Fairness For Wind
Whether he was working to amend the production tax credit’s (PTC) definition or speaking out in favor of wind energy during the U.S. presidential campaign, Sen. Chuck Grassley, R-Iowa, has repeatedly found himself in the middle of efforts to extend the wind energy industry’s biggest legislative priority. After all, Grassley is not known as the father of the modern-day PTC for nothing.
In an interview with NAW, Grassley said he will continue to defend wind energy against attempts to thwart or weaken its standing. Such efforts could come as early as this summer, when Congress is expected to begin tax-code reform.
Although congressional leaders will likely begin talking broadly about a range of issues affecting many industries, such discussions will likely reopen the debate about the PTC and how long the wind industry will need the incentive.
“I’ve always said the incentive should exist only until the industry can stand on its own and compete effectively against traditional sources,” Grassley says. “That time is coming, and I believe Congress will consider options to responsibly phase out the credit, as the wind industry itself has suggested and proposed.”
The American Wind Energy Association (AWEA) has looked into phasing out the PTC and says doing so over a period of time would give the wind industry the time necessary to ramp down the tax incentive.
According to AWEA’s analysis, the tax credit would start at 100% of the current $0.022/kWh for projects started this year and would be phased down to 90% of that value for projects placed in service in 2014; 80% in 2015; 70% in 2016; and 60% in both 2017 and 2018, after which time it would end.
“If the wind industry says they need until 2018,” Grassley says, “I’m not going to argue with them.”
Meanwhile, AWEA says the PTC discussion should be part of a larger conversation on tax reform.
“We would be happy to engage in further discussions, if and when Congress seriously engages in comprehensive, bipartisan tax reform where other industries are at the table as well,” says Peter Kelley, AWEA’s vice president of public affairs.
Grassley says tax reform should be made across the board in an intellectually honest way and that all industry-specific tax credits should be reviewed.
“It’s important, however, that the tax credit for wind energy - similar to the argument I made when the ethanol credit expired in 2011 - shouldn’t be challenged in a vacuum that ignores all other industry-specific energy tax breaks, such as those for oil and gas,” Grassley says. “What I’m saying is, let’s be fair.”
As a member of the Senate since 1980, Grassley is well versed in the legislative process. He anticipates a spirited debate among oil and gas generators, environmentalists and even the media.
“You have to look at the political considerations,” he says. “What’s the political opposition? What sort of compromise can we reach? What does it cost to generate electricity?”
One scenario could involve lowering the overall corporate tax rate in exchange for ending many industry-specific tax incentives.
“It doesn’t make sense to pit one domestic energy supply against another,” Grassley explains. “America needs all of the above – meaning drilling for domestic oil and gas, promoting renewable and alternative energy, supporting conservation and emission-free nuclear energy – when it comes to energy. That reality should dictate an even hand from policymakers.”
Grassley recalls some of the events leading up to the tax incentive’s final passage last year. When the tax credit became a wedge issue during the presidential campaign, he vigorously defended the PTC – going so far as to challenge comments made by presidential candidate Mitt Romney, a fellow Republican.
“When Romney’s people got involved,” Grassley recalls, “I just thought to myself, ‘What the heck is going on?’”
However, when asked if he had doubts about whether the PTC would be extended, Grassley says, “The only doubt I had was the unknown of so many new House members and the strong stand they were taking on spending.”
Grassley says he will continue to defend wind energy. However, there may be other battles to fight. For instance, more transmission will be needed to transport wind power from the Midwest to load centers in the East – which has the potential to spark a debate on transmission siting.
“Perhaps that might be even more controversial,” Grassley says.
Stability Is Goal
While bipartisanship remains but a pipe dream on Capitol Hill, a group of Democrat and Republican energy experts, policy analysts and former lawmakers are coming together to help establish a comprehensive energy strategy.
The Bipartisan Policy Center (BPC) – a bipartisan think tank created in 2007 by former Senate Majority Leaders Howard Baker, Tom Daschle, Bob Dole and George Mitchell – has issued to lawmakers a set of energy-policy recommendations, including proposals for wind power.
