AnalysisNew Tax Credit for the Already Heavily Subsidized Nuclear Industry

The Build Back Better Act passed by the House last week includes a new “zero-emission nuclear power production credit.” The tax credit, created as section 45W of the tax code, would add to the existing suite of federal subsidies for nuclear energy, including the 45J tax credit for any new nuclear plants that come online. The 45W tax credit would act as a general income supplement for existing nuclear power facilities making less than a set amount, many of which also qualify for the $6 billion credit program created by the recently enacted infrastructure package.

The credit as proposed would provide:

  • 3 cents x kilowatt hours of electricity produced and sold to an unrelated person exceeding the “reduction amount.”
  • The “reduction amount” is the lesser of 0.3 cents x kilowatt hours or 16% of the difference between the gross receipts and 2.5 cents x kilowatt hours. In effect, the reduction amount phases out the credit for plants that earn more income from electricity sales.
  • If the facility complies with new prevailing wage and apprenticeship requirements, the credit amount is multiplied by 5 for a max credit of $15/megawatt hour of electricity sold.

A qualified nuclear facility is one that is not an advanced nuclear power facility. The credits are available till the end of 2027.

The chart below illustrates how nuclear facilities with different average revenue per megawatt (MWh) sold would calculate the credit they could claim under the new section 45W.

Plant Revenue Wage and apprenticeship requirements are NOT met Wage and apprenticeship requirements ARE met
Receipts equal to $20/MWh Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($20/MWh – $25/MWh) = 0 [1]

Credit   =   $3/MWh

Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($20/MWh – $25/MWh) = 0

Credit   =   $3/MWh x 5 = $15/MWh

Receipts equal to $30/MWh Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($30/MWh – $25/MWh) = $0.8/MWh

Credit   =   $3/MWh – $0.8/MWh = $2.2/MWh

Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($30/MWh – $25/MWh) = $0.8/MWh

Credit   =  ($3/MWh – $0.8/MWh) x 5 = $11/MWh

Receipts equal to $45/MWh Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($45/MWh – $25/MWh) = $3.2/MWh

Credit   =  $3/MWh – $3/MWh = 0

Credit amount before reduction = $3/MWh

Reduction amount = the lesser of:

$3/MWh

Or

16% x ($45/MWh – $25/MWh) = $3.2/MWh

Credit  = ($3/MWh – $3/MWh) x 5 = $0

[1] The reduction amount does not go below zero.

The Joint Committee on Taxation estimated that the new 45W will cost taxpayers almost $23 billion from FY2022 to FY2031. As noted above, the 45W credits comes on the heels of the “civil nuclear credit program” established by the infrastructure package (H.R. 3684), which was passed on Nov 15, 2021. The civil nuclear credit program provides $1.2 billion per year from FY2022 to FY2026, or $6 billion total, to nuclear plants at risk of shutting down. If the reconciliation bill is passed as is, Congress will be giving out close to $30 billion to an industry that is already heavily subsided, from royalty-free uranium mining and R&D funding, to loan guarantees and production tax credits for new constructions. It’s time to stop handing out money to an industry that shouldn’t need more federal aid and can’t compete on its own.

 

 

 

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