Climate Law Update: Climate Change & Sustainable Energy News : Thelen Reid Law Firm : Renewable Energy, Construction, Project Finance Lawyers & Attorneys

With the incentives set to expire at the end of this year, both chambers of Congress stirred on the issue during the week. Failure to extend the credits has cast a shadow over the future of the industry and the success of renewables portfolio standards, such as those in  California, to boost the proportion of energy from alternative sources going to utility customers.

For its part, the House approved a highly controversial measure that would extend the life of the credits, some for as much as eight years, but which would also open the door to expanded drilling off the coasts. However, that bill came in for harsh criticism both from pro-drilling Republicans, as well as environmentalists opposing new offshore petroleum development. 

Nevertheless, even reluctant backers of the House legislation, such as the Sierra Club, found it more palatable than the earlier version of the "gang" plan, which the environmental group called "a wish list of ... dirty energy giveaways." 

At the same time, another group of lawmakers in the Senate during the week appeared to be moving forward with their own compromise legislation that would extend the tax credit relating to wind by a year, and those for solar projects, including a 30 percent investment tax credit, by eight years. The wind credit now stands at about 2 cents per kilowatt hour, or slightly more, according to figures from the federal government and from GE Energy.  The legislation would include nearly $11 billion in energy production incentives alone, according to an estimate put forward by the Senate Finance Committee, whose leaders are backing the plan. The  panel produced a summary of the legislation, which would also give support to biomass and capturing carbon from coal plants.

But after supporters had initially suggested they intended to move on the extensions by the end of the week, action on the bill was put off at least until Tuesday, according to the Senate's official record. But, according to The Hill, the Senate may bail out of the energy debate all together next week, a potential that seemed to be supported by the the Gang of 20 announcement.

Meanwhile, advocates were left to again stand on the sidelines, urging quick action on the incentives to maintain the momentum of the renewable industry.

--Dennis Pfaff of Thelen LLP

Photo credit: Office of Sen. Kent Conrad

Among the key findings in the documents were that production activity would increase by $27 billion and California's gross state product would see a $4 billion increase over business-as-usual estimates. It also showed that individual incomes would rise modestly and more than 100,000 jobs could be created.

The economic report called the $27 billion "relatively minor" in the context of what is anticipated to be a $2.6 trillion economy by 2020 but noted the figure was still positive. It attributed some of the increase to investments in energy efficiency that more than pay back their costs at expected future prices.

In fact, the report said the economic benefits could be understated because economic models are unable to predict how companies might invest in energy efficiency technologies. It did predict, however, that output and employment could drop in the utility industry.

As for health, one of the documents released Wednesday predicted that the greenhouse emissions cuts would improve on existing air pollution programs and produce reductions in premature deaths, asthma and respiratory illnesses and lost work days.

The agency said it was hoping for public comments on the reports. Air pollution officials have until Jan. 1 to develop a final plan for implementing the law. 

Release of the report comes on the heels of state energy regulators putting forth their  proposed recommendations on how the utility industry can comply with the mandates of the law, including boosting the state's renewables portfolio standard. 

--Dennis Pfaff of Thelen LLP    

In urging adoption of the one-third renewable energy goal, the joint recommendation from the energy and utilities bodies called the objective achievable if the state does such things as commit to "significant investments in transmission infrastructure," according to an executive summary.

But ramping up to 33 percent renewable energy would require nearly a three-fold increase in the amount of wind, solar and similar alternative sources over what is now in the mix. It's also a substantial increase from the state's current renewables portfolio standard, which establishes a 20 percent goal by 2010. In fact, the Wall Street Journal reported that if implemented the one-third mandate would  constitute the most ambitious renewable energy plan in the nation. 

Even meeting the state's current, lower, standard has been difficult, though. A recent assessment put out by the utilities commission showed the state's power providers were struggling to meet the goal; it also pointed to uncertainties over the future of federal tax incentives in the face of continued squabbling in Congress over the issue.

Regarding the potentially hot-button issue of auctioning allowances, the energy commission-utility commission recommendation said that while that's the "preferred method" to distribute the credits, starting off with an auction of them all would be "a monumental and costly challenge."   

