Biden Administration Advances California Offshore Wind Development

On May 25, 2021, the Biden Administration announced an agreement to lease almost 400 miles off California’s northern and central coasts for offshore wind development. The announcement expands on the recent approval of the first major offshore wind project in US waters. In an effort to decarbonize US power generation, the administration noted, “These initial areas for offshore wind development in the Pacific Ocean could bring up to 4.6 gigawatts of clean energy to the grid, enough to power 1.6 million American homes.”

Furthering the Biden Administration’s “whole-of-government approach” to clean energy, the US Department of Interior in connection with the US Department of Defense identified an area northwest of Morro Bay that will support three gigawatts of offshore wind. The Humboldt Call Area is also being considered as a potential offshore wind location, which would bring 4.6 gigawatts of energy to California. The Department of Defense played a significant role in identifying areas for offshore wind development, as they take part in significant training and operations off the coast of California that are essential to national security. Both the Department of Defense and Department of Interior plan to work closely together to ensure protection of military operations while pursuing new domestic clean energy resources.

To support this development in the deep Pacific Coast waters, new floating offshore wind technology will be deployed. The US Department of Energy (DOE) has invested more than $100 million in researching, developing and demonstrating floating offshore wind technology. Floating turbine technology will likely be a prime candidate for DOE Loan Programs Office support because it is (1) large enough in scale, (2) has a long lead time to develop and (3) is not commercially scalable in the same way as offshore technology that utilizes bottom anchoring. Lenders will have questions about the technology and having that guaranty could significantly aid project financing.

Ahead of yesterday’s announcement, California invested millions into its budget for environmental needs, including funding port upgrades and power lines that will carry electricity to California homes. We expect further developments in California from a legislative perspective to further offshore development.




Key Takeaways | The Energy Market in 2021: Legislative Update on Renewable Energy Tax Incentive

The energy market has undergone significant change in the past 12 months, with even more on the horizon. Our webinar series explores how these changes have shaped—and will continue to impact—the energy industry, including discussions of what’s to come.

Our latest webinar featured McDermott partners Philip Tingle and Heather Cooper and Carol Wuerffel, Senior Director, Tax at Ameren.

Below are key takeaways from the webinar:

  1. Tech Neutral Credit. The Clean Energy for America Act introduced by Senator Ron Wyden (D-OR) would replace existing renewable energy incentives with technology-neutral tax investment and production credits for facilities with zero net or net negative carbon emissions. In coordination with the Environmental Protection Agency, the US Department of the Treasury would be responsible for promulgating regulations specifying qualifying technologies. The credit would be provided to partnerships and not individual partners for renewable investments made by pass-through entities.
  2. Direct Pay. In early 2021, House Democrats reintroduced the Growing Renewable Energy and Efficiency Now (GREEN) Act. In addition to extending and expanding the existing investment tax credit (ITC) and production tax credit (PTC), the GREEN Act would permit taxpayers to elect to claim 85% of the expanded ITC and PTC amounts as a refundable credit, even if they do not have sufficient tax liabilities to otherwise use the credits. The Wyden bill likewise would offer a direct pay election but without any discount against the tax credit. The timing of payments under the refundable credit may impact whether developers will shift from current tax-equity structures. If a developer must file a return and wait to resolve any examinations or other ongoing proceedings to receive the benefit, the refundability could be of limited value.
  3. Net Zero 2050. US President Joe Biden has set an aggressive climate goal of reducing greenhouse gas emissions by at least 50% below 2005 levels by 2030 and to net zero by 2050. Developers and utilities need additional certainty around the scheduled phaseouts in the ITC and PTC in order to build renewable resources to meet climate goals. While the White House has yet to back a specific package of renewable tax incentives, the proposals introduced by congressional Democrats are a likely starting place for negotiations.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




Key Takeaways: Decoding the Future Value of Behind-the-Meter Load for Cryptocurrency and Computing: A Conversation with Compute North Executives

On May 5, McDermott Will & Emery partners Ed Zaelke and Chris Gladbach hosted P.J. Lee, Dave Perrill and Jeff Jackson of Compute North to discuss the relationship between the rapidly expanding computing and cryptocurrency industries and the power sector.

Below are the key takeaways from the webinar:

  1. Compute North’s business model focuses on the power of distributed computing in cryptocurrency mining and large-scale data processing for uses with non-essential, flexible demand. By responding to real-time demand response signals and shutting down in less than 10 seconds, these distributed computing facilities can also participate in the demand response market and act as ancillary service resources.
  2. Modular computing facilities (similar to modular energy storage) allow distributed computing loads to be located nearer to generation, reducing congestion and curtailment risks and providing new customers for merchant facilities and other stranded power producing assets.
  3. Compute North’s distributed computing facilities are targeted at facilities as low as 20 MW in size, but are considering facilities of up to a full buildout of 1 GW.
  4. Although Compute North’s distributed computing currently requires higher use factors (and likely imports from the grid or separate generation assets), one of its long-term goals is to match the generation of a particular power producing facility.
  5. Successful cryptocurrency mining and other flexible distributed computing needs require computing facilities to be the lowest marginal cost producer. By providing services at 1/15th the cost of hypercomputing technologies, new data processing work cases are likely further increasing the demand for and power of distributed computing.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.




