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International Trade Actions Complicate Global Market for Renewable Energy Businesses, Particularly in the Solar Sector

by | Dec 4, 2012 | ,

by David J. Levine and Pamela D. Walther

As a result of several recent actions, developers of solar energy projects may face increased costs.  Two cases pending before the World Trade Organization challenge domestic content requirements of solar sector feed-in-tariff programs, and China, the European Union and the United States have initiated actions under domestic trade remedy laws that could result in additional duties at the border on imports of solar industry goods alleged or found to be subsidized or unfairly priced in countervailing duty and anti-dumping actions.

To read the full article, click here.



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Webinar: Power Purchase Agreements in European Markets

by | Nov 12, 2012 | ,

On Wednesday, November 7, 2012, McDermott Will & Emery energy lawyers conducted a webinar discussing key issues and risks in power purchase agreements as European markets transition away from feed-in tariffs to market-based concepts.

Topics included:

  • The move from feed-in tariffs to power purchase agreements
  • Typical business models and transaction structures
  • Regulatory challenges
  • Key contract clauses and risk distribution

Please click here to download the slide presentation with audio.

Please click here to download only the slide presentation materials.



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The Office of Gas and Electricity Markets of Great Britain Consults Further on its Electricity and Gas Retail Market Review

by | Oct 31, 2012 | , ,

by Caroline Lindsey

On October 26, 2012, the Office of the Gas and Electricity Markets (Ofgem) published updated proposals for changes to the regulation of the non-domestic electricity and gas retail markets in Great Britain.  The Retail Market Review Proposals (RMR Proposals) are part of Ofgem’s RMR program, which also includes proposals for the domestic markets.

The RMR Proposals follow Ofgem’s initial consultation on proposals for the non-domestic market in November 2011, and its Energy Supply Markets Probe in 2008.  Since the initial consultation, Ofgem has been conducting further research, gathering relevant information from suppliers and considering the responses to the initial consultation.

The principal RMR Proposals are:

  • Increased protection for small business consumers – condition 7A of the standard conditions of electricity and gas supply licences (SLC) currently provides protection for micro business consumers when dealing with suppliers.  Ofgem is proposing to expand the number of small business consumers who have the benefit of those protections, by introducing a new definition of small business consumer.  The new definition is intended to capture existing micro business consumers, as well as a wider category of consumers whose annual consumption of electricity and gas is equal to or less than the relevant threshold (100,000 kWh per annum for electricity and 293,000 kWh per annum for gas).  Ofgem also proposes to introduce additional protections, including an obligation to include contract end dates and related notice periods on customer bills.
  • Introduction of binding standards of conduct when dealing with small business consumers – suppliers will, by way of a new SLC 7B, be required to comply with standards of conduct when engaging in the designated activities of billing, contracting and customer transfers with small business consumers.  The overarching objective of the standards of conduct, which will be expressly stated in SLC 7B, is to ensure that each small business consumer is treated fairly.  The standards of conduct include an obligation on the licensee to carry out the designated activities “in a Fair, honest, transparent, appropriate and professional manner.”  Ofgem has indicated that it will give guidance on the meaning of at least some of those terms. 
  • Development of a common code of conduct for third party intermediaries (TPI) – Ofgem proposes to develop options for a common code of conduct for TPIs, who broker contracts between non-domestic consumers and suppliers.  It will also conduct a wider review of the regulatory framework applicable to TPIs, including considering whether more direct regulation by Ofgem (in addition to the code of conduct) is needed.
  • Continuing monitoring of suppliers’ compliance with the customer transfer process – Ofgem proposes to increase its level of monitoring of suppliers’ compliance with the customer transfer objection requirements set out in SLC 14.  No changes to the SLCs are proposed at this stage.

Ofgem intends to publish an issues paper on the TPI regulatory framework review in the first half of 2013. It proposes to introduce the new protections for small business consumers (the first two items in the [...]

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ACER Publishes Second Edition of Guidance on REMIT

by | Oct 4, 2012 | , ,

 by Prajakt Samant, Thomas Morgan and Simone Goligorsky

On September 28, 2012, the Agency for the Cooperation of Energy Regulators (ACER) issued the second of two pieces of non-binding guidance on the Regulation on Wholesale Energy Market Integrity and Transparency (REMIT).  REMIT imposes requirements aimed at preventing and detecting market abuse, and more specifically, market manipulation and insider trading in the wholesale energy market.

The guidance considers, inter alia,:

  • The scope of REMIT;
  • The application of the definitions of wholesale energy products, wholesale energy market and market participants; inside information;and market manipulation; and
  • The application of the obligation to publish inside information; the prohibitions of market abuse and on possible signals of suspected insider dealing and market manipulation; and the implementation of prohibitions of market abuse.

Considering the scope of REMIT, it should be noted that the guidance stipulates that intra-group transactions, i.e. over-the-counter contracts entered into by counterparties which are part of the same group of companies, would come within the scope of REMIT, given that the definition of wholesale energy products specifies that REMIT will apply to contracts irrespective of how and where they are traded. 

Regarding penalties that will be imposed in the event that a market participant is found to be in breach of REMIT, the guidance states that the national regulatory authorities (NRAs), i.e. the bodies from each member state working with ACER to monitor market participants, should penalize not only breaches of the market abuse prohibition, but also:

  • Any breaches of the obligation to notify ACER of any delayed disclosure of inside information;
  • Any breach of the obligation to provide ACER with a record of wholesale energy market transactions; and
  • A breach of the obligation to register with the competent NRA. 

The first piece of guidance on REMIT was published by ACER in December 2011, a few days before REMIT entered into force.  The guidance focused particularly on the definition of inside information, and what activities ACER would consider to be market manipulation, or attempted market manipulation.  The guidance also gave examples of the types of activities that may indicate insider dealing and suspicious transactions.

