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Tax Reform and Renewable energy

Tax Reform and Renewable energy

Moderator: John Gimigliano, principal-in-charge, Federal Tax Legislative and Regulatory Services, KPMG in the US.

Panelists: Julie Marion, Partner, Latham & Watkins; Rod Anderson, Partner, Tax Industry Leader for the Power & Utility Industry, KPMG in the US; Adam Dabrov, Senior Manager, Trade & Customs Practice, KPMG in the US.

With the enactment of tax reform legislation in December, that cloud of uncertainty was starting to lift for the renewables industry. While the industry still faces long-standing as well as emerging challenges, investors, developers and operators alike said the outlook for the industry was positive.

The new tax law is neutral for renewables.
Over the years, the sector has been highly dependent upon the tax code more than other industries, Gimigliano said. Since the tax reform bill kept investment tax credit (ITC) and production tax credit (PTC) in place, Anderson said he takes a quasi-negative albeit somewhat "glass-half-full" view of the legislation. "We're lucky there." 

However, there are several changes that do impact the energy industry.
Under new rules for Section 174 research and experimentation expenditures, the ability to write off engineering and other costs will become instead a 5-year amortization, or a deduction amortized over 60 months.

While there are corrections and clarifications to come, the major components of tax reform are likely to stick for some time.
"There is no way you can write a US$10 trillion dollar bill in 49 days and not have errors, gaps, and inconsistencies. It's kind of a mess."

Clarification will be forthcoming through the Blue Book, expected late summer or early fall, in addition to Treasury regulations (including those retroactive to enactment) and technical corrections.

Rate-regulated utilities could bring more renewables projects back on their books.
The rate-regulated side of the industry was successful in lobbying for an exemption from the interest disallowance rules under the theory that any incremental tax obligation due to the elimination of interest deducibility was just going to be passed on to customers, Anderson said. As such, a number of utilities may be looking at coming out of their net operating loss (NOL) positions and becoming taxpayers.

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