Project Development and Finance

In the United States, federal agencies that license, permit or finance energy and infrastructure projects must, with some limited exceptions, analyze the environmental impacts of those projects before they approve them, pursuant to the National Environmental Policy Act of 1969 (NEPA).  But to what extent must those agencies consider climate change impacts as part of their NEPA reviews? The President’s Council on Environmental Quality (CEQ) has just issued a guidance document that addresses that question.

CEQ’s guidance document—an August 1 memorandum addressed to the heads of all federal departments and agencies—urges federal agencies to consider two climate change-related topics when conducting NEPA reviews.

The first topic is the impact of a proposed project on climate change, and the memorandum urges federal agencies to approach that topic by focusing on the project’s direct, and indirect, greenhouse gas (GHG) emissions. Agencies are encouraged to calculate a project’s anticipated emissions using existing government resources and calculators, and to draw upon existing government literature on the impacts of such emissions. The memorandum acknowledges that “the totality of climate change impacts is not attributable to any single action,” but concludes that climate-related impacts are exacerbated by some government actions and encourages agencies to compare the level of emissions expected from a proposed project to the level expected under alternative project scenarios. The memorandum provides scant details on how to calculate “indirect” GHG emissions but does suggest that for projects involving fossil fuel extraction, the indirect impacts turn, at least in part, on the anticipated ultimate use of the extracted fuel.

The second topic is the impact of climate change on the project, and on the project’s impacts.Here, CEQ’s memorandum encourages federal agencies to consider a proposed project’s impacts not simply on environmental conditions as they currently exist but as they will exist in the future and reflecting any changes that are expected as a result of climate change. Thus, if a project will draw water from a river that is already being, or that will be, diminished because of changing snowfall or rainfall patterns, that is an impact that should be acknowledged. The memorandum also encourages agencies to incorporate climate change resiliency and adaptation planning into their NEPA reviews, especially when analyzing project alternatives and potential mitigation measures. The memorandum suggests, for example, that agencies consider whether a proposed project’s design makes it more vulnerable to changing climate conditions (such as, in some areas of the country, increased risk of wildfires) than alternative projects.

CEQ’s memorandum applies to all new NEPA reviews and states that agencies “should exercise judgment” when considering whether to apply the guidance to currently ongoing reviews. CEQ states in the memorandum that it “does not expect agencies to apply” the guidance to projects for which a final environmental impact statement or environmental assessment has already been issued.

As discussed in our post on April 7, US Congress extended the Production Tax Credit (PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (ITC) under IRC Section 48 in December 2015, but failed to include extensions for certain types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Some congressional leaders had stated that the omission was an oversight that would be addressed in 2016.

In March, President Barack Obama signed an extension of certain Federal Aviation Administration (FAA) programs and revenue provisions through July 15, 2016. This legislation was apparently crafted with an intentionally short timeframe to allow inclusion of the omitted PTC and ITC provisions in long-term FAA reauthorization legislation.  However, Senate Finance Committee members have indicated that the long-term FAA legislation will not include energy tax incentives. According to Tax Analysts, Senate Finance Committee member John Thune (R-SD) recently indicated that the extenders will not make it into the FAA reauthorization bill. Senator Richard Burr (R-NC) also said that the most likely vehicle for energy tax incentives would be an end-of-the-year tax bill.

The regulatory framework for solar photovoltaic plants in Italy is constantly evolving. Plant owners, asset managers and investors need to stay informed in order to adapt to developments in this sector and avoid adverse outcomes. The following highlights the key updates in this market in the last 12 months.

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As discussed in our post on March 16, the Congressional extension of the Production Tax Credit (PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (ITC) under IRC Section 48 in December 2015 failed to include extensions for certain types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Congressional leaders have stated that the omission was an oversight that would be addressed in 2016.

On March 30, 2016, President Barack Obama signed into law the Airway and Airport Extension Act of 2016 (H.R. 4721) (the Act), which extends certain Federal Aviation Administration (FAA) programs and revenue provisions only through July 15, 2016. Expiring in less than four months, the FAA extension was apparently crafted with an intentionally short timeframe to allow inclusion of the omitted PTC and ITC provisions in long-term FAA reauthorization legislation that will likely follow this summer.  Accordingly, while the Act does not directly address the energy tax provisions omitted from last year’s extenders package, experts hope that it paves the way to addressing the omission in a few months.

Senator Ron Wyden (D-WY) has said that he hopes to introduce a long-term FAA bill addressing the omitted energy tax credit extenders after the Senate returns this week. House Ways and Means Committee Chair Kevin Brady (R-TX) has expressed opposition to attaching energy credit tax extenders to the FAA reauthorization legislation. As developments occur, we will update this blog.

