The Investment Tax Credit: Sorting Through The Political Rhetoric

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Includes: BLDP, FF, GEVO, GPRE, HTM, HY, HYGS, ORA, PLUG
by: Matt Margolis

Summary

Republicans and Democrats continue to agree to disagree on the topic of ITC for fuel cells, biofuels, geothermal and small wind industries.

A gentleman's agreement by Republicans to "take care of solar" led to the inclusion of solar and wind in the omnibus.

I expect the ITC for the remaining four eligible industries to be extended, but the process will be painful and drawn-out.

Over the past several months politicians have provided a bunch of lip service related to the extension of the investment tax credit (ITC) for fuel cells. There is no absolute proof that the failure to extend the fuel cell tax credit was anything more than a clerical error. However, a closer look at the solar industry and the money spent on lobbying brings up some serious questions related to the motives and actions taken by our voted representatives.

The Solar Energy Industries Association (SEIA) with a 1,000 member companies across the industry launched a lobbying campaign that was estimated to approach $2m in an attempt to extend the solar credit. According to Greentech Media there was an agreement in place with Republicans "to take care of solar" by extending the tax credit when it came up in 2015 or 2016.

In the spring of 2015, SEIA began ramping up lobbying efforts and hired three well-connected republicans including former Republican Majority Leader and House Whip Trent Lott. David Schnittger former senior staffer with House Speaker John Boehner and David Hoppe former chief of staff for Pal Ryan, the newly elected House Speaker.

Greentech Media reported that SEIA flew a group of 15 executives from leading solar companies to Washington to directly lobby members of Congress. In the end multi-year extensions for wind and solar were added to both Omnibus bills in the House and Senate. The lobbying by the SEIA earned enough votes from Republicans to approve the wind and solar credits alongside the decision to lift the ban on exports of domestic oil.

All of this information leads me to believe that there was never an intention to include or extend the ITC for fuel cells in 2015. The fuel cell industry was out played by solar and wind lobbyists and supporters and it will likely take a lobbying effort by fuel cell, geothermal and biofuel companies to extend the ITC beyond 2016.

On December 18, 2015 just hours after the Omnibus passed without the extension of fuel cell, small wind and geothermal investment tax credits politicians began playing fuelgate, geogate, biogate and small-windgate.

The Geothermal Heat Pump (GHP) industry was assured they would be included in the the bill, but was left out at the final minute.

During 11th hour, closed-door negotiations over lifting the U.S. ban on crude oil exports-which were impossible to anticipate or influence-the wind PTC and solar tax credits were hurriedly inserted into the final Omnibus bill. (Geothermal Exchange Organization President Doug Dougherty)

House Ways and Means Chairman Kevin Brady (R-Texas) along with House Democrat Leader Nancy Pelosi (D-CA) acknowledged publicly just hours after the omnibus packed with the solar and wind extension did not include other eligible technologies. Pelosi called it a "drafting error", while Brady said "we'd be glad to revisit that". I would love to give Brady and Pelosi credit for acknowledging the error to omit other eligible technologies from the bill, however their colleagues had already made a pact to take care of solar and wind at the expense of others.

We still have some unfinished business there, because the bill, through a drafting error, did not include fuel cells, geothermal, and some other renewables that are part of that tax credit. And we have a commitment that that will happen in an early revenue bill after the first of the year. (House Democratic Leader Nancy Pelosi (D-CA))

The good news for fuel cell, geothermal and small wind enthusiasts is that lobbyists are ready take on the senate and congress. According to Bloomberg Catherine Traywick lobbyists are gearing up to get the ITC tax credits reinstated for geothermal, small wind and fuel cells. It is unknown how long it will take to extend the ITC for fuel cells, but lobbyists are expected to take matter into their owns hands and push our elected officials to extend the ITC before the end of 2016.

Congress should not be in the business of picking winners and losers among renewable energy options. It must remain technology neutral and market sensitive. This is especially important as the nation reaches for lofty environmental and economic goals. (Geothermal Exchange Organization President Doug Dougherty)

It's been nearly four months since the passage of the omnibus and ITC credits for solar and wind. Despite political rhetoric that the ITC for fuel cells would be extended in early 2016, there has and continues to be little progress. The FAA reauthorirzation bill has an opportunity to include the extension of the remaining and well deserving ITC technologies. House republicans, yes the same house republicans that made a pact to extend solar and wind in 2015 are not interested in renewing the tax credits.

House Republicans have made it clear they're not interested in renewing any of the expired tax provisions this year. (Politico contributor Martine Powers reporting on the FAA reauthorization bill)

At this point Democrats are in support of passing the ITC for the remaining eligible industries, while there is strong dissent from fiscal conservative groups.

Democrat Argument in Favor:

(ITC riders were) mistakenly left out of a December deal that renewed a host of tax 'extenders. Unless Congress acts, those provisions will expire at the end of this year. … The challenge for party leaders is that agreeing to include those provisions will lead to inevitable why-not-me questions from other lawmakers. (Brian Faler)

Conservative Groups Argument Against:

Congress considered the matter of expiring tax provisions less than four months ago and the provisions were wisely left out. We encourage you to oppose efforts to use unrelated legislation as a vehicle to extend expiring tax provisions for renewable energy. (Grover Norquist's Americans for Tax Reform, Heritage Action for America, Americans for Prosperity, the National Taxpayers Union and Freedom Partners)

Unfortunately the truth of the matter is our elected officials decided to pick winners and losers with the passage of ITC's in the omnibus. Officials were swayed by lobbyists to take care of solar and wind at the expense of other eligible technologies.

Investors in fuel cell companies including Plug Power (NASDAQ:PLUG), Ballard (NASDAQ:BLDP), Hydrogenics (NASDAQ:HYGS), Hyster-Yale Materials Handling (NYSE:HY) may have to continue to wait in agony for the foreseeable future until a resolution and agreement between Democrats and Republicans is struck to extend the ITC.

Biofuel companies that continue to be impacted include Gevo (NASDAQ:GEVO), FutureFuel (NYSE:FF), Green Plains (NASDAQ:GPRE). Geothermal stocks impacted include U.S. Geothermal (NYSEMKT:HTM) and Ormat Technologies (NYSE:ORA).

Ultimately I do expect a deal will struck to extend the ITC for fuel cells, geothermal, biofuels and small wind. However, I expect this issue to drag on for several months and possibly extend into the final hours of 2016 based on the lessons learned from previous stalemates including the budget deficit.

Don't be surprised if the extension of the ITC for the remaining eligible technologies could drag on into the final hours in December 2016 despite any political rhetoric you may come across on the contrary.

Was the investment tax credit for fuel cells, geothermal and smallwind left out at the final minute or was a gentleman's deal in place to only approve wind and solar? I'll let you be the judge.

Disclosure: I am/we are long PLUG, GEVO.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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