FERC announced actions in response to the 2017 tax reform legislation and a revised income tax policy, which eliminates the income tax allowance for Master Limited Partnerships. Regulated entities should ensure that they comply with FERC’s orders regarding the treatment of income taxes and consider whether to file comments on the proposed rulemaking and notice of inquiry.
On February 15, the Federal Energy Regulatory Commission (FERC) issued a much-anticipated order designed to remove barriers to electric storage resource participation in organized wholesale electricity markets. The order—dubbed Order No. 841—creates new rules that require each regional transmission operator (RTO) and independent system operator (ISO) to revise its tariff to establish a “participation model” consisting of market rules that facilitate the participation of electric storage resources in the RTO/ISO markets. Order No. 841 will make it easier for electric storage resources to participate in wholesale power markets and access the accompanying revenue streams.
Each RTO/ISO must file its tariff changes to implement Order No. 841 within 270 days (i.e., by November 12, 2018). FERC will review the filings and must approve all tariff changes. Each RTO/ISO will have an additional one year from the filing date to implement its new tariff provisions.
FERC defined an electric storage resource as “a resource capable of receiving electric energy from the grid and storing it for later injection of the electric energy back to the grid.” This definition encompasses a variety of technologies including batteries, flywheels, compressed air and pumped hydro. It also explicitly includes resources located on a distribution system or behind the meter, as well as resources located on the interstate transmission grid, and opens the door to participation in RTO/ISO markets for smaller storage resources.
Yesterday, the US Trade Representative announced that President Trump approved recommendations to impose a safeguard tariff on imported solar cells and modules under Section 201 of the Trade Act of 1974. The tariff will be in effect for the next four years at the following rates:
This tariff is the result of petitions filed in May 2017 by two US solar cell manufacturers at the (ITC under Section 201 of the Trade Act of 1974. The petitions alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. In September, the ITC found injury to the US solar equipment manufacturing industry and, in October, released its recommendations to the White House to impose tariffs. The President’s final decision was in line with the ITC’s recommendations.The first 2.5 gigawatts (GW) of imported solar cells will be exempt from the safeguard tariff in each of those four years. According to the International Trade Commission (ITC), the United States imported approximately 12.8 GW of solar cells in 2016, which was expected to grow in 2017.
Supporters hope the tariff will encourage increased domestic solar manufacturing. Reports are circulating that a solar manufacturer is considering opening a new module factory in Florida. However, critics of the tariff like the Solar Energy Industries Association (SEIA) say that the tariff will result in a loss of 23,000 domestic jobs this year, including many in manufacturing, and will result in the delay or cancellation of billions of dollars in solar investments. The U.S. solar energy industry currently employs 260,000 Americans in jobs ranging from installation to manufacturing racking systems and inverters. The industry created 1 out of every 50 new US jobs in 2016. According to SEIA, only 2,000 people in the United States are employed manufacturing solar cells and panels.
The tariff is also expected to increase solar module costs, with early estimates predicting an increase of 10 to 12 cents per watt based on current US import prices of 35 to 40 cents per watt.
The US Trade Representative’s press release and fact sheet took clear aim at China, singling it out as a major cause of injury to the domestic solar manufacturing industry: “Today, China dominates the global supply chain and, by its own admission, is looking to increase its capacity to account for 70 percent of total planned global capacity expansions announced in the first half of 2017.” The US Trade Representative also stated that it will “engage in discussions among interested parties that could lead to positive resolution of the separate antidumping and countervailing duty measures currently imposed on Chinese solar products and U.S. polysilicon.” Despite the aggressive rhetoric, the tariff will not be limited to Chinese imports.
Additional details on whether any countries will be exempted from the tariff and how the 2.5 GW exemption is determined should be available upon publication of a Presidential Proclamation finalizing the tariff.
Alongside the tariff on solar cells, the Trump Administration also announced a tariff on imported residential washing machines.
On January 8, 2018, the Federal Energy Regulatory Commission (FERC) rejected the Department of Energy’s (DOE) Proposed Rule, which would have required organized wholesale electricity markets run by independent system operators (ISOs) or regional transmission organizations (RTOs) to establish tariff mechanisms for purchasing energy from eligible “reliability and resilience resources” and mandated a recovery of costs plus a return on equity for such resources. Eligible reliability and resilience resources would have to be (1) located within an RTO/ISO, (2) able to provide essential reliability services, and (3) have a 90-day fuel supply on-site. Practically, these requirements would limit participation to coal and nuclear plants. Continue Reading FERC Rejects Department of Energy Proposal Benefitting Coal and Nuclear
On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act. The Senate Bill includes the base erosion and anti-abuse tax, a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. Given its potential to disrupt the financing of renewable energy projects, taxpayers in the renewable energy sector have been paying close attention to its developments.
Changes to the energy credits proposed in the Tax Cuts and Jobs Act could impact the eligibility of renewable energy projects that had been relying on the guidance previously issued by the Internal Revenue Service.
On October 31, 2017, the US International Trade Commission (ITC) released its recommendations to impose a tariff on imported solar equipment. The proposals it issued, however, would result in duties substantially lower than those sought by the petitioners. The ITC’s four commissioners issued several remedy recommendations, including, at the high end, a 35 percent tariff on imported solar modules and a 30 percent tariff on solar cells. This would result in an estimated 10-13 cent per watt increase on imported solar panels, far below the tariff levels requested by the petitioners.
