RenewNewEngland.com

Has the Obama Administration Really Given Up On Cap-and-Trade?

President Obama’s response to an audience question during his appearance at a Nashua, New Hampshire, high school on Tuesday has been pronounced by the media as the beginning of the end for a national cap-and-trade program.  According to numerous news reports, the President “acknowledged” that controversial cap-and trade could be separated from the Senate energy bill; “retreated” from cap-and-trade (“a maneuver that could kill what once had been one of the administration's top policy priorities”); and “opened the door to disassembling the climate change legislation” currently under consideration in the Senate.  Reading the complete text of his remarks, however, reveals that cap-and-trade is hardly on its death bed. 

First, the statements quoted in the news as signaling a change in priority for cap-and-trade came in response to a long question from an audience member pushing an energy efficiency and technology plan that would “help us to avoid having to do cap and trade and other aspects with environmental controls that are going to have negative impacts on our economy.”  After touting the benefits of energy efficiency and technology at length, the President admitted the controversy over cap-and-trade:

The most controversial aspects of the energy debate that we've been having -- the House passed an energy bill and people complained about, well, there's this cap and trade thing. And you just mentioned, let's do the fun stuff before we do the hard stuff. The only thing I would say about it is this: We may be able to separate these things out. And it's conceivable that that's where the Senate ends up.

While Obama’s response certainly could be read as an invitation to consider a bifurcated approach to moving the energy bill forward, the news reports of cap-and-trade’s death may be, with apologies to Twain, greatly exaggerated.  Following this statement, the President immediately emphasized that market-based incentives to pollution control – cap-and-trade – offer the most realistic and workable solution:

But the concept of incentivizing clean energy so that it's the cheaper, more effective kind of energy is one that is proven to work and is actually a market-based approach.  A lot of times, people just respond to incentives.  And no matter how good the technology is, the fact of the matter is if you're not factoring in the soot that's being put in the atmosphere, coal is going to be cheaper for a very long time. …

And so the question then is: Does it make sense for us to start pricing in the fact that this thing is really bad for the environment? And if we do, then can we do it in a way that doesn't involve some big bureaucracy in a control and command system, but just says, look, we're just going to -- there's going to be a price to pollution. And then everybody can adapt and decide which are the -- which are the best energies.

One day after the New Hampshire speech, the President announced a “Comprehensive Federal Strategy on Carbon Capture and Storage,” which established an interagency task force (co-chaired by representatives from the DOE, and EPA, and including FERC and the Treasury Department, among others) charged with developing a plan that will result in bringing 5 to 10 commercial demonstration carbon capture and storage projects online by 2016.   In this announcement, the President reiterated his endorsement of a cap program: “Ultimately, comprehensive energy and climate legislation that puts a cap on carbon pollution will provide the largest incentive for CCS because it will create stable, long-term, market-based incentives to channel private investment in low carbon technologies.“  The President’s recently submitted budget also assumes enactment of a cap-and-trade program, with a “placeholder” expectation (i.e., unquantified) that cap-and-trade legislation would be “deficit neutral.”

Perhaps Obama’s comment was a carefully planned gesture to the opposition; perhaps the news media made more out of it than was warranted by the context.  It remains to be seen whether the combined effects of "Climategate", the struggling economy, and political necessities doom enactment of a national cap-and-trade program this year.  But worldwide trends, and the experience of states that have moved forward to develop regional programs, support a cap-and-trade approach.  For example, New England (with four other northeast states) has an established carbon cap-and-trade program, the Regional Greenhouse Gas Initiative (RGGI), designed to cap and reduce power sector CO2 emissions 10% by 2018.  Since the first auction in September 2008, this program has raised almost a half billion dollars for energy efficiency and renewable energy programs (with Maine receiving over $15 million to date).  The next auction is scheduled for March 10.  

FERC Seeks Comment on Barriers to Integration of Renewables

Last Thursday, FERC issued a Notice of Inquiry (pdf) seeking comments on the extent to which barriers exist that may inhibit the integration of certain renewable energy sources into the electric grid.   FERC particularly identified locational challenges and limited dispatchability as problems associated with resources like wind and solar that can adversely affect reliability and (in the realm of “unintended consequences”) can require the addition of more conventional resources for balancing purposes.