Renewable Energy Industry Seeks Additional Energy Credit Clarifications

On December 18, 2015, President Barack Obama signed into law the Consolidated Appropriations Act, 2016 (H.R. 2029) (the Act). The Act includes multi-year extensions of the Production Tax Credit (the PTC) under Internal Revenue Code (IRC) Section 45 and the Investment Tax Credit (the ITC) under IRC Section 48 for wind and solar projects—both of which are gradually phased out. The Act, however, did not extend the ITC for other types of renewable energy property, including fuel cell power plants, stationary microturbine power plants, small wind energy property, combined heat and power system property, and geothermal heat pump property. Read further discussion of the Act’s extension of renewable energy tax incentives. Continue Reading President Obama Signs Consolidated Appropriations Act

Community net metering is relatively new to New York.  Last July, the New York Public Service Commission (PSC) issued an order establishing a “community distributed generation program” that allows multiple customers to net meter from a single solar generation facility.  Community net metering will implement principles that are part of New York’s sweeping energy policy reform efforts in the ongoing Reforming the Energy Vision (REV) proceeding.  In order to coordinate the community net metering program with the broader REV program, the PSC delayed full implementation of its community net metering program until May 1, 2016.

The goal of community net metering is to expand opportunities for participation in solar and other forms of clean distributed generation to utility customers that would not otherwise be able to access that generation directly.  Many utility customers, such as residents of multi-unit buildings, lack control over sites that can be configured into a location for a clean generation facility.

To be eligible for community net metering, a generation facility must meet the requirements for New York’s regular net metering program.  Instead of having one owner, a community net metering project is owned by 10 or more members, all of whom are located within the same load zone and within the same utility’s service territory.  Besides multiple owners, community net metering projects have a sponsor, which may be the generation facility developer, an energy service company, a municipality, a business or non-profit, or other another form of business or civic association.  The sponsor builds the generation facility, owns and operates the generation facility, and acts as the liaison between the community members and the utility.  Each member of a community net metering project owns or contracts for a proportion of the credits accumulated as a percentage of the facility’s output in excess of usage at the host site.  The project sponsor reports these percentages to the utility, and the utility is responsible for distributing the credits to the members in accordance with the sponsor’s instructions.

Due to the PSC’s desire to coordinate community net metering with the REV program, New York’s community net metering is being implemented in two phases.  Phase 1 lasts through April 30, 2016.  During this period, the PSC will permit community net metering projects only if (1) the project site is in a location that will bolster grid reliability or provide other locational benefits or (2) the project meets a threshold level of low-income customer participation.  According to the PSC, these requirements will “advance selected REV principles” above and beyond general clean energy goals.  Phase 2, beginning soon on May 1, 2016, has no such restrictions and will be open to all qualifying projects.

With the recent extension of the federal income tax credits available for renewable energy projects, practitioners and industry participants have raised questions as to how the “begun construction” rules will apply under these new regimes.  The new regimes refer to the dates on which construction on projects began for purposes of determining qualification for the credits and also provide for a phaseout or reduction in the available credits over time. (For more information on these extensions, see our previous article on the extensions.)

Industry participants expect that the Internal Revenue Service will soon issue guidance detailing when a project will be determined to have “begun construction” and when continuous construction efforts are required.  It is expected that this guidance will be similar to the beginning of construction guidance summarized here for wind projects.  However, in light of the different considerations for different technologies and the reduction in the credit amount over time, which differs from the prior credit for wind that expired in its entirety, a number of questions have been raised by industry participants.  It is hoped that some of these questions will be answered by any guidance that is issued with respect to the credit extensions.  Some of these questions include:

  • Will the beginning of construction tests be the same as they currently are for wind (e., a physical work of a significant nature test and a 5 percent safe harbor test)?
  • Will continuous construction efforts be required under the new regimes?
  • What is the consequence of failing to maintain a program of continuous construction? Will the project still be eligible for a reduced credit, and how will that credit amount be determined?
  • Will there be a placed in service safe harbor? The wind guidance had provided that continuous construction efforts would be considered maintained so long as projects were placed in service prior to a specific date.  That date was two years after the end of the year in which the project was required to be placed in service.  Most industry participants believe this safe harbor will be extended to apply to wind projects beginning construction through 2016.
  • If there is a placed in service “safe harbor,” will it apply to all technologies in the same manner? That is, will the safe harbor period be the same for all renewable technologies?
  • Will the guidance address and provide examples of “physical work of a significant nature” for solar projects?
  • How would the physical work and safe harbor tests apply in the context of residential or commercial and industrial solar projects?
  • In the solar context, what will be considered a single “facility” for purposes of the beginning of construction tests?

