RenewNewEngland.com

President's Budget: A Few Extensions of Renewable Energy Incentives

Following up on last week's post on the extension of the production tax credit, there were a couple of interesting developments yesterday. 

First, House Republicans offered to decouple the payroll tax cut from other measures to be considered in the payroll bill being negotiated by a House-Senate Conference Committee, and they may not require that the tax cut be offset by spending cuts or tax increases. Unfortunately, a “clean” payroll tax cut would not include an extension of the production tax credit.  There will be more to come as this plays out in the halls of Congress. 

Second, the President released his 2013 Budget which contains some interesting proposals regarding renewable energy that are likely to leave some folks happy and others feeling left out.  The budget is not a great barometer of what will actually be passed later in the year, but it does signal the Administration's priorities. 

The proposal would extend the production tax credit and the investment tax credit for wind facilities and wind property placed in service in 2013, but would not include extensions of the in-service date for any other type of property. The proposal would also extend Treasury's Section 1603 grant program to all otherwise qualifying property placed in service in 2012 (including property on which construction begins in 2012).  The program currently only applies to property for which construction began in 2009, 2010, and 2011. 

For property placed in service after 2012, the proposal would replace the grant with a refundable tax credit administered by the Internal Revenue Service. In other words, a developer would receive a tax refund from the IRS in much the same way the developer receives a grant from Treasury, except that it would be claimed on the developer’s tax return. 

The refundable credit would be allowed with respect to property placed in service in 2013 in the case of wind, biomass, landfill gas, municipal solid waste, incremental hydropower, certain geothermal, and marine and hydrokinetic.  The refundable credit would be allowed for property placed in service from 2013 through 2016 in the case of solar, fuel cells, microturbines, combined heat and power, small wind, and certain geothermal. Qualification requirements for the refundable credit would be the same (except for the effective date provisions) as the qualification requirements currently applicable under the Treasury grant program. 

Renewables Industry Pushes for Production Tax Credit Extension in Payroll Tax Cut Bill

The production tax credit for wind projects is scheduled to expire at the end of the year, and the credit for geothermal, hydropower, and biomass expires at the end of 2013.  Industry executives are vigorously lobbying Congress to extend the credits.  The best vehicle for an extension is the payroll tax cut bill currently being negotiated by a House-Senate conference committee (H.R. 3630). 

At a recent press briefing, Peter Kelley, vice president for public affairs at the American Wind Energy Association, said that “the urgency of this issue calls for extending it in the first quarter of this year because later will be too late.”  The next opportunity for an extension would likely be in the lame-duck session at the end of the year, but executives say that by then the industry will have abandoned projects and manufacturers will be out of business.  Wind industry executives visited Congress on February 8 to ask for a one-year extension of the credit. 

Executives from the National Hydropower Association, the Biomass Power Association, and the Geothermal Energy Association  echo the argument as to their respective industries.  Utility-scale hydropower, biomass, and geothermal projects starting today would find it nearly impossible to be completed by the end of 2013 because of the lengthy licensing and build times required.  For that reason, progress on new projects beyond 2013 has largely stalled.  Industry representatives are seeking an extension through 2016 (currently only solar and a few other resources are extended through 2016).  Read the February 8 letter to Congress from the hydropower, biomass, and geothermal representatives here. 

Maine Governor’s Energy Bill Would Cap RPS, Restrict Long Term Contracts for Renewables

The price of energy was a top issue in Maine’s 2010 gubernatorial election, and earlier this week the Maine legislature’s Committee on Energy, Utilities and Technology took up Governor LePage’s energy bill, LD 1570 “An Act to Reduce Energy Prices for Maine Consumers.” The bill would cap the state’s renewable portfolio standard (RPS) at 4% of sales in 2010: as currently enacted, the RPS is set to climb to 10% from new renewable resources by 2017.  The bill also would cap the alternative compliance mechanism to 110% of the cost of RECs from the previous year. 

 LD 1570 also revises 35-A M.R.S. § 3210-C, the Maine Public Utilities Commission’s (MPUC) long term contracting authority, preventing the MPUC from approving any long term contract whose price is greater than 90% of the average market price for capacity resources, and requiring the MPUC to obtain approval of the legislature before entering into any long term contracts. The existing law does not include a hard cap on price.