Other key recommendations included distributing the free allowances to deliverers based on their energy output, and weighted according to fuel source, such as coal or natural gas. In its interim decision, the commissions had recommended that those "deliverers" -- entities that deliver power to the grid, such as in-state power plant operators and importers of power from out of state -- bear the responsibility for complying with AB 32's requirements.

Virtually all of the allowances to be auctioned would be granted to retail electricity providers, on behalf of their customers. The retailers would then be required to sell the credits in an independent, centralized auction. California is a member of the Western Climate Initiative, a consortium of states and Canadian provinces that is readying a regional auction system.

In addition, all auction revenues would be used for purposes that would be related to AB 32. The recommendation said that all the money from allowances allocated to the electricity sector and received by retail providers should go toward such purposes as supporting investment in renewable energy, energy efficiency and assisting customers with their bills.

 --Dennis Pfaff of Thelen LLP   

The new wind farm deal is even bigger than the agreement involving Pacific Gas and Electric Company's venture into photovoltaics. As announced last week, the utility signed contracts for a pair of projects, both located in San Luis Obispo County, that together will deliver 800 megawatts of power. The San Francisco Chronicle reported the deals would create the country's first utility-scale photovoltaic plants.

The utility's announcement cautioned that the deals depended on the federal government extending federal tax credits for renewable energy, by no means a foregone conclusion, as well as "processes to expedite transmission needs." 

Despite those kinds of uncertainties, there's obviously a bullish attitude toward renewable energy right now. That was underscored by last week's announcement that Vestas, the big Danish wind power equipment company, is embarking on a major expansion of its Colorado facilities. The plans include a $290 million wind-turbine complex that will employ 1,350 workers, reported the Denver Post. In the Vestas announcement, a high-ranking company official expressed optimism that Congress would act to renew the tax incentives.

And, as if to dispel the stereotype of the gloomy Scandinavian, the minister of climate and energy in Vestas' home country also optimistically predicted that a huge shift to renewable energies, such as solar and wind power, from fossil fuels will survive flagging economic growth, reported Reuters environmental blog.    

On the other hand, not everything's always so rosy. The New York Times reported Monday about accusations of "corruption and intimidation" swirling around upstate New York as wind developments get to be big business there.

--Dennis Pfaff 

Allen plans to trace the increasingly complex history of California's energy transmission structure from its origins to the present day. He'll also discuss current efforts to unsnarl the situation, including the state's Renewable Energy Transmission Initiative and the federal government's controversial National Interest Electric Transmission Corridor system. 

Among other topics, the panel also will discuss the effort to identify  Western Renewable Energy Zones -- a joint project of the Western Governors Association and the U.S. Department of Energy.

While at the CPUC, Allen was known for his work as an ALJ on high-profile energy policy proceedings, including allocation of $30 billion in electricity contract costs, implementation of California’s Renewables Portfolio Standard, utility asset sales and leases, and siting of electric transmission lines and substations. 

--Dennis Pfaff

Regarding the even higher 33 percent standard down the line, the report laid out the challenge ahead, saying the state must look at its experience with the current objective and apply those lessons:

"Such an aggressive goal must be backed up by action and real progress, which means that California must effectively address the barriers hindering achievement of its 20 [percent] goal. Further, the magnitude of the 33 [percent renewables portfolio standard] implies costs, [greenhouse gas] emissions and new operating and planning challenges that are not yet fully understood."

The Chronicle, meanwhile on Saturday also reported on a new effort in Congress to try to break the current snarl over energy policy which has entangled the renewable incentives. The bill would allow some offshore drilling and also invest heavily in wind, solar and other alternatives, the paper reported. 

Not all is gloomy on the renewable front, however. Just last month, a CPUC report found that California so far this year has installed as much solar generating capacity on buildings as it did in all of 2006. 

--Dennis Pfaff

(Photo: U.S. Department of Energy-National Renewable Energy Laboratory; Credit: Robert Gough)

The appendices estimate that by 2016, the cost of a new car or small truck would increase by $1,064 to accommodate the technical changes required to comply with the standards. That's the same figure the state has been floating for years. They've also been saying that the higher sticker price would be offset lower operational costs. In the new document, they estimate the average consumer would save $30 a month, and an overall savings of nearly $10 billion annually.

California's rooftop solar program aims to promote the installation of 3,000 megawatts of panels by 2017, at a cost of about $3.3 billion in ratepayer-funded incentives. The new document says that one measure being evaluated would boost that total to 5,000 megawatts by 2020, at a "net annualized cost" of slightly more than $1 billion.

