Politics vs Economics: Wholesale Changes?

The decision to withdraw from the Paris climate accord signaled the president’s commitment to his campaign promise and, arguably, prompted several states to accelerate carbon regulation and renewable-energy development.

Although the rollback of water and waste regulations affecting the coal-mining industry has probably reduced expenses for existing operators, the bankrupt Arch Coal and Peabody Energy still face a slew of climate change-related lawsuits. And looser regulations haven’t stimulated much in the way of new mining capacity, as the demand side of the equation remains challenged.

Like the withdrawal from the Paris climate agreement, the push to repeal the Clean Power Plan amounts to a symbolic move because the rules never became the law of the land. Nevertheless, the Clean Power Plan emerged as a hot topic at last year’s edition of the Edison Electric Institute’s financial conference; this year, we’ll look for insight into the extent to which its goals still factor into utilities’ longer-term spending plans. Thus far, the move appears to have hardened the resolve of many states to take aggressive action on curbing emissions.

The US International Trade Commission’s (ITC) recent finding that imported solar panels have harmed domestic producers could result in tariffs that effectively increase the cost of adopting this clean energy.

Suniva and SolarWorld, both of which are owned by international companies, convinced at least two of the four ITC commissioners to move the case to the remedy phase. The plaintiffs have sought a floor price for solar panels made from crystalline silicate that would effectively double US prices relative to the global market.

By Oct. 31, the ITC commissioners will recommend a course of action to President Trump, who will make the final decision on any tariffs, quotas, or other remedies. A steep increase in tariffs likely would slow US adoption of solar power.

The push for tax reform could also have important implications for electric utilities and power markets. A lower corporate tax rate, combined with the immediate expensing of capital, could undermine the value of tax equity financing—heretofore a major source of funding for wind and solar power. Ending the deductibility of interest expense would also make debt financing less attractive.

As it stands, tax reform likely would concentrate renewable-energy projects among utilities and other larger players.