Impact of tax reform on renewable energy and cogeneration projects

This study examines the sensitivity of renewable energy and cogeneration project returns to proposed changes in the federal tax code, specifically to reforms proposed in 1985 by President Reagan. We examine six different technologies by defining typical configurations. Project cash flows are projected over a twelve year horizon, and the investor's internal rate of return (IRR) is calculated. We calculate changes in IRR as various proposed tax changes are assumed to take effect. We find that capital intensive projects, such as geothermal and small hydro, suffer most from proposed tax code changes. Conversely, the least capital intensive projects, cogeneration, fare best.