Among their recommendations is a phase-out of all energy-specific tax expenditures, including the wind energy production tax credit (PTC).
“[W]e believe the long-term goal should be to phase out all energy-specific tax expenditure subsidies,” the document states. “Where tax expenditures or similar mechanisms are the best or only available option to address market failures, they should be enacted for only so long as necessary to meet their intended goals, with a clear sunset date. Finally, once enacted, these policies should be reviewed periodically and ended if not effective.”
The BPC says Congress should review all energy-related expenditures as part of comprehensive tax reform and phase out tax subsidies for “mature fuels and technologies.” As part of this plan, the renewable energy PTC – including for wind power – should be phased out by 2016.
“Phasing out the production tax credit for renewable energy by the end of 2016 would align the incentive program with actual and expected reductions in wind project costs and increases in energy revenues,” the BPC says. “In order to increase exposure to market forces at a pace that permits industry adaptation, the value of the credit should decline over time on a pre-determined schedule or other basis informed by relevant market conditions.”
The BPC dismisses the ubiquitous talk of “picking winners and losers” in favor of more constructive discussions on broader tax reform.
“In addition, we wish to avoid an unproductive debate about which technologies are more deserving of support compared with other technologies,” the group says. “Broad-based, comprehensive tax reform and/or energy subsidy reform offers a better framework for changing current incentive policies than piecemeal efforts to target a particular industry or technology.”
Instead, federal policymakers should invest in energy research and development (R&D), the BPC recommends.
“We agree that the R&D tax credit should be made permanent, increased and expanded,” the BPC says. “The administration and Congress should consider and propose reforms to existing tax incentive programs in the context of broader tax reform efforts.”
Although most of the discussion about wind energy incentives has focused on the PTC, the Section 1603 program – which allowed renewable energy project developers to claim a one-time cash grant of 30% of a project’s total costs in lieu of the PTC or investment tax credit – was also successful in spurring development.
According to the BPC report, the cash-grant program is a more cost-effective way to encourage development and, if reinstated, would cut installation costs.
“An investment cash grant – such as the Section 1603 Treasury Program authorized under the 2009 [American Recovery and Reinvestment Act] – could also provide the same benefits as the production tax credit at 25 to 30 percent less cost, as project developers could leverage less-expensive debt financing rather than depend on more expensive tax-equity financing,” the report says. “An investment-based grant incentivizes renewable energy production by reducing installation costs, rather than by increasing the value of generation. ”
However, in offering a cash grant instead of a production-based incentive, the government runs the risk of rewarding projects that do not necessarily perform well, the group notes.
Other incentive mechanisms
Although the BPC report discourages the long-term use of energy-
specific tax credits, it does recommend alternatives for spurring investment in renewables. One such idea – which has been proposed before, including by Sen. Lisa Murkowski, R-Alaska, ranking member of the Senate Energy and Natural Resources Committee – is the use of reverse auctions, which are already being utilized in power purchase agreements in California.
“The federal government could conduct reverse auctions for such incentives to ensure promotion of only the lowest-cost renewable energy resources,” the report recommends.
Under this mechanism, a renewable energy developer would compete with potential suppliers to draw out the lowest price or best value.
Another way to spur renewable energy development, of course, is to mandate it. State renewable portfolio standards already impose renewable energy requirements, but efforts to implement a federal clean energy standard (CES), such as those proposed by now-retired Sen. Jeff Bingaman, have stalled in Congress.
The CES is one area in which the bipartisan group seems to lack full consensus.
“Though the concept of a CES or [renewable energy standard] is simple, we have diverse views regarding the merits of a CES and agree there are numerous controversial details regarding program design that must be examined should Congress consider a national standard,” the BPC report states.
These “controversial details” include an unclear definition of what constitutes “clean” energy, the penalties for noncompliance and the cost to consumers, among other concerns.
