Cost Recovery System (MACRS) - would be replaced by a “pooling” system that would dramatically increase write-off periods. As US PREF’s analysis found, MACRS has been instrumental in encouraging private sector investment in the renewable energy sector. Replacing MACRS with a cost-recovery system along the lines of that proposed in the draft could decrease renewable project deployment, slow job growth, and significantly raise prices for consumers.
“Replacing MACRS with essentially straight line depreciation would negatively impact the solid growth trajectory for renewable energy projects in the U.S.,” stated Derek Dorn, a partner of Davis & Harman LLP and tax counsel to a US PREF member. “By dramatically increasing the length of time it takes to recover the costs for establishing renewable energy projects, these projects will become far less attractive to private-sector investors.”
Under US PREF’s modeling, a shift to a cost-recovery method similar to that envisioned in the discussion draft would considerably drive down returns to investors. Specifically, the analysis finds that for typical renewable generation assets, replacing MACRS with economic depreciation would reduce the returns on new projects by about 25%. To satisfy an investor’s return requirements, switching from MACRS to straight-line depreciation would require projects to increase revenues by about a fifth – increases that undoubtedly would be borne by consumers.
“Transitioning away from the current depreciation system would dramatically impede the renewable energy industry’s ability to expand to scale and remain cost competitive” stated Lee Peterson, a tax attorney who advises on renewable energy projects with CohnReznick, a US PREF member. “It is important to closely examine the impact of broad depreciation reform on the renewable energy industry before moving forward with any proposed legislation.”
“MACRS has been a vitally important and successful bipartisan policy supporting private investment and growth in the domestic renewable energy industry,” added Todd Foley, ACORE’s Senior Vice President for Policy and Government Relations. “We look forward to working with long-time renewable energy supporter Senator Baucus and other members of Congress over the coming months to understand the impact of various proposals on renewable energy finance.”
US PREF Analysis: “MACRS Depreciation and Renewable Energy Finance” can be downloaded here.
ACORE, a 501(c)(3) non-profit membership organization, is dedicated to building a secure and prosperous America with clean, renewable energy. ACORE seeks to advance renewable energy through finance, policy, technology, and market development and is concentrating its member focus in 2013 on National Defense & Security, Power Generation & Infrastructure, and Transportation. Additional information is available at www.acore.org.
About US PREF:
US PREF is a coalition of senior level financiers who invest in all sectors of the energy industry, including renewable energy. Members educate the public sector to assure renewable energy finance legislation impacts the market as efficiently and effectively as possible, with the goal of helping to unlock capital flows to renewable energy projects in the United States. US PREF is a program of the American Council On Renewable Energy (ACORE), a Washington, DC ‐ based non‐profit organization dedicated to building a secure and prosperous America with clean, renewable energy. Additional information is available at www.uspref.org.