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.
In a highly-anticipated Technical Advice Memorandum (TAM) dated March 23, 2017 and released on July 21, 2017, the Internal Revenue Service (IRS) ruled that two taxpayers who had invested in a Limited Liability Company that owned and operated a refined coal facility (the LLC) were not entitled to refined coal production credits they had claimed because their investment in the LLC was structured “solely to facilitate the prohibited purchase of refined coal tax credits.” This analysis marks a departure from the position staked out by the IRS in a number of recent refined coal credit cases, which focused on whether taxpayers claiming refined coal credits were partners in a partnership that owned and operated a refined coal facility.
On June 30, 2017, the Massachusetts Department of Energy Resources (DOER) announced that Massachusetts would adopt an aspirational 200 megawatt-hour (MWh) energy storage target to be achieved by January 1, 2020. The target is the second largest in the nation, although it is far lower than California’s 1.3 gigawatt storage mandate. Still, Massachusetts’ storage target will make the commonwealth a leader in the burgeoning energy storage field.
The process of setting storage targets began last summer, when Massachusetts enacted a law directing DOER to determine whether to set targets for electric companies to procure energy storage systems by January 1, 2020. In September 2016, Massachusetts released a report called the “State of Charge,” which recommended the installation of 600 megawatts (MW) of energy storage by 2025. The report predicted that 600 MW of storage could capture $800 million in system benefits to Massachusetts ratepayers. The energy storage industry praised the 600 MW level as a good starting point.
DOER’s “aspirational” 200 MWh by 2020 target falls short of the “State of Charge” recommendation, but leaves the door open to achieving 600 MW by 2025. DOER’s letter announcing the target noted that “[s]torage procured under this target will serve as a crucial demonstration phase” for Massachusetts to gain knowledge and experience with storage. “Based on lessons learned from this initial target,” the letter continues, “DOER may determine whether to set additional procurement targets beyond January 1, 2020.”
Beyond DOER’s storage target, Massachusetts has a broader Energy Storage Initiative, which includes a $10 million grant program aimed at piloting energy storage use cases and business models in order to increase commercialization and deployment of storage technologies. DOER also announced that it will examine the benefits of amending the Alternative Portfolio Standards, an incentive program for installing alternative energy systems, to expand the eligibility of energy storage technologies able to participate. While Massachusetts’ storage targets are not as lofty as some in the industry were hoping, the commonwealth is demonstrating a clear commitment to developing its energy storage industry beyond the few megawatts currently installed.
President Trump released his budget proposal for the 2018 FY on May 23, 2017, expanding on the budget blueprint he released in March. The budget proposal and blueprint reiterate the President’s tax reform proposals to lower the business tax rate and to eliminate special interest tax breaks. They also provide for significant changes in energy policy including: restarting the Yucca Mountain nuclear waste repository, reinstating collection of the Nuclear Waste Fund fee and eliminating DOE research and development programs.