But it found substantial savings in other areas, such as energy efficiency and cogeneration. Increasing that latter element by 4,000 megawatts would by 2020 could displace huge amounts of electricity from the grid at a net annualized savings of more than $1.3 billion.

It is in the area of energy efficiency that the new document found some of the biggest benefits. It looked at combinations of programs, including financial rewards for utilities that exceed efficiency targets, encouraging "zero net energy buildings," using building and appliance standards to increase efficiency and taking steps to improve the efficiency of existing buildings. In all, the document estimated that the steps could produce nearly 20 million metric tons of emissions reductions by 2020 -- about 14 percent of the total needed to meet the AB 32 goals -- and result in annualized savings of more than $3.2 billion.

Energy efficiency measures are among the most effective means of curbing greenhouse gases,  John Costantino, who manages the climate change planning section for the California Air Resources Board, told Climate Law Update Thursday:

"They're pretty much a win-win. They reduce emissions and they pay for themselves, sometimes pretty quickly." 

Constructing green buldings, the document advised, "should be viewed not as a cost, but an investment that produces both monetary and other benefits over time." It added that new green building, with adequate planning, could be constructed at little or no additional cost. California officials recently adopted what was characterized as the nation's first statewide green building code. 

Energy efficiency is pursued for a number of reasons, according to the document's authors, including reducing peak energy demand, maintaining reliability and reducing pollution. They added:

"Investments in energy efficiency also provide numerous benefits on an economy-wide scale, by reducing the need for energy imports, cutting emissions and the associated health-related costs, and creating high-paying jobs. Based on past experiences, each dollar spent on energy efficiency in California provides about two dollars in net benefits."    

Regarding the mandates for renewable power, the California air board has endorsed Gov. Arnold Schwarzenegger's 33 percent goal. Transmission and distribution remain among the challenges, according to the document. It estimated attaining the objective could top $1.5 billion on an annualized basis.

--Dennis Pfaff 

(Photo: U.S. Department of Energy)

One of the central strategies laid out in the draft is establishing a cap-and-trade program for emissions that in itself would be responsible for a little more than 20 percent of the hoped-for reductions. It could be linked in with a regional system being developed by the multi-state and provincial Western Climate Initiative. But one of the big questions that surrounds such programs, as Climate Law Update has reported, is whether the credits or "allowances" that permit companies to emit a certain amount of carbon dioxide would be distributed for free or sold, such as through an auction, and the money used for a variety of purposes, including assisting ratepayers.

As it stands, the plan is fairly vague on that point, although it suggests that some of the allowances would initially be given away for free, but later most would be sold.

Nichols, who spoke to reporters later in the day, confirmed that was the case but she revealed no details:

"What we've said in the plan is that we believe that because our major sources start out in some very unequal starting points, particularly our electric utilities, that it probably isn't possible to auction everything at the beginning, as would probably be desirable if you were just trying to get the most revenue into the system to begin with. What we will do is to move towards an auction as quickly as possible because that's the best way for the public to participate in the benefits of this program."  

It's an issue that California's energy regulators are expected to address later this summer. But it was clearly on the minds of people who addressed the board Thursday.

Environmentalists advocated selling all of the credits. Jason Barbose, a global warming expert with Environment California, said he was disappointed that the plan lacked a clear commitment to auctioning:

"A fundamental problem with the status quo is polluting pays too well, and if we want to solve global warming, it can't." 

But Leilani Johnson, an official of the Los Angeles Department of Water and Power, argued otherwise:

"As you know, LADWP has been concerned about the potential for an auction under a cap-and-trade program to divert ratepayer dollars away from the long-term investments that are needed for direct emissions reductions associated with our carbon footprint." 

It's an argument that the utility, which gets almost half of its electricity from coal-fired plants, has made before, most recently to the California Public Utilities Commission.

The auction question is by no means the only outstanding issue that promises to emerge, even concerning just the cap-and-trade program. It was not entirely clear how such a program would be enforced, or what kinds of penalties would be assessed to companies that exceeded their emissions limits. Nichols, however, said to be effective such a system would need to have "the measurement, the monitoring and the enforcement capability to make sure that those who have a cap are living with the cap" and that they have enough allowances to cover their emissions.