It is unclear whether this bipartisan analysis will have any influence on federal energy policy. However, the BPC includes a wide swathe of esteemed energy experts, policy analysts and former lawmakers, and at a time when bipartisanship is rare, it may merit attention from policymakers.
Sens. Lisa Murkowski, R-Alaska, and Mary Landrieu, D-La., have introduced legislation designed to ensure that all states receive a fair and equitable share of the revenues from energy production on federal lands and waters.
Although states that produce onshore energy keep 50% of royalties, rents and bonuses, states that produce offshore energy receive virtually nothing, Landrieu says. The Fixing America’s Inequities with Revenues (FAIR) Act aims to change that by giving 27.5% of revenue from the development of offshore energy – including oil, gas, wind and other renewable energy sources – to coastal states, plus another 10% if the state creates a clean energy or conservation fund, for a total of 37.5%.
The FAIR Act also extends the existing onshore revenue-sharing program to provide states with an equal share of the revenue from renewable energy production on federal land. States that produce renewable energy on federal lands within their borders would keep 50% of the revenues, just as they currently do for traditional energy. The legislation would also gradually lift the current congressionally mandated $500 million annual cap on revenues kept by Gulf Coast energy-producing states.
“I could have introduced an Alaska-only bill, but we have purposefully expanded this legislation to gain the support of as many members as possible,” says Murkowski, ranking member of the Senate Committee on Energy and Natural Resources. “We know that in this day and age, it’s a 60-vote world in the Senate.”
The California Public Utilities Commission (CPUC) has unanimously approved a decision to require Southern California Edison (SCE) to procure between 1.4 GW and 1.8 GW of energy resource capacity in the Los Angeles basin to meet long-term local capacity requirements by 2021. At least 50 MW of this amount must be procured from energy-storage resources, and 600 MW must be procured from preferred resources.
Under the CPUC’s final decision, energy-storage resources must be considered “along with preferred resources” – including energy efficiency, demand response and distributed generation – consistent with the clean energy resource procurement priorities embodied in California’s Energy Action Plan.
“The required energy-storage procurement under this decision provides a much-needed market signal that energy storage will be considered as a key asset class to help California address its long-term local reliability needs,” says Janice Lin, executive director of the California Energy Storage Alliance and managing partner of Strategen Consulting LLC.
The decision will have an immediate impact, as SCE is directed to file an application for each local reliability area seeking approval of contracts by late this year or early next year.
N.Y. Raises Cap For
The New York State Public Service Commission (PSC) has authorized the New York State Energy Research and Development Authority (NYSERDA) to increase the maximum incentive amount for its on-site wind energy program from the current $400,000 to $1 million per installation.
The on-site wind energy program has been a part of the state’s renewable portfolio standard since 2004. In 2011, the PSC modified the equipment-size cap for on-site wind installations from 600 kW to 2 MW in order to be consistent with net-metering laws and to boost on-site wind program participation.
The PSC says it increased the funding cap in order to respond to market conditions and assist with the development and construction of these larger installations.
“Since the inception of New York’s renewable energy program, the customer-sited tier has been an important component in encouraging customers to install their own behind-the-meter renewable energy production systems,” says PSC Chairman Garry Brown. “Increasing the funding cap for on-site wind projects reflects the need to respond to market conditions in order to advance additional renewable energy projects.”
Sens. Bernie Sanders, I-Vt., and Barbara Boxer, D-Calif., have introduced comprehensive climate-change legislation that would also benefit renewable energy.
Under the provisions of the bill, a fee on carbon pollution emissions would fund what the senators call “historic investments” in energy efficiency and sustainable energy technologies, such as wind, solar, geothermal and biomass. The proposal also would provide rebates to consumers to offset any efforts by oil, coal or gas companies to raise prices.
“The leading scientists in the world who study climate change now tell us that their projections in the past were wrong – that, in fact, the crisis facing our planet is much more serious than they had previously believed,” Sanders said at a news conference.
The proposal was drafted as two measures, the Climate Protection Act and the Sustainable Energy Act.
Boxer is chairperson of the Senate Committee on Environment and Public Works, and Sanders sits on the Environment Committee and also is a member of the Senate Energy Committee.