In this proceeding, FERC intends to explore how existing rules, regulations, tariffs, or even industry practices hinder the development of variable energy resources, through either discrimination or imposing unjust rates, and as part of this, to consider potential reforms.   In the past, FERC has adopted targeted rules to encourage renewable resource development – such as standardizing interconnection agreements for wind resources (Order 661), or adopting a reduced penalty for imbalances caused by intermittent resources (Order 890).  In this proceeding, FERC will take a “fresh look” at all existing policies and rules, “with the aim of removing unnecessary barriers to transmission service and wholesale markets for Variable Energy Resources  (“VERs”) and other technologies that may aid their integration, and promoting greater efficiencies that ultimately will reduce costs to consumers.“  The seven specific areas FERC singled out are:

1. data and reporting requirements, including the use of accurate forecasting tools;
2. scheduling practices, flexibility, and incentives for accurate scheduling of VERs;
3. forward market structure and reliability commitment processes;
4. balancing authority area coordination and/or consolidation;
5. suitability of reserve products and reforms necessary to encourage the efficient use of reserve products;
6. capacity market reforms; and
7. redispatch and curtailment practices necessary to accommodate VERs in real time.

However, FERC will not consider transmission planning and cost allocation issues, as these are being considered in another docket. (Transmission Planning Processes Under Order No. 890, Docket No. AD09-8-000) Comments are due 60 days from publication in the Federal Register, expected to be the last week in March, 2009.

Webinar: Renewable Energy in 2010

Tomorrow, January 20, Pierce Atwood will host a lunchtime webinar on the outlook for renewable energy development in 2010.  The webinar is part of a monthly series of events presented by the American Council on Renewable Energy (ACORE) in collaboration with the Renewable Energy Resources Committee of the American Bar Association's SEER Section and the Energy Bar Association's Renewable Energy Committee.  

We hope you can join us for a lively and provocative discussion concerning financing, development, legislative and regulatory initiatives that will shape the future of renewable energy in 2010.

For more information on the webinar - or to register to attend at our offices in Portland, ME, Portsmouth, NH or Boston, MA, please contact Bill Hewitt or click here. 

Maine Ocean Energy Task Force Submits Final Report

The Maine Ocean Energy Task Force  submitted its final report (pdf) with detailed appendices (pdf), to Governor Baldacci on December 31, 2009.  (We discussed earlier drafts of this proposal in this previous post.)

OETF Co-Chairperson Beth Nagusky, Director of Innovation and Assistance at the Maine Department of Environmental Protection, has indicated that The Governor's Office will submit draft legislation to implement the OETF recommendations early in the legislative session.
Key findings of the Report include recommendations that Maine:

• Make a major commitment to development of offshore wind, tidal, and wave power;
• Commit to a goal of installation of 5 gigawatts (5,000 megawatts) of offshore wind energy generating capacity in Maine’s coastal waters and adjoining federal waters by 2030, and to a goal of timely and efficient development of tidal energy resources at optimal locations in Maine’s coastal waters, including but not limited to those in the Passamaquoddy Bay region;
• Improve the siting, permitting and governance framework for renewable ocean energy development;
• Move aggressively to support strengthening Maine's current out-dated transmission and distribution infrastructure, incorporating smart-grid technologies, and explicitly recognize in law the need for new transmission and distribution capacity to achieve the State’s wind power and energy conversion goals; and
• Support the financing and development of renewable energy goals by requiring the Maine Public Utilities to issue a Request for Proposal for renewable ocean energy generation where the rate impact is reasonable.

For more information about the Ocean Energy Task Force and offshore development opportunities in Maine, contact Pierce Atwood's Lib Butler.  

A Manufacturing Tax Credit Announcement & A Production Tax Credit Order

Last week, the Obama administration announced $2.3 billion in manufacturing tax credits, specifically designed to stimulate investment (and job growth) in the manufacturing sector associated with clean energy projects.  (For more on the manufacturing tax credit, see our previous post.)  With persistent unemployment plaguing the manufacturing sector, it makes sense that this initiative is receiving a lot of attention from the administration – and in the press.

Receiving less publicity – but reducing regulatory uncertainties for banks investing in certain renewable energy projects – is a recent FERC ruling regarding the production tax credit.  As noted in the Order (pdf), renewable energy project developers rely on passive equity investors that can monetize a project’s production tax credits.  By removing any concern that tax equity investors could be viewed as “affiliates” of a public utility that would have to be disclosed in a change in status filing under Section 203 of the Federal Power Act or would require a FERC waiver prior to investing, FERC’s order helps ensure that prospective tax equity investors will not be discouraged from investing in new wind power projects due to concerns over increased regulatory burdens.

