Renewable Energy Focus, March-April 2009
Stimulus Plan Includes Spending and Tax Breaks for Renewables
The economic stimulus package passed by the U.S. Congress in mid-February has numerous provisions aimed at boosting the renewable energy industry; but some may be more useful than others, depending on what exactly a company does. The tax credit extensions will be most useful to big utilities such as Southern California Edison (SCE) who have made a concerted push into renewable generation and—this is the important part—have profits which make the tax credits useful. Emerging solar and wind companies such as BrightSource—which announced a big deal with SCE in February to build seven projects worth a total of 1.3 gigawatts—are engineering companies and unprofitable, so the credits can’t be used. But there is a new “clean energy manufacturing” tax credit in the bill which is targeted at companies who make wind turbines and solar panels. In addition, the legislation contains $6 billion for a troubled Department of Energy loan guarantee which is suppose to provide loans to companies such as BrightSource (see separate item below).
Utilities moving to include renewables in their portfolio will undoubtedly be aided by extension of the wind-power-dedicated Production Tax Credit (PTC) from December 31, 2009 to December 31, 2012. The bill also would extend the placed-in-service sunset dates for closed-loop biomass, open-loop biomass, geothermal, landfill gas, trash, qualified hydropower, and marine and hydrokinetic renewable energy facilities from December 31, 2010 (2011 in the case of marine and hydrokinetic renewable energy facilities) to December 31, 2013. This is a $13 billion provision over 10 years, and was one of the major tax provisions in the bill. “One of the key elements of the stimulus package is the Production Tax Credit extension,” says Vanessa McGrady, a spokeswoman for SCE. “That is key to meeting our goals with projects already contracted and in development over the next couple of years.”
But the PTC doesn’t do emerging wind power producers—as opposed to the utilities who buy the wind—much good. Don Furman, senior vice president for development, transmission, and policy for Iberdrola Renewables, Inc., says companies like his have had to form tax equity partnerships with companies who had a large amount of taxable income. These were large Wall Street companies. The collapse of large finance companies has wiped away even the opportunity to use the PTC and the Investment Tax Credit (ITC), which is a smaller benefit anyway. Iberdrola is America’s second-largest developer and operator of wind energy generating facilities. The ITC, though, is generally available to only solar companies.
Furman’s criticism explains why Congress included a provision in the bill which allows a company to convert an unusable PTC or ITC into a federal grant. Companies would be eligible for the conversion grants for property placed in service in 2009 and 2010. Property placed in service after 2010 and on or before the applicable credit termination date could qualify for the grants, but only if construction began in 2009 or 2010. The amount of a grant generally would be equal to the amount of the ITC for which the owner of the project otherwise would have been eligible (i.e., generally 30% of the qualified cost of the project, but 10% of the qualified cost of geothermal, qualified microturbine, combined heat and power system, and geothermal heat pump property).
Greg Wetstone, senior director of governmental affairs for the American Wind Energy Association (AWEA), calls that grant conversion provision “very useful” for companies who don’t have enough tax liability to use the PTC. He says it is hard to know exactly what will be available in grants, but notes that an estimate last year suggested that the ITC would cost the Treasury $4.5 billion in 2009.
Congress Implored to Change or Scuttle DOE Loan Guarantee Program
Now that Congress has passed an economic stimulus package, it will turn its attention to major energy legislation. A top priority there will be, at a minimum, changes to the current Department of Energy loan guarantee program, created by the 2005 Energy Policy Act. Section 17 of that bill gave the DOE authority to fund $4 billion worth of loans for renewable energy projects such as BrightSource Energy’s two solar facilities in the Mojave Desert which will supply power to Pacific Gas & Electric. Totaling 300 megawatts, the two would be the first facilities built by BrightSource, which submitted an application in 2006 to DOE for loan guarantees to be used in the Mojave construction. Two and a half years later, DOE has still not made any loans guarantees, to Mojave or anyone else. But Keely Wachs, a BrightSource spokesman, says the company has been told that it is one of 11 applicants in the running for guarantees. Wachs declines to say whether BrightSource needs the loans—which would come from a bank--to build those two solar facilities.
David Frantz, the director of the DOE program, told the Senate Energy Committee on February 12 that Energy Secretary Steven Chu has ordered him to “accelerate progress immediately” in awarding the first guarantees. But both Frantz and Andy Karsner, a former assistant secretary of energy and now a fellow at the Council on Competitiveness, ticked off numerous problems which have left the program a morass. Chief among those problems, and this is Congress’s fault, is that applicants themselves, like BrightSource, have to pay what Karsner described as “exorbitant” fees as part of their applications. Karnser advocated throwing the current Section 17 program in the garbage and starting fresh with a Clean Energy Bank, which could be established in whatever energy bill Congress passes.
Cabinet Secretary Stresses Wind and Wave Energy Development Offshore
Ken Salazar, the new secretary of the Department of Interior, made waves in Washington on February 10 when he announced a new initiative to include wind and wave energy development as part of the federal government’s long-term plan to develop offshore energy resources. The departing Bush Interior Department had proposed a five-year offshore development plan on January 16, its last business day in office. The proposed plan—for the five year period starting in 2012—for the first time incorporated new offshore areas now available because of the elimination of long-term congressional and presidential moratoriums on offshore development. Salazar criticized the Bush administration proposed rule for two reasons: for focusing almost exclusively on oil and gas development in the 300 million acres offshore which would, for the first time, be open to development and for the compressed deadlines for doing the preliminary work on the five year plan, which, again, would not go into effect until 2012. “It was a headlong rush of the worst kind,” Salazar complained. “It was a process tilted toward the usual energy players while renewable energy companies and the interests of American consumers and taxpayers were overlooked.”