Other major issues that remain unresolved include the future of the state's would-be mandates to clean up greenhouse emissions from motor vehicles, which remain wrapped up in a legal battle with the federal government. The state the other day won a court ruling in its legal dispute with the automobile industry over the requirements, but it still can't move without approval of the Bush administration, as noted by the Los Angeles Times Thursday.

Also unknown is  whether industry can come up with products to meet California's low-carbon fuel standards. In addition, the plan anticipates that the state's utilities will supply 33 percent of their electricity from wind, solar and other alternative sources by 2020. That's a nearly three-fold increase from what they're doing now and a substantial step up from the state's current renewables portfolio standard, which establishes a 20 percent goal by 2010.

And then there's the little matter of cost, which officials have so far left out of the equation other than to assert, as Nichols did Thursday, that many of the measures would actually boost investment in California. They and environmental groups have also noted that blunting climate change would have major economic benefits, including avoiding significant human health problems associated with polluted air and a warming planet.

Nevertheless, that is likely looming as a major issue as California moves toward implementing the program. None will likely be more concerned than the petroleum industry, which not only operates refineries that are considered big emitters of greenhouse gases but also supplies the fuels for a transportation industry that the plan identifies as the biggest single source of such gases. Said Catherine Reheis-Boyd, chief operating officer of the Western States Petroleum Association, a refinery trade group:

"Cost effectiveness ... that will be, in my opinion, the biggest challenge that we have. We have to demonstrate that this program can be cost-effective so that we can sustain it into the future."

(Photo of California refinery; Credit: Wikimedia)

According to the Energy Information Administration, solar power accounts for the smallest part of what is still the fairly modest share that renewable energy has in the nation's electricity picture. Of course, there are big plans to boost renewables, such as the U.S. Department of Energy's goal, on which Climate Law Update has also reported, of providing 20 percent of the nation's juice via wind power by 2030.

The report asserted that "solar offers the opportunity to provide a significant portion of the nation's electricity supply for both distributed and centralized generation by 2025 -- up to 10 percent" from a combination of solar photovoltaic and concentrating solar power.

Boosting solar's presence in the market would not be a pushover, the document conceded. It acknowledged difficulties including institutional reluctance on the part of utilities, which have played only a "marginal" role so far, an "outdated" power grid, and costs, including those for some component materials. It also noted Congress'  failure so far to breathe new life into renewable energy tax incentives, which the report said should be extended for at least five years. The Senate on Tuesday again blocked progress on extending about $17 billion in incentives for renewable projects, dinging industry stocks, according to a story from Forbes. The San Francisco Chronicle, meanwhile, carried an in-depth piece looking at the congressional deadlock.

As part of the push for increased solar, the Clean Edge report advocated a national cap-and-trade system for carbon emissions and a national renewables portfolio standard such as those that exist in many states requiring utilities to purchase a minimum amount of solar or other alternative energy. 

Nevertheless, it predicted that the economic and political barriers appeared to be crumbling:

"In sum, the barriers to the large-scale development and deployment of solar by utilities
are not trivial. However, some are quickly becoming concerns of the past as costs of
solar fall, costs for everything else rises, and, with the coming carbon regulation, more
and more people inside and outside of utilities realize that better analytical tools for
evaluating the true benefits of solar are needed."

Costs, for instance, were expected to decline from today's average of between $5.50 and $7 per peak watt to no more than $3.82 in 2015 and $1.82 in 2025. The year 2015 could be significant, the report said, because that about then when solar "will reach cost parity with conventional electricity pricing" in much of the country. Researchers cited a number of factors for that prediction, including increasing capital costs for coal, nuclear and gas generation plants, coupled with solar's lack of fuel costs, low operating and maintenance expenses and zero on-site emissions.

By way of disclosure, the report noted that report participants had done some consulting work or held an equity stake in some of the companies mentioned in the document.

(Photo of concentrating solar generator courtesy Department of Energy/National Renewable Energy Laboratory; Credit: Bill Timmerman)  

Connecticut and New Hampshire, of course, are following a path blazed by other states, notably California, with its 2006 law AB 32 and even more far-reaching executive order signed three years ago by Gov. Arnold Schwarzenegger. In recent months, as Climate Law Update has reported, somewhat similar efforts have been taken by a number of other states, including Vermont and  Washington. Maryland, which has taken some steps along those lines, also has had under consideration legislation to directly curb greenhouse gases.

