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Hybrid Energy Innovations 2015

Sides Spar
Over Penn. AEPS

The Pennsylvania Department of Environmental Protection (DEP) and environmental advocacy organization PennFuture are at odds over the state’s renewable energy standard.

Pennsylvania’s current Alternative Energy Portfolio Standard (AEPS) requires 8% of electricity generation to come from renewable sources by 2021, with a 4% mandate for this year. According to PennFuture, the DEP has told the Climate Change Advisory Committee (CCAC), a group charged with making recommendations to the department regarding climate change issues, not to consider a plan to increase the state’s renewable energy law.

In addition, PennFuture says the DEP will exclude information on how the current AEPS mandate lowers electricity rates from Pennsylvania’s next Climate Action Plan.

However, Patrick Henderson, energy executive for Gov. Tom Corbett, says that the DEP’s action plan is still being developed, and therefore, it is too soon to comment.

PennFuture also contends that the DEP revealed a proposal to the CCAC earlier this year to increase the current AEPS from 8% to 10.5%. Yet, after the DEP reviewed the proposal, it informed the CCAC that it would not be used, the organization says.

Furthermore, the DEP withdrew an analysis that illustrates how current renewable energy mandates benefit consumers by reducing electricity prices, PennFuture asserts.

Henderson argues that Pennsylvania currently has a significant renewable energy standard.

“It is critical to state that Pennsylvania already has an AEPS statute - which Governor Corbett is committed to - that, by law, annually increases required uses of alternative energy through 2021,” he says. “We also must examine the positive impact market-based approaches to energy generation is having on emission reductions across the board. Each of these factors will inform the department’s approach to the final action plan. Gov. Corbett is also committed to promoting and expanding Pennsylvania’s competitive electricity markets - which is one of the most effective approaches to growing and sustaining a diverse energy portfolio.”

Nevertheless, PennFuture is not buying what Henderson is selling.

Christina Simeone, director of the PennFuture Energy Center and chair of the CCAC, says in a statement, “While other states in the region and around the country recognize the multiple benefits of renewable energy and have increased the requirements in their state portfolios, DEP is telling us up front that they won’t consider the idea of increasing renewable energy in Pennsylvania.

“This administration chooses to ignore the benefits renewable energy offers, including greenhouse gas reductions, cost reductions for electricity customers and economic development opportunities. The administration claims they have an all-of-the-above policy, yet their actions prove contrary.”

In responding to Simeone’s statement, Henderson does not mince words.

“Ms. Simeone’s statement is hypocritical,” he says. “The reality is, in nearly three years, neither Ms. Simeone nor PennFuture has taken up the administration’s offer to engage in a reasonable dialog on energy issues - preferring instead to play the role of keyboard warriors by issuing baseless press releases instead of face-to-face discussion.”

 

Texas Tweaks
Key Incentive

Many Texas wind farms constructed since 2000 qualify for Texas property tax incentive agreements. These agreements are designed to encourage investment in the state, create jobs and provide other economic benefits.

In 2001, the Texas Legislature passed House Bill 1200, which created Chapter 313 of the Texas Tax Code, also known as the Texas Economic Development Act. Chapter 313’s purpose was to spur economic development by allowing local school districts to offer companies property tax abatements. Wind farms, which are typically asset intensive and subject to large property tax assessments, have been one of the biggest beneficiaries of Chapter 313. These types of incentive programs have been instrumental in making Texas the leading wind generator in the U.S.

Many wind farms have participated in Chapter 313 by entering into value limitation agreements with local school districts. Similar to abatements, value limitation agreements temporarily limit the taxable value of facilities over a 10-year period. This limit or cap “freezes” the value at a tier based on that respective school district’s total industrial base, which can be as low as $10 million in a rural area. The taxable value caps the school district’s maintenance and operations tax, but not the debt service rate, at the limited or capped value. Considering that the school district tax rate can be two to three times the rate of the county, this can be a significant amount.

Since its introduction, Chapter 313 has been considered a “right” for any wind farm planning to do business in Texas. However, the act was modified during the Texas 2013 legislative session, and approval of value limitation agreements with a participating school district can no longer be viewed as a given.

Under the old methodology, companies entered into these agreements with participating school districts hoping to create a mutually beneficial relationship, resulting in tax savings for the taxpayer (because renewable energy facilities are asset intensive) and additional funding for the school districts, some of which had seen little to no economic development until the “wind rush” of the late 2000s.

In addition to the Chapter 313 limitation agreements, many wind farms also applied for traditional Chapter 312 property tax abatement exemptions, which are similar agreements with counties that exempt a portion of the county taxes for up to a 10-year period. Every two years, each county is responsible for publishing and renewing a set of guidelines and criteria for the effective administration of abatement applications and awards. One of the key criteria for Chapter 312 has always been a “but for” or similar provision that the companies could and would locate in other localities and that “but for the incentive(s) being offered, the company would not proceed with the project.” The incentive must be, or at least appear to be, an important factor in the company’s decision about whether to move forward with the project.

With most incentives, the “but for” provision was determined by the jurisdiction providing the incentive. In the case of Chapter 313 applications, final approval was at the discretion of the local school district.

However, that has changed. The Texas Legislature added restrictions by adding an audit provision and language stating that “economic development decisions involving school district taxes should occur at the local level with oversight by the state and should be consistent with identifiable statewide economic development goals.” One of the key requirements is that the limitation on appraised value must be “a determining factor in the applicant’s decision to invest capital and construct the project in this state.” This statutory provision can restrict the participating school district’s discretion in approving Chapter 313 applications.

