The West Virginia Democrat is opposed to making the credits refundable, the so-called direct-pay option that would let developers avoid pursuing complicated tax-equity financing, according to two people familiar with his views.
If direct pay isn’t available, tax-equity deals may net developers 20% to 50% less in some cases, according to Sasha Mackler, executive director of the Bipartisan Policy Center’s energy program. That could hinder deployment of some clean-energy projects.
“The new technologies that are more complicated and harder to develop are going to have a harder time getting access to tax equity financing,” Mackler said in an interview. “Ironically, the technologies that Senator Manchin and others are most supportive of would be the most hurt if direct pay were taken off the table.”
The reconciliation package that passed the House in November would let developers use direct pay to claim hundreds of billions of dollars of tax credits for technologies ranging from wind and solar to nuclear power, hydrogen and carbon capture. Proponents argue that the option is more effective because it lets funding flow directly to projects and developers.
Tax-equity deals require developers to arrange financing through intermediaries, which typically take a fee. The size of the deals may also be smaller than credits available through direct pay.
A spokeswoman for Manchin, a moderate who plays a key role in the evenly split Senate, didn’t immediately respond to a request for comment.
The issue is among the remaining sticking points as Democrats seek to hammer out an agreement on their massive spending package before the midterm campaign season kicks into high gear. Other remaining areas of negotiation include details on a tax credit for electric vehicles including the value and eligibility requirements, one of the people said.
Manchin has previously voted for a non-binding Republican amendment that proposed prohibiting people making more than $100,000 a year from claiming EV tax credits and to end tax credits for vehicles that cost more than $40,000. Backers of the credit say those restrictions would exclude many of the vehicles available now or expected to come to market in the next few years, including some promoted by President Joe Biden.
Manchin is also seeking to make the package more friendly to fossil fuels, efforts sure to draw the ire of progressive lawmakers and environmental groups. That includes a proposed tax credit for carbon capture that’s seen as extending the life of coal plants, and increasing drilling in the western Gulf of Mexico, one of the people said. Manchin also wants to increase the duration of a tax credit for so-called blue hydrogen made from natural gas, another person familiar said.
Backers of the direct pay option have mounted a last-ditch lobbying effort to ensure it stays in the package.
“There is an enormous amount of work going on to get him in a place where he understands how urgently needed direct pay is,” Erin Duncan, the Solar Energy Industries Association’s vice president of congressional affairs said this month. The Washington-based trade group represents companies like renewable project developer AES Corp. and power generator Vistra Corp.
The efforts come as Senate Majority Leader Chuck Schumer and Manchin have been meeting weekly to hammer out a framework for a deal. Manchin has said he can accept a partisan package that raises taxes on the wealthy and corporations, reduces the deficit, lowers drug prices and addresses energy.
The two lawmakers have examined details of the House tax, drug price and energy provisions to determine what exactly Manchin can support. The goal is to draft a bill that would get 50 votes and pass it by the August recess. They face a September 30 deadline when budget reconciliation powers derived from the fiscal 2022 budget expire.
Even if Manchin and Schumer strike a deal it’s unclear whether House progressives would support it. The $2.2 trillion House package that Manchin blocked in December had dozens of top priorities for them, including paid parental leave, childcare subsidies and a refundable and expanded child tax credit. Progressives may balk at a slimmed down approach.