Skip to main content

Taxes and Nuclear Power

Joe Somsel, a contributor and frequent commenter here on the blog, asked me to share this with our readers:
Since I'm posting on the day my US and state income taxes are due, let me expound a bit on relative tax treatments for nuclear generation compared to wind and solar generation.

In the US, the Internal Revenue Service allows accelerated depreciation (actually "Modified Accelerated Cost Recovery System" (MACRS)) that classifies assets into classes then gives the percent of first cost (basis) that can be deduced per year from taxable income. [Note - I'm not a tax accountant - I just took some classes!]

Solar and wind equipment used to make electricity is a five year asset class while a nuclear plant is a 15 year asset class. Both exclude the underlying land values which do not depreciate.

That means that the owner of two new $3000/kW plants, one wind (or solar) and one nuclear, could write-off $960 the first full year for his wind or solar plant but only $285 for his nuclear plant per kilowatt of capacity.

At the 39 percent top corporate tax bracket for 1,500 MWe installed, that's almost a $40 million a year difference to solar or wind in after tax earnings that can be used for dividends whether electricity is sold or not.

For perspective, with 50% equity and 6% ROE, total before-tax profits would be about $135 million if everything went well. The after-tax profits available for distribution or re-investment at the top rate would be about $83 million. This favorable tax treatment increases the cash available for dividends from wind or solar by almost 50% over nuclear for that second year of operation.

Again, I'm no tax or financial accountant but this is a reasonable ballpark estimate of the difference that tax treatments make in investment decisions for new generation. Specialists in taxation are welcome to correct or expound on this estimate in the comments.

Comments

Popular posts from this blog

Making Clouds for a Living

Donell Banks works at Southern Nuclear’s Plant Vogtle units 3 and 4 as a shift supervisor in Operations, but is in the process of transitioning to his newly appointed role as the daily work controls manager. He has been in the nuclear energy industry for about 11 years.

I love what I do because I have the unique opportunity to help shape the direction and influence the culture for the future of nuclear power in the United States. Every single day presents a new challenge, but I wouldn't have it any other way. As a shift supervisor, I was primarily responsible for managing the development of procedures and programs to support operation of the first new nuclear units in the United States in more than 30 years. As the daily work controls manager, I will be responsible for oversight of the execution and scheduling of daily work to ensure organizational readiness to operate the new units.

I envision a nuclear energy industry that leverages the technology of today to improve efficiency…

Nuclear: Energy for All Political Seasons

The electoral college will soon confirm a surprise election result, Donald Trump. However, in the electricity world, there are fewer surprises – physics and economics will continue to apply, and Republicans and Democrats are going to find a lot to like about nuclear energy over the next four years.

In a Trump administration, the carbon conversation is going to be less prominent. But the nuclear value proposition is still there. We bring steady jobs to rural areas, including in the Rust Belt, which put Donald Trump in office. Nuclear plants keep the surrounding communities vibrant.

We hold down electricity costs for the whole economy. We provide energy diversity, reducing the risk of disruption. We are a critical part of America’s industrial infrastructure, and the importance of infrastructure is something that President-Elect Trump has stressed.

One of our infrastructure challenges is natural gas pipelines, which have gotten more congested as extremely low gas prices have pulled m…

Nuclear Is a Long-Term Investment for Ohio that Will Pay Big

With 50 different state legislative calendars, more than half of them adjourn by June, and those still in session throughout the year usually take a recess in the summer. So springtime is prime time for state legislative activity. In the next few weeks, legislatures are hosting hearings and calling for votes on bills that have been battered back and forth in the capital halls.

On Tuesday, The Ohio Public Utilities Committee hosted its third round of hearings on the Zero Emissions Nuclear Resources Program, House Bill 178, and NEI’s Maria Korsnick testified before a jam-packed room of legislators.


Washingtonians parachuting into state debates can be a tricky platform, but in this case, Maria’s remarks provided national perspective that put the Ohio conundrum into context. At the heart of this debate is the impact nuclear plants have on local jobs and the local economy, and that nuclear assets should be viewed as “long-term investments” for the state. Of course, clean air and electrons …