In May, Suniva, a US solar cell manufacturer, filed a petition at the ITC requesting relief from foreign imports. The petition alleged that a global imbalance in supply and demand in solar cells and modules and a surge of cheap imports caused serious injury to the domestic solar manufacturing industry. SolarWorld, another US manufacturer, joined the petition and the ITC instituted an investigation. Suniva and SolarWorld requested a 32 cent per watt tariff on crystalline silicon photovoltaic (CSPV) cells, and Suniva sought a price floor on solar panels of 74 cents per watt.
While US solar manufacturers argued in favor of imposing duties on foreign imports, others like the Solar Energy Industries Association (SEIA) have opposed the petition, arguing that it poses a major threat to the 260,000 US workers in the solar industry. Specifically, SEIA argues, the higher cost of panels would lead to decreased demand and make solar energy less competitive in the United States, costing jobs in solar installation and other areas of the solar industry. Solar manufacturing accounts for approximately 38,000 jobs in the United States while solar installation accounts for over 137,000 jobs.
In September, the ITC found injury to the US solar equipment manufacturing industry. Since that finding, the ITC has been working on the remedy phase of the proceeding.
The commissioners issued three separate sets of recommendations. One recommendation proposes, among other things, imposing tariffs of up to 30 percent on imported CSPV cells and a 35 percent tariff on imported CSPV modules, each of which would be incrementally reduced over four years. A second proposal recommended imposing a 30 percent tariff rate on imports of cells exceeding 1 gigawatt, decreasing by five percentage points and increasing the in-quota amount increase by 0.2 gigawatts each year over a four year period, as well as a 30 percent tariff on modules that would be phased down by five percentage points each year. The third proposal recommended a quantitative restriction on cells and modules starting at 8.9 gigawatts in the first year, increasing by 1.4 gigawatts each subsequent year.
The ITC will forward its report, which contains its injury determination, remedy recommendations, additional findings, and the bases for each, to the President by November 13, 2017. The President must make a final decision on whether to impose a remedy and what that remedy should be by January 12, 2018.
On September 29, 2017, the Illinois Power Agency (IPA) released its Long-Term Renewable Resources Procurement Plan (Plan) to implement renewable energy goals set forth in Illinois’s Future Energy Jobs Act, which went into effect on June 1. Together, the new legislation and the Plan, among other things, make significant modifications to Illinois’s renewable portfolio standard (RPS) goal of 25 percent of retail electricity sales sourced from renewable energy by 2025. The Plan sets forth procurement programs designed to meet the state’s annual RPS targets until 2030 and will be updated at least every two years. These changes significantly expand renewable energy development opportunities in Illinois—by some estimates, leading to the addition of approximately 1,300 megawatts (MW) of new wind and nearly 3,000 MW of new solar capacity by 2030.
Expanding the Illinois RPS
While maintaining the same 25 percent renewable energy sourcing goal, the Future Energy Jobs Act functionally increases the state’s RPS target because Illinois’s RPS standard previously applied only to customers buying power through a utility’s default service, not customers taking supply through alternative retail suppliers or through hourly pricing. According to the IPA, in recent years, only 30-50 percent of potentially eligible retail customer load actually received default supply services, while competitive class customers (including larger commercial and industrial customers, which represent approximately half of total load) had no default supply option. Given this transition, meeting Illinois’s RPS goal of 13 percent of retail electric sales in the state sourced from renewable energy for the 2017–2018 delivery year will require the IPA to procure on behalf of the state’s electric utilities an additional 7.5 million renewable energy credits (RECs), which will gradually increase to a forecasted procurement of 31.5 million RECs for the 2030–2031 delivery year. One REC represents 1 megawatt hour (MWh) of generation produced by an “eligible renewable resource.” Eligible resources include wind, solar, thermal energy, biodiesel, anaerobic digestion, biomass, tree waste, landfill gas and some hydropower. Many other states, including California and Massachusetts, utilize RECs to demonstrate compliance with the state’s RPS program. Continue Reading Illinois Renewable Resources Procurement Plan Aims to Boost Renewable Energy Development
On September 28, 2017, the US Department of Energy (DOE) submitted a proposed rule to the Federal Energy Regulatory Commission (FERC) that, if implemented, could reshape organized wholesale electricity markets. Citing electric grid reliability and resiliency issues like the 2014 Polar Vortex and recent hurricanes, DOE asked FERC to enact a new compensation system for coal and nuclear power plants—dubbed “fuel-secure resources” by DOE. Coal and nuclear plants have been retiring prematurely and, according to DOE, the retirements are “threatening the resilience of the Nation’s electricity system.”
In order to stem the tide of retirements, DOE submitted to FERC a proposed rule requiring organized wholesale electricity markets run by independent system operators (ISOs) or regional transmission organizations (RTOs) to develop and implement market rules that “accurately price generation resources necessary to maintain the reliability and resiliency” of the bulk power system. The proposed rule would require ISOs and RTOs to provide “a just and reasonable rate” for the purchase of electricity from a fuel-secure resource and “recovery of costs and a return on equity for such resource.” Eligible resources must (i) be located within an ISO or RTO, (ii) be able to provide energy and ancillary services, (iii) have a 90-day fuel supply on site, (iv) be compliant with all environmental laws, and (v) not be subject to cost-of-service rate regulation at the state or local level. Practically, these requirements limit participation to coal and nuclear plants. Continue Reading Department of Energy Proposes Rule Benefiting Coal and Nuclear to FERC
According to the Department of Energy (DOE) renewable energy wind installations had explosive growth through 2016, and added approximately 32,000 jobs since 2015, to a total of 102,000!
In the Wind Technologies Market Report, DOE says the Production Tax Credit (PTC) is directly responsible for the expansion. Congress, however, is phasing out the PTC, which DOE believes will lead to a slowing of the wind energy industry. The PTC is incrementally being phased out over a five year period, and ends completely in 2020. Read here for more information.