The bill appears likely to move to the full legislature for a vote, where its future is uncertain: support for the bill from the Maine business community was somewhat tepid, and Maine’s renewable energy companies have been vocal in their opposition. 

If anything, the bill serves to highlight the limits on a state governor’s ability to lower energy prices in a regional market for electricity. Though the costs of compliance with Maine’s RPS will likely rise as the target percentages increase, to date the costs to individual ratepayers have been minimal.  Earlier this year, the MPUC released its annual report to the Legislature on the RPS for the 2009 compliance year, which described the cost of complying with the new renewables target:

During 2009, the cost of [Class I] RECs used for compliance ranged from approximately $6.50 per MWh to $44 per MWh, with an average cost of $26.28 per MWh and a total cost of $4,587,052.  A minority of suppliers (4 out of 47) choose to satisfy the portfolio requirement through the ACM at the rate of $60.92 per MWh for a total cost of $319,233.  Thus, the total cost to ratepayers during 2009 was $4,906,285, which translates into a rate impact of .06 cents per kWh (or about 35 cents monthly increase to a typical residential bill). 

More than 85% of those Class I RECs came from facilities in Maine, the vast majority of which were biomass.  Many of these facilities are on-site at mills and pulp and paper facilities, where revenue from RECs and the use of biomass boilers (including the sale of excess energy) have helped to provide an additional income stream and some level of insulation from high energy prices.   The story with long term contracts is similar: the MPUC has approved just two long-term contracts under § 3210-C, the  most recent of which was intended to enable Verso’s Bucksport mill to convert from fossil fuels to biomass.

 

Eyes on the Eagle Act

As we described in this June 2009 publication, the removal of the bald eagle from the federal list of threatened and endangered species developed under the Endangered Species Act has given new life to the Bald and Golden Eagle Protection Act (pdf).  Similar to the Endangered Species Act, the Eagle Act prohibits the “take” of bald and golden eagles.  A take is broadly defined by regulation to include, among other things, disturbance of eagles.  As a result, a wide range of activities potentially fall within the prohibition created by the Eagle Act.  A violator of the Act may be held both civilly and criminally liable.

Last fall, the U.S. Fish and Wildlife Service finalized new regulations (pdf) under the Eagle Act authorizing the limited take of eagles.  An individual now may obtain a take permit if the Service determines the potential take is compatible with the preservation of the bald and golden eagle and cannot practicably be avoided.  While the regulations provide a basic framework for this new permitting process, many details will need to be worked out.  In addition, the regulations allow for the development of "programmatic permits" that could be applied to specific industries – including wind energy.  How permitting under the new regulations will evolve remains to be seen and is something we will continue to monitor.

For more information about the Eagle Act, contact Nick Livesay.

Earth Day In Our Backyard

This being Earth Day #40 and federal climate legislation or regulation being promised (or threatened, depending on who you ask), the media is awash in articles, open letters, rants and analyses on renewable energy law and policy.  We’ve linked to a few of our favorites under “Renewables News” to the right. 

The weather is shockingly spring-like in Northern New England today, and we’re more in the mood to barbeque than to blog.  But we can’t decamp to our actual backyards without an Earth Day shout out to our friends at Ocean Renewable Power Company in our virtual backyard (Portland and Eastport, Maine).  ORPC has developed new technology to capture tidal energy, as described in this article.  (For an interactive demo of the turbine technology, click here.)  Among the project benefits touted by ORPC:  unobstructed views. 

Later this month, another, more visible ocean energy project should be getting the final word from the feds, and the fate of Cape Wind may foretell the viability of federal legislation in support of wind.  The open question: will nimbyism suck all the air out of the wind industry?  (Check the Wikipedia entry for NIMBY and you’ll find opposition to Cape Wind listed as a prime example.)

We wish there were a clever acronym for those folks whose backyards inspire them to support renewable energy.  We could nominate NH’s Bode Miller and VT’s Hannah Kearney, Olympic Gold Medalists, as examples on that Wikipedia page:  both have signed an open letter (pdf) in support of comprehensive climate legislation, citing the environmental and economic needs of the mountains and ski towns they love so dearly.

Whether your backyard is mountain, ocean or sunny windowsill, we wish it a little bit of green this Earth Day.