Utilities On Track
To Meet Mandate
All of Michigan’s electricity providers – except Detroit Public Lighting (DPL) – are on pace to meet the interim targets and final goals established under the state’s renewable portfolio standard (RPS), the Michigan Public Service Commission (MPSC) reports.
According to the MPSC, DPL is expected to be unable to meet the standard because of surcharge caps put in place by Michigan law.
Although efforts to increase the state’s RPS to 25% by 2025 failed to pass last year, Michigan still has a 10% by 2015 RPS. According to the MPSC report, the state’s estimated renewable energy percentage reached 4.4% in 2011, up from 3.6% the previous year. For 2012, renewables are expected to have reached 4.7%.
Wind energy has been the primary source of new renewable energy in Michigan. At the end of 2012, there were 978 MW of utility-scale wind projects in operation in the state.
“More renewable energy came online in Michigan in 2012 than ever before,” notes MPSC Chairman John D. Quackenbush. “Michigan added 815 MW of new wind capacity in 2012 and now has a total of 978 MW from 14 operating wind farms.”
RE Loan Fund
Proposed In Vermont
Vermont Gov. Peter Shumlin, state lawmakers, the Vermont Economic Development Authority (VEDA) and private partners have outlined a proposal designed to support and expand clean energy projects across the state.
Under the proposal, the state would establish the Vermont Clean Energy Loan Fund (VCELF), which would consolidate existing state energy loan programs and increase private capital to encourage the development of clean energy projects. The program would be similar to the “green banks” already launched in Connecticut and New York.
VCELF will comprise the following programs:
Renewable Energy Loan Program. Any new renewable energy loans for wind, solar and hydropower projects will be moved into the Clean Energy Loan Fund. The Clean Energy Development Fund (CEDF) may direct some of its monies to this fund. For loans using CEDF funds, the approval process will incorporate the CEDF’s energy analysis of the proposed projects. Individual loans of up to $1.5 million will be made in the program. VEDA will expect to partner with banks in this program, much like the current Direct Loan Program.
Agricultural Energy Loan Program. VEDA would move agricultural digester projects on Vermont farms into the Green Energy Loan Fund and make any new agricultural energy loans through the fund. The CEDF may direct some of its monies to this fund. For loans using CEDF funds, the approval process will incorporate the CEDF’s energy analysis of the proposed projects.
Energy Efficiency Loan Guarantee Program. VEDA is developing this new program in conjunction with Vermont banks, Efficiency Vermont (EVT), the CEDF and other supportive partners in which banks may make loans for energy efficiency. The enrolled loans would be 75% guaranteed by a cash reserve from EVT, VEDA and the CEDF. Modeling indicates the capacity to guarantee approximately $10 million in loans via the program. VEDA will continue to work with EVT to evaluate the cost-effectiveness of these projects.
Small Business Conservation Loan Program. VEDA will move this portfolio, which currently contains 45 loans totaling $3.24 million, into the new fund. This program offers loans of up to $150,000 for all types of energy-conservation measures and is operated in conjunction with EVT to certify that projects are cost-effective.
VEDA currently acts as the loan underwriter and administrator for the CEDF. The CEDF will continue to provide grants, energy analysis of proposed loan-funded projects and targeted incentives for clean energy development in the state. The CEDF may transfer funds to VEDA for lending or for credit enhancement of clean energy projects. Any such CEDF monies would be transferred to the VCELF fund.
Under the proposal, which is consistent with the recently released strategic plan of the CEDF that called for greater coordination and partnership between public and private entities regarding energy financing, the VEDA board would be expanded to include three additional members with energy-related experience.
“For commercial projects, this growing market is increasingly less dependent on public subsidies and looking for cost-effective private capital,” explains Jo Bradley, CEO of VEDA. “I’m pleased that VEDA can play a key role in providing low-cost, low-risk financing to increase confidence and participation in the clean energy industry by private-sector financiers in the state.” w
Grassley Seeks Fairness For Wind
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