We will provide additional updates as we get more information, so please stay tuned.

The Internal Revenue Service (IRS) has advised that the flip partnership guidelines under Rev. Proc. 2007-65, 2007-2 C.B. 967, do not apply to solar facilities or other projects claiming the Section 48 investment tax credit (ITC). The statement, made in in recently released CCA 201524024, was not surprising to practitioners in the solar arena as the revenue procedure expressly does not apply to ITC transactions.

Read the full article.

Last week, the New Jersey Board of Public Utilities (BPU) approved an agreement with the New Jersey Economic Development Authority (EDA) to establish and operate an Energy Resilience Bank in the state.  The BPU approved a plan to direct over $200 million in federal aid to the bank.  The Energy Resilience Bank (ERB) will focus on the development of distributed energy resources at critical facilities throughout the state, aiming to minimize the impacts of widespread power outages like the one Hurricane Sandy caused.

The ERB will be focused on providing capital, both low-interest loans and grants, to critical facilities that offer the greatest resilience benefits, including water and wastewater treatment plants and hospitals.  Subsequent funding will be directed toward other critical facilities, such as transportation, emergency response and schools that can function as shelters in case of emergency.  While other states, including New York and Connecticut, have recently launched green banks, the ERB will be the first to focus on resiliency.

The launch of the ERB followed a National Renewable Energy Laboratory study that found that distributed generation and microgrids are integral to energy resiliency.  Distributed generation and microgrids have the potential to ‘island’ electricity at critical facilities with on-site generation, retaining power during bulk-power system blackouts.  These technologies provide additional benefits such as increasing efficiency by cutting transmission losses and incentivizing clean energy deployment.

New York launched its Green Bank in December with an initial capitalization of $210 million.  The New York model focuses on private-sector investment proposals and aims to support financing for local energy efficiency and clean-energy projects that larger financial institutions typically overlook.  New York’s Green Bank envisions support such as credit enhancements, co-investing with the private sector in a loan fund for clean energy, loan warehousing/short-term project aggregation and similar arrangements.  Connecticut launched the first green bank in the country in 2012, and, according to their 2013 report, roughly ten dollars was invested by private sources for every one dollar of ratepayer funds invested.  It remains to be seen whether New Jersey will similarly leverage private investment in its model.

by Simone Goligorsky and Robert Coward

In October 2011, the European Commission released a proposal to amend and extend the Markets in Financial Instruments Directive (MiFID), referred to as MiFID II. The MiFID II proposals consist of revisions to MiFID, along with the introduction of the Markets in Financial Instruments Regulation (MiFIR).

Whilst MiFID sought to increase competition and consumer protection, the purpose of MiFID II is to make financial markets more efficient, resilient and transparent and to improve investor protection, with the reform being driven by commitments made by the EU to tackle less regulated and more opaque parts of the financial system at the G20 summit in Pittsburgh in 2009.

MiFID II will impose a series of changes, including, inter alia:

  • creating of a new type of trading venue, the organised trading facility (OTF);
  • extending the scope of products and activities that are subject to regulation;
  • prohibiting the use of inducements for discretionary asset management and ‘independent’ advice;
  • introducing stricter corporate governance requirements; and
  • extending market transparency and transaction reporting requirements.

On 13 May 2014, the Council of the European Union announced that MiFID II had been adopted, following on from the adoption of MiFID II in April 2014 by the European Parliament. Both MiFID II and MiFIR are expected to be published in the Official Journal of the European Union in the second quarter of 2014 and will, for the most part, become applicable 30 months later. It is expected that the European Securities and Markets Authority (ESMA) will publish a discussion paper on the technical standards shortly. Following the responses to the discussion paper, ESMA will publish a consultation paper on draft technical standards later in 2014 or early in 2015. Market participants are encouraged to respond both to the discussion paper and the consultation paper.

MiFID II is being introduced in a climate of wider regulatory reform, and implementation will overlap with numerous other legislative changes, including the Capital Requirements Directive IV, the proposals for Benchmarks regulations, the European Market Infrastructure Regulation and the Market Abuse Directive II. Given this comprehensive spread of regulatory reform, and the magnitude of commercial and operational impacts that MiFID II will have, successful implementation will require early involvement and a thorough impact assessment.