For more information on FERC’s oversight of renewable projects, contact Randy Rich in Pierce Atwood’s Washington, DC office. 

Maine Energy Commission Releases Divided Report

After meeting throughout the fall, Maine's Commission to Study Energy Infrastructure has failed to reach agreement on a process for leasing or use of any state-owned or state-leased land as an energy infrastructure corridor, voting 7-5-1 in December to approve a "three-way report" to the legislature including Majority and two Minority reports.  The major split appears to be tied to efforts to extend a moratorium on new oil and gas pipelines in Maine as leverage in negotiations with the Canadian government regarding proposed LNG terminals near Calais.  The Maine Legislature will take up the Commission's recommendations for proposed legislation in 2010.

Whatever the eventual outcome, the Commission's deliberations have also produced a great deal of information about regional energy developments, including renewable energy.  For example, this overview of proposed energy infrastructure projects provides a list of planned transmission lines that would bring energy--wind from northern Maine or the Maritimes, or nuclear from Point LePreau in New Brunswick--into the comparatively richer markets of southern New England:

• Green Line - 140 mile undersea 660 MW HVDC line linking Wiscasset, Maine to Boston, MA.
• Maine Express - 150 mile, 1000 MW HVDC line linking Wiscasset, Maine to Boston, MA.
• Northeast Energy Link - 1100 MW underground HVDC line between Orrington, Maine and Boston, MA, along the I-95/I-295 corridor.
  

Three other proposed projects, the Maine Power Connection, the Northeast Energy Corridor, and the Loring Transmission project, would interconnect with and extend Maine's existing transmission backbone.  The primary competitor to these projects outside of Maine is a 1200-1400 MW line proposed by Northeast Utilities, NSTAR and Hydro-Quebec that will carry hydro from Quebec to Massachusetts and Connecticut via New Hampshire.   

The favored technology for the long distance lines is HVDC, which is less expensive and has lower losses than equivalent high voltage AC (and is essential for any interconnection between Quebec and the US, whose systems are asynchronous).  These lines are power conduits, and will only interconnect with the grid at their endpoints, providing no real electical benefit to the communities through which they pass.  In some cases, power will only flow one way (e.g., north to south).  Siting these lines in a highway corridor or underwater is an attempt to avoid the obvious difficulty: while some people think wind turbines are pretty, most people aren't fans of transmission lines. They're an even harder sell when the benefits accrue in another town, another state, or even another country. 

Testing the Wind

Today, in accordance with LD 1465 (pdf), “An Act To Facilitate Testing and Demonstration of Renewable Ocean Energy Technology,” Maine’s Governor Baldacci announced the final selection of three offshore wind energy demonstration areas in Maine.  (The four site finalists were announced in October 2009, as discussed in this previous post.)

One of the three sites, located near Monhegan Island, is designated as the “Maine Offshor Energy Research Center,” which will be used for research and development projects run by (or in cooperation with) the University of Maine.

The other two sites – off Boon Island near York and off Damariscove Island near Boothbay - are available for R&D projects by commercial entities.  To obtain a permit for a project in one of these sites, a company must first apply for a general permit for offshore wind energy demonstration project under 38 MRS §480-HH from the Department of Environmental Protection.

With a MDEP general permit approval in hand, the company must then apply for a submerged lands lease from the Department of Conservation.  Because these sites are designated for research and development uses rather than permanent, commercial installations, permits for the Boon Island and Damariscove Island sites will good for five years from the date they were granted or three years from the date construction starts (with certain term extensions available); in applying for the permit, applicants must provide a project removal plan that details how they will remove the project at the end of the permit period.

More details about the demonstration areas, including interactive maps of the designated areas, are available at the Department of Conservation site.

This site selection process complements the work of the Ocean Energy Task Force and its recommendations concerning legislation to make near-shore and off-shore sites available for both R&D and ultimately commercial renewable energy projects.  The draft final report of the OETF can be found here. 

Offshore (Data) Mining

Together with Senator Mark Begich of Alaska, Maine Senator Olympia Snowe has introduced the Renewable Energy Environmental Research Act of 2009 (pdf).  The proposed legislation aims to coordinate the collection and dissemination of environmental data so crucial to the development of marine energy resources.  Under the proposed bill, $100M would be appropriated to NOAA each year 2010 through 2014, with the requirement that up to 50% of the funds would be made available to educational institutions and to states with federally-approved coastal zone management programs (pdf). 