Other states, including Hawaii and New Jersey last year enacted laws committing the states to reducing emissions to 1990 levels by 2020. Still more states, including California and others, are taking steps to green their power supplies through renewables portfolio standards. Indeed, such  efforts eventually may help spur action on a national level, as Climate Law Update has also noted.

Connecticut's law sets a requirement that the state cut greenhouse emissions 10 percent below 1990 levels by 2020 and 80 percent below 2001 levels by 2050. California's actions, by way of comparison, call for reducing such pollution to 1990 levels by 2020, about a 25 percent cut from current amounts, and for achieving an 80 percent reduction from 1990 levels by 2050.

The new Connecticut law also includes several other elements, including:

• A requirement that the environmental department publish a baseline inventory of greenhouse emissions and recommend actions to achieve the targeted cuts;
• Another requirement that the agency evaluate the potential of low-carbon fuel standards for motor vehicles and home heating fuels;
• The establishment of a new state subcommittee to advise the governor and the state Legislature on climate change impacts and which would recommend changes in state and local laws or regulations to adapt to those impacts, or mitigate them.

 (Photo credit: Office of Gov. M. Jodi Rell)

It showed not only how far the nation had come, but also the distance yet to be traveled to reach the 20 percent objective. For instance, the document reports that the United States has had the fastest-growing wind market worldwide and that it has led the world in new wind capacity for three years running.

In all, the country had nearly 17,000 megawatts of wind capacity at the end of 2007, up more than 5,300 megawatts. On the other hand, even with that growth -- a 46 percent jump in a single year -- it still represented just 1.2 percent of the country's electricity supply.

For individual states, the percentages were higher, however. Under a formula used by the report, nine states had enough wind capacity to account for more than 3 percent of their in-state generation. Topping the list were Minnesota and Iowa, where wind power accounted for 7.5 percent of each state's generation. Texas, the nation's top wind power state in terms of its total capacity, accounted for 3 percent while California, number two in the nation, came in at 2.8 percent. 

Overall, Texas easily dominated the other states in terms of new wind projects, installing more than 1,700 megawatts of turbines in 2007. Other states installing more than 400 megawatts each included Colorado, Illinois, Oregon and Minnesota. California, by contrast, had a relatively puny 63 megawatts installed. But that might change in the future as the result of new contracts such as one Climate Law Update recently highlighted.   

The report also documented economic ripple effects from the boom in wind energy development. It found that new turbine and component manufacturing facilities that were opened last year could account for as many as 4,700 new jobs. On the other hand, the report documented some quality control problems that surfaced as certain companies rapidly scaled up their operations.

GE remained the dominant manufacturer of turbines in the United States market, followed by Vestas, Siemens, Gamesa, Mitsubishi and Suzlon.

Turbine prices themselves have also increased dramatically -- by about 85 percent since 2002 -- according to the report. It attributed the spike to several factors, including the declining value of the dollar, increases in costs of materials such as steel and oil, shortages in some components, and moves by manufacturers to increase their profitability. Nevertheless, the report said that "wind power prices have been competitive with wholesale power market prices over the past few years."

One familiar cloud remained on the horizon, the future of tax incentives for renewable energy, including wind. Less than two weeks ago, House lawmakers made another attempt to get something going on the subject of tax credits for wind and other alternative energy sources, but its future remains uncertain. The importance of the tax incentives, the report said, was shown by the fact that there were "pronounced lulls" in adding new capacity during years when the "production tax credit," equal to about 2-cents per kilowatt hour, lapsed. Without an "imminent extension," the document said, the industry "may experience another quiet year" in 2009.

Another perennial obstacle to renewables, transmission capacity, showed some sign of easing with new expenditures on the rise. However, the report noted that "lack of transmission availability remains a primary barrier to wind development."

The report also found that state policies were important. For instance, it noted that 55 percent of the wind power capacity built between 1999 and 2007 was in states that had renewables portfolio standards requiring their utilities to purchase a certain percentage of power from renewable sources. In 2007, the proportion of new wind capacity going into states with such requirements was more than 75 percent, the report said.

(Photo of Texas wind farm, Department of Energy National Renewable Energy Laboratory; Credit: Todd Spink)