It is expected that REMIT will be fully implemented by summer 2013.  In the interim, member states will be required to enable NRAs with the means and powers necessary to investigate suspicious cases, and the prosecute confirmed cases of insider trading and market manipulation.  By summer 2013, it is expected that both ACER and the NRAs (Ofgem in the UK) will start collecting data, and monitoring market participants that come within the scope of REMIT. 



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EMIR Enters into Force

by | Aug 22, 2012 | ,

by Prajakt Samant and Simone Goligorsky

On August 16, 2012, the European Market Infrastructure Regulation (EMIR) came into force, 20 days after the final text was published in the Official Journal of the European Union.  The Level 1 text will be supplemented with technical standards, which are due to be published later this year, and expected to come into force next year.  It is the technical standards that will define who exactly will be affected by EMIR, and how. 

The European Securities and Markets Association (ESMA) has also published the responses that it received from market participants to the June 2012 consultation on the draft technical standards.  Responses were received from, inter alia, asset managers, banks, government regulatory and enforcement bodies, insurance and pension funds, investment services, issuers, and regulated markets, exchanges and trading systems.

These responses will be taken into account when ESMA submits its proposals on the technical standards to the European Commission (the Commission) by September 30, 2012.  Following this submission, the Commission will have three months during which it must adopt the final technical standards.  The technical standards will cover matters including:

  • The threshold that non-financial counterparties will have to cross before their trades have to be cleared;

  • The exemptions for intragroup transfers;

  • The data to be reported regarding each trade; and

  • Data that will have to be provided by trade repositories to the relevant authorities and regulators. 

 The various provisions of EMIR are due to come into force at different times.  For example, the first clearing obligations are expected to be imposed from summer 2013.  Derivative contracts are expected to have to be reported from July 1, 2013.  By the end of December 2014, ESMA is expected to submit reports to the Commission on the functioning of EMIR.

With the final text of EMIR edging closer to completion, market participants are advised to ensure that they have the requisite systems in place, to guarantee that their trading activities are fully compliant with the requirements of EMIR.  



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ACER and ESMA Publish Respective Consultations on REMIT and EMIR

by | Jul 5, 2012 | ,

by Prajakt Samant and Simone Goligorsky

In the last two weeks, both the Agency for the Cooperation of Energy Regulations (ACER) and the European Securities and Markets Authority (ESMA) have published consultations for market participants on the Regulation on wholesale energy market integrity and transparency (REMIT) and the European Market Infrastructure Regulation (EMIR), respectively.  This article considers some of the issues that have been raised by both consultation papers and outlines the areas where the input of markets participants has been sought.

To read the full article, click here.



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Texas Is Open for Business, but Can We Keep the Lights On?

by | Jun 29, 2012 | ,

by Matt Archer and Maine Stephan Goodfellow

The Electric Reliability Council of Texas (ERCOT) is a leader in the development and advancement of the competitive power markets in the United States and has successfully delivered some of the nation’s lowest energy costs to consumers.  ERCOT’s energy-only market does not include fixed payments to generators for their plant’s capacity. Adequate energy price signals should trigger construction of new generation, making fixed payments unnecessary.  This fundamental faith in the market is now being tested in Texas. Growth in demand is resulting in smaller reserves of generating capacity.

To read the full article, click here.



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FERC Asserts Jurisdiction Over Bundled Renewable Energy Credits

by | May 9, 2012 | , ,

by Bradford K. Gathright

On April 20, 2012, the Federal Energy Regulatory Commission (FERC) issued an order confirming that it has no jurisdiction under the Federal Power Act (FPA) with respect to sales of state-issued renewable energy credits (RECs) that are not bundled with sales of wholesale energy, but asserted that it does have jurisdiction over sales of RECs that are bundled with wholesale energy.

The ruling was in response to a request by the Western Systems Power Pool (WSPP) for FERC to clarify the scope of its jurisdiction. WSPP administers a standardized contract, called the WSPP Agreement, for the sale of wholesale electric power and physical options between its members. The WSPP Agreement allows a seller to charge market prices in energy transactions if the seller has received market based rate authority from FERC or if the seller is not regulated by FERC. Otherwise, the price is subject to rate caps set forth in the applicable FERC-approved rate schedule to the WSPP Agreement.

On February 22, 2012, WSPP submitted for approval under Section 205 of the FPA a revised service schedule to the WSPP Agreement, Service Schedule R, to address several varieties of bundled and unbundled REC transactions. For bundled REC transactions, the rate caps set forth in the existing service schedules of the WSPP Agreement would apply only to the energy portion of the contract price if the total price was allocated separately between energy and RECs, or to the total contract price if there were no separate allocations. With regard to unbundled REC transactions, the WSPP requested that FERC confirm its lack of jurisdiction.

In its order, FERC approved the incorporation of Service Schedule R into the WSPP Agreement and confirmed that sales of RECs that are not bundled with sales of wholesale energy fall outside FERC’s jurisdiction under Sections 201, 205 and 206 of the FPA. FERC’s rationale was that a REC is simply an instrument of state law certifying that energy has been generated pursuant to certain standards, and that the sale of a REC does not constitute the transmission of electric energy or the sale of energy in interstate commerce. However, when RECs are bundled with sales of energy, the REC transaction falls within FERC’s jurisdiction because the REC sales “affect” and are “in connection with” the wholesale energy sales. Under these circumstances, FERC asserted that it has jurisdiction over both the wholesale energy portion and the REC portion of the bundled transaction, regardless of whether the contract price is allocated separately between the energy and the RECs or whether the energy portion and the REC portion of a bundled transaction are split into two separate contracts.

The practical implications of the order