As shown on this interactive map, every New England state (other than Vermont,  which lacks a seacoast) is already working with NOAA on coastal and ocean management issues.  Of course, as Senator Snowe’s press release suggests, the University of Maine’s Advanced Structures and Composites Center, which has partnered with Norway’s StatoilHydro to investigate the potential of off-shore wind, would be a natural recipient for this kind of funding.  (For more on this program, see our previous post.)  But with multiple off-shore energy projects in various stages of development in Maine, Massachusetts and Rhode Island, the impact of this bill would be felt throughout the region.

The environmental data covered by the proposed legislation is of great interest to environmental advocates, who want to make sure off-shore development won’t cause unreasonable harm to the habitats where they’re built.  The data is also of critical importance to developers – and their potential investors - who have been calling (pdf) for the refinement, integration and standardization of this kind of environmental data in order to minimize the risks associated with both permitting these projects and their eventual productivity. 

Patent Office Institutes Pilot Program for Green Technologies

On Monday, the Commerce Department announced that the Patent and Trademark Office will institute a Pilot Program for Green Technologies Including Greenhouse Gas Reduction, which will accelerate the examination of certain “green” technology patents.  The Pilot Program will allow inventors who have already submitted patent applications for green technologies to petition to have their applications receive an expedited review.  

As detailed in the Federal Register (pdf), applications eligible for the program include inventions that materially contribute to:

• Enhancing environmental quality;
• The more efficient utilization and conservation of energy resources;
• The discovery or development of renewable energy resources; and
• Greenhouse gas emission reduction.

The PTO estimates that there are approximately 25,000 currently pending patents that would be eligible for the Pilot Program.  However, accelerated examination will only be available to the first 3,000 applications related to green technologies in which a proper petition to make special (pdf) is filed, so parties interested in taking advantage of the Pilot Program should move quickly.  As part of this new program, the PTO has waived the $130 fee normally associated with petitions to make special.

According to PTO statistics, an average patent application receives a first office action in approximately 25 months and reaches a final determination in an average of 32.  Inventions in the Green Technology area have a larger backlog, waiting an average of 30 months to receive a first office action and 40 months to a final decision.

Applicants who successfully petition to enter the Pilot Program will enjoy shortened prosecution times, securing potentially valuable intellectual property rights sooner.  Obtaining patent rights faster will provide additional opportunities for financing and open doors to new projects, a valuable prospect for any company.

Cape Wind and National Grid to Negotiate PPA

Last week, we learned that Cape Wind will enter into negotiations with National Grid for a long term power purchase agreement for power from the long-awaited Nantucket Sound facility.  This is only "an agreement to enter negotiations," so key details remain vague: it's unknown, for example, whether National Grid will buy all or some of the power, or (crucially) how much they will pay for it. In November, National Grid again rejected a long term PPA with Rhode Island's Deepwater Wind, required pursuant to Rhode Island law, when the utility was unwilling to pay Deepwater's price of between 25 and 30 cents per kWh (see our previous post on that project here).  Costs should be lower for Cape Wind, which is in shallower water, (the economic model used in Cape Wind's environmental impact statement estimated a cost of energy of 12.2 cents per kWh) but still higher than its fossil-fueled powered competitors, most importantly natural gas, which sets the market clearing price in New England.  National Grid will need approval from the Massachusetts Department of Public Utilities before it can enter into any long term contract for energy.

What's telling is the source of the announcement: the office of Massachusetts Governor Duval Patrick.  Energy--in particular renewable energy and energy efficiency--has been a central focus of the Patrick administration, as exemplified by the Green Communities Act, and the Oceans Act, both passed in 2008.  The former statute, along with Patrick's continued support, are responsible for the state's climb up the nation's energy efficiency rankings (Massachusetts is currently ranked number two, behind California).  Construction of Cape Wind, potentially the country's first offshore wind project, would be the jewel in the crown of Governor Patrick's renewable energy efforts.  It's not surprising that the Governor would take a special interest in the project.

While some are taking the announced negotiations as a sign that the project is viable, the active role of the Governor's office confirms what we already know: offshore wind— even in relatively shallow water—is very expensive, and the existing incentives (RECs, tax credits, etc.) are not enough to make it economically viable.  To obtain financing, wind projects need long term PPAs that the market is slow to provide, and state governments will need to step in.  Ultimately these projects are only as viable as the strength of their state-level support.