Why 2030 is the New 2050 after the Leaders Climate Summit and What President Biden’s Accelerated Transition to a Sustainable Economy Means for Renewables Developers, Investors and Corporates

2030 is the new 2050 as US President Joe Biden has officially set a new goal for fighting climate change over the next decade in the United States. At the Leaders Climate Summit (the Summit) on Earth Day, he announced that America would aim to cut its greenhouse gas emissions at least 50% below its 2005 levels by 2030. If successful, this transition would lead to a very different America and would affect virtually every corner of the nation’s economy, including the way Americans get to work, the sources from which we heat and cool our homes, the manner in which we operate our factories, the business models driving our corporations and the economic factors driving our banking and investment industries. The effectiveness of this transition lies in the administration’s ability to pull on two historically powerful levers: Tax policy and infrastructure funding. However, tax policy will call upon multiple sublevers, such as increased tax rates, expanded tax credits, refundability, carbon capture, offshore wind, storage, transmission and infrastructure investment. All of this will be bolstered by the American corporate sector’s insatiable appetite for environmental, sustainability and governance (ESG) goal investment.

QUICK TAKEAWAYS

There were six key announcements at the Summit for renewables developers, investors and corporates to take note:

  1. The United States’ commitment to reduce its greenhouse gas emissions by 50% – 52% below its 2005 emissions levels by 2030
  2. The United States’ economy to reach net-zero emissions by no later than 2050
  3. The United States to double the annual climate-related financing it provides to developing countries by 2024
  4. The United States to spend $15 billion to install 500,000 electric vehicle charging stations along roads, parking lots and apartment buildings
  5. A national goal to cut the price of solar and battery cell prices in half
  6. A national goal to reduce the cost of hydrogen energy by 80%

President Biden’s goals are ambitious. It is clear from the history of renewable incentives in the United States as well as current developments that moving forward, the green agenda will predominately rely on two primary levers being pulled at the federal level: Tax policy and infrastructure funding. The federal tax levers mentioned above will not be pulled in a vacuum. Instead, they will be pulled in the midst of a tectonic shift among individual investors that now demand that institutional investors and corporations begin to create and meet ESG goals as individual customers are beginning to take a corporation’s climate goals and footprint into account when making purchasing decisions.

As a result, we discuss the following areas in greater detail below:

  1. Tax policy
    1. increased tax rates
    2. expanded tax credits
    3. refundability
    4. carbon capture
    5. offshore wind
    6. storage
    7. transmission
  2. Infrastructure bill
  3. ESG environment

DEEPER DIVE: BREAKING DOWN EACH LEVER AS WELL AS ITS OPPORTUNITIES AND CHALLENGES

  1. Tax Policy: The consistent message from the Biden Administration, at the Summit and elsewhere, makes clear that tax policy will likely play a significant role in the administration’s ambitious climate agenda. At [...]

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Senate Democrats Propose Overhaul of Clean Energy Incentives

US Senate Finance Committee Chairman Ron Wyden (D-OR) introduced the Clean Energy for America Act (the Act), along with two dozen Democratic co-sponsors, on April 21, 2021. The Act will likely be a starting point for the Biden administration tax proposals intended to limit carbon emissions. The Act would change the current system for incentives for the renewable energy industry to a technology-neutral approach for generation that is carbon free or has net negative carbon emissions. The Act would also provide tax incentives for qualifying improvements in transmission assets and stand-alone energy storage with the aim of improving reliability of the transmission grid. Instead of requiring that taxpayers who qualify for the clean energy incentives have current or prior tax liabilities, the Act would create a new direct pay option allowing for refunds of the tax credits.

The Act would replace the current renewable energy incentives with a new clean electricity production and investment credit, which would allow taxpayers to choose between a 30% investment tax credit (ITC) or a production tax credit (PTC) equal to 2.5 cents per kilowatt hour. The credit would apply to new construction of and certain improvements to existing facilities with zero or net negative carbon emissions placed in service after December 31, 2022. The Act would phase out the current system of credits for specific technologies. To provide time for transition relief and for coordination between the US Department of the Treasury (Treasury) and Environmental Protection Agency (EPA), the Act extends current expiring clean energy provisions through December 31, 2022.

The Secretary of Treasury, in consultation with the Administrator of the EPA shall establish greenhouse gas emissions rates for types or categories of facilities which qualify for the credits. To incentivize additional emissions reductions from existing fossil fuel power plants and industrial sources, the Section 45Q tax credit would be extended until the power and industrial sectors meet emissions goals. The Act would modify the qualifying capture thresholds to require that a minimum percentage of emissions are captured. Once certain emissions targets are met—namely, a reduction in emissions for the electric power sector to 75% below 2021 levels—the incentives will phase out over five years.

Qualifying transmission grid improvements are also eligible for the 30% ITC including standalone energy storage property. Storage technologies are not required to be co-located with power plants and include any technologies that can receive, store and provide electricity or energy for conversion to electricity. Transmission property includes transmission lines of 275 kilovolts (kv) or higher, plus any necessary ancillary equipment. Regulated utilities have the option to opt-out of tax normalization requirements for purposes of the grid improvement credit. However, the Act does not include a similar option to opt-out of the tax normalization provisions for other types of qualifying facilities, such as solar or wind projects.

Under the Act, investments qualifying for the clean emission investment credit, grid credit or energy storage property in qualifying low-income areas qualify for higher credit rates. The Act also includes new provisions requiring [...]

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