On a parallel track with revising Bush’s proposed five year plan Salazar plans to issue a final rule which would lay out a framework for offshore renewable energy development “so that we incorporate the great potential for wind, wave, and ocean current energy into our offshore energy strategy.” The 2005 Energy Policy Act included an amendment requiring the Department of the Interior to move quickly and issue, within nine months, rules and regulations to guide the development of offshore energy resources like wind, wave, and tidal power. It took the Bush Administration three years to prepare a proposed rule for offshore renewable energy development. Bush left office without putting any final regulations in place. Salazar plans to issue a final rule within the next few months.
The Bush proposed rule on renewables drew criticism from utilities such as Florida Power & Light, which owns NextEra Energy Resources, a major wind energy generator across the U.S. In comments to the Minerals Management Service, which issued the proposed rule for the Interior Department, FPL said the production payment structure proposed by MMS “will likely hinder the development of ocean energy technologies. The proposed structure resembles that of a mature industry, one that is already cost competitive and reliable.”
Renewable Advocate Takes Over Key Agency
It is not just cabinet secretaries who are talking about renewable energy development, so are newly-appointed heads of federal regulatory agencies. None is more outspoken on the issue than Jon Wellinghoff, whom President Obama appointed as the acting chairman of the Federal Energy Regulatory Commission (FERC). Wellinghoff came to FERC in 2006, first appointed by President George W. Bush. Wellinghoff made his name as primary author of the Nevada state’s renewable portfolio standard (RPS). He received a full, five-year term in December 2007, and quickly became a vocal advocate at FERC for wind and solar power. But betting men are placing big money on Obama removing the “acting” designation from Wellinghoff’s title. That is because the former Nevada Consumer Advocate for Customers of Public Utilities is very close politically to Sen. Harry Reid (D-Nev.), the Senate majority leader.
Of course, at the moment, there is no U.S. RPS, a shortcoming the Congress is expected to remedy this year (see item below). Wellinghoff has talked incessantly about implementing “demand response” describing it as the “glue” that can “stabilize the grid, allow us to bring in a lot of variable energy resources like wind and solar, and allow us to do that in a way that the grid remains reliable,” he told the EnergyWashington newsletter.
But Wellinghoff hasn’t just “talked the talk,” he has “walked the walk.” Last September, he was the only one of five commissioners to vote against the Bradwood Landing liquid natural gas (LNG) project. There he disputed the FERC staff’s own environmental impact statement (EIS), which he said underestimated the amount of wind and solar energy which was available as an alternative to the new LNG terminal and associated pipeline. In mid-January, two weeks before being appointed “acting,” he again was the sole “no” vote against the AES Sparrows Point LNG facility near Baltimore. There he underlined the importance of taking federal action which would help states in the region meet their own RPS requirements, which would not be satisfied by LNG.
National RPS Likely in 2009; But Questions Raised about Particulars
Congress has played kicked the can with a Renewable Portfolio Standard (RPS) in the last four Congresses, with either the House or Senate passing legislation, and kicking it over to the other side of Capitol Hill, only to see the bill get squashed. That is not likely to happen in the new 111th Congress, given the wider Democratic majorities and a more supportive occupant of the White House, Barack Obama.
The process is already moving forward in the Senate, where an Energy Committee staff draft was vetted at hearings in that committee on February 10. That draft looked very similar to past legislation, with some exceptions. The draft’s main feature parallels the legislation introduced in the House by Reps. Ed Markey (D-Mass) and Todd Platts (R-Pa.) called the American Renewable Energy Act, except the Senate sets a goal of 16 percent of power from renewables in year 2020 while Markey makes it 17. 5 percent. There are some differences in later years, too, with the Senate staying at 20 percent in 2021-2029 and Markey going higher. The emerging Senate plan backed by Senate Energy Committee Chairman Sen. Jeff Bingaman (D-N.M.) has a controversial provision, not in the Markey bill, which allows up to one-quarter of the requirement for renewable generation to come from energy efficiency. That was inserted in the bill to assuage states, particularly in the southeastern portion of the U.S., who argue their renewable resources are scarce.
At the hearings in the committee on February 10, Ralph Izzo, president, chairman and CEO of Public Service Enterprise Group, said he supported the 20 percent requirement, which matches the New Jersey RPS. However, he opposed including energy conservation gains in the 20 percent. PSEG owns and operates approximately 17,000 megawatts of electric generating capacity concentrated in the Northeast, Mid-Atlantic and Texas.
Izzo said his company had filed a petition that same day with the New Jersey state regulators asking to be able to invest almost $800 million in solar generation over the next five years. That will include putting solar generation on brownfields, low-income housing and government buildings. It also will include roughly 200,000 solar installations on top of our utility poles. That is in addition to the more than $100 million PSEG is already investing in solar generation.
Izzo’s position in favor of a RPS set him apart from the mainline trade association representing investor-owned electric utilities in the U.S., the Edison Electric Institute (EEI). The EEI opposed previous bills which passed the House and Senate, generally arguing that a RPS would be “essentially a tax on many electricity customers.” The National Association of Manufacturers has also opposed a federal RPS mandate.