The revisions further state that school districts should “strictly interpret the criteria and selection guidelines provided by this chapter” and ensure the incentives awarded “provide a net benefit to the state over the long term.” The latter simply means the ultimate amount of taxes received should be greater than the taxes abated. Additionally, provisions for recapture and penalties and interest were added.

So, what does this mean for the wind farm looking to set up shop in Texas?

Basically, what was once considered a “right” for wind farms to help offset the high cost of green energy or to help achieve renewable portfolio standards has now been restructured to ensure consistency with other incentives and provide a net payback. In a nutshell, approval of a Chapter 313 application is no longer a given; it will be governed by the Comptroller’s Office.

When moving forward with a project, companies should discuss their planned capital expenditures with tax advisors and remember that all incentives are discretionary.

Joe Molina is a principal at international tax services firm Ryan, focusing on complex and utility properties. Susan Bittick is a principal at Ryan and leader of the firm’s public affairs practice.

 

Calif. Regulators Set
Storage Goal

The California Public Utilities Commission (CPUC) has established an energy storage target of 1.325 GW for Pacific Gas and Electric Co., Southern California Edison, and San Diego Gas & Electric by 2020, with installations required no later than by the end of 2024.

The decision will increase California’s installed energy storage capacity sixfold from its current 35 MW (excluding large-scale pumped hydro storage), says the California Energy Storage Alliance (CESA).

According to the CPUC, the guiding principles of its decision are grid optimization, the integration of renewable energy and the reduction of greenhouse gas emissions to 80% below 1990 levels by 2050, per California’s goals.

The commission’s action, CESA reports, sets targets for California’s investor-owned utilities and direct access providers to procure a specified amount of energy storage every two years through 2020, with targets increasing with each solicitation. Some energy storage facilities are expected to come into service as early as 2015, the advocacy group adds.

The CPUC says its decision directs the utilities to file separate procurement applications containing a proposal for their first energy storage procurement period by March 1, 2014.

The decision also establishes a target for community choice aggregators and electric service providers to procure energy storage equal to 1% of their annual 2020 peak load by 2020, with installation no later than 2024, the CPUC states.

“Storage is a game changer that can help people manage their energy use and expand the capacity of renewable resources to provide power to homes and businesses,” says Commissioner Catherine J.K. Sandoval. “This decision will spur investment and innovation in energy storage and help Californians unleash their creative and economic power.”

This multi-stakeholder process and final decision were set in motion by A.B.2514, which became law in 2010, CESA notes. According to the organization, under A.B.2514, the CPUC was required to open a proceeding to consider developing energy storage procurement targets for California utilities to integrate grid-scale storage into the state’s electrical power system if determined to be viable and cost-effective.

 

CanWEA: Policies Will
Define Canadian Future

Canada’s wind energy industry is well positioned to build on its rapid growth to date and strong prospects for the next few years as provincial governments in all of the country’s major wind energy markets work to define the policy framework that will inform new electricity supply choices for the next decade, according to the Canadian Wind Energy Association (CanWEA). The organization says this was the consensus reached among participants on the Industry Leaders Panel at a plenary session, “Wind Energy across Canada,” held at the CanWEA conference in October.

While wind energy will see strong and steady growth through 2016 across Canada, CanWEA says the country’s four largest wind energy markets (British Columbia, Alberta, Ontario and Quebec) all have long-term planning processes under way that will determine how future wind energy development unfolds after 2016.

“There is little doubt that wind energy has become a significant and mainstream electricity source in all regions of Canada with another record year for installations expected in 2013,” said CanWEA President Robert Hornung. “This does not mean, however, that our long-term future is guaranteed.”

Given provincial targets and pipeline projects already contracted to be built, Canada will see an average of 1,500 MW of new wind energy projects commissioned annually over the next three years, CanWEA says.

The organization notes that provincial governments across Canada are now engaged in processes to review future electricity demand and assess potential new supplies of electricity against some key criteria, including cost-effectiveness, environmental impact and economic benefits. By any objective measure, wind is well positioned to meet all of these requirements, CanWEA adds.

 

Calif. Signs
RE Legislation

California Gov. Jerry Brown recently signed shared renewable energy legislation that requires the state’s large public utilities to develop an additional 600 MW of renewable energy generating capacity. The added capacity is over and above the existing 33% renewable portfolio standard.

The enacting of S.B.43, also known as the Green Tariff Shared Renewables Program, requires each of the big three public utilities in the state to file an application with the California Public Utilities Commission (CPUC) to detail its plan to acquire the requisite renewable energy generating capacity. These so-called “green tariff plans” cover each utility’s proportionate share of the total 600 MW of new renewable energy generating capacity called for under the law.

According to the law, renewable energy generating facilities specified in a participating utility’s green tariff plan must not be larger than 20 MW. Of the 600 MW capped total, 100 MW of the added capacity would come from facilities rated 1 MW or smaller, located in environmentally distressed or economically disadvantaged areas.

Customers would be able to purchase renewable energy from their utilities not to exceed 100% of their annual consumption. No given customer would be able to subscribe to more than 2 MW, although there are exceptions for federal, state and local governments, along with schools, colleges and universities. Participating customers will pay a rate established by the CPUC.

The CPUC has until July 1, 2014, to approve or reject a participating utility’s green tariff plan.

Policy Watch

Sides Spar Over Penn. AEPS

 

 

 

 

 

 

 

 

 

 

 

 

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