Federal Law May Impede Development of State Feed-In Tariffs

Feed-in tariffs are a relatively frequent topic here at Renew NewEngland.  Mostly we've been curious about the strange absence of this proven method of spurring renewable energy development, as New England states tried seemingly everything to build a green economy.  It's a sign of just how fast the field is changing that in the year that we've been writing this blog, feed-in tariffs have moved from speculation to reality in North America, with new FITs in Hawaii, Oregon, Vermont, California, and Ontario, along with smaller efforts like Gainesville, Florida.  Purists--or at least energy lawyers of a certain vintage--will note that FITs in the US are actually old news, citing PURPA, which partially explains why US policymakers are reluctant to try anything that sounds like fixed price, long term contracts for renewable energy. 

An NREL report issued earlier this year explores the impending collision between these new FITs and this legacy legal framework. The report, entitled Renewable Energy Prices in State-Level Feed-in Tariffs: Federal Law Constraints and Possible Solutions (pdf), discusses the limits imposed by PURPA and the Federal Power Act on states' ability to craft feed-in tariffs, and lists possible steps FERC or Congress might take to remove (or at least clarify) those constraints.  Perhaps more importantly, the report provides guidance to state regulators and legislators in crafting feed-in tariffs in the existing legal landscape.

The report's detailed analysis of PURPA and the FPA doesn't easily lend itself to summary in a blog post, but the overall conclusions are relatively straightforward: under current law, a state cannot simply require a utility to purchase electricity from a seller at specified prices for a specified duration (the essence of a FIT) without conforming its actions to the mandates of PURPA.  At the very least, this complicates--and may ultimately frustrate--any effort to enforce a FIT.  Moreover, "given the FPA's requirements, a state-level feed-in tariff, as defined above, outside of PURPA, is not legally possible in the United States today."

It's unclear to what extent states are aware of these constraints as they craft their FIT legislation.  PURPA doesn't apply in Hawaii (no interstate commerce) so that state was free to craft a PURPA-free FIT; the convoluted structure of Vermont's SPEED program may reflect these concerns.  In California, Southern California Edison challenged the PUC's jurisdiction to set rates, a decision is expected soon. Unlike renewable portfolio standards, where state efforts to go it alone undermine the potential of larger markets for renewable energy credits, state (or municipal) level FITs allow for much needed experimentation, to craft FITs that account for differences in market structure, renewable resources and policy goals.  For example, California's unique new solar FIT will include an auction mechanism and vary in price based on the time of day during which the electricity is generated.  While successes are great, even failures can be instructive.  To the extent that these requirements needlessly hinder such experimentation, they are a barrier to renewable energy development in the US.

Bill Implementing Maine Ocean Energy Task Force Recommendations Released

The Governor's Bill implementing the recommendations of Maine's Ocean Energy Task Force has been printed as LD 1810. Senators Hobbins and Raye and Representatives Fitts and Berry are the bill sponsors.  

The 41 page bill, drafted as emergency legislation, contains a broad range of provisions that are designed to overcome the economic, technical and regulatory obstacles to to provide economic incentives for vigorous and efficient development of marine renewable energy sources.  The provisions include authorization for the PUC to conduct a competitive solicitation for proposals for offshore wind, tidal and wave energy produced in state or federal waters and to negotiate a long-term contract with a technically competent generator if the contract terms would not have an unreasonable rate impact.  A hearing on the bill are scheduled for March 11 at 1 pm at the Utilities and Energy Committee.

Previous posts on the Ocean Energy Task Force:

Maine Ocean Energy Task Force Submits Final Report

The Straw Proposal: Offshore Wind and Tidal Power Seek Surer Footing on Maine’s Submerged Lands

FERC and Maine Sign MOU on Ocean Tidal Power

Safe Passage for Ocean Energy

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.  

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. 

Maine Narrows Offshore Wind Sites to Four

After a series of public information workshops in September along the coast of Maine, the Maine Department of Conservation announced (pdf) on Tuesday that it has narrowed the potential sites for an offshore wind energy demonstration site from seven to four sites.  The four sites include areas off Boon Island, Damariscove Island, Monhegan Island and the town of Cutler.  This site will be used by the University of Maine national offshore wind demonstration project, recently awarded an $8 Million grant from the Department of Energy, to test deepwater wind turbine technology. The State explained that the consultation process has allowed the State to choose the areas with the fewest impacts on existing fisheries and wildlife.

The Department of Conservation will be accepting comments until November 30th.  Legislation passed this June requires the Department to select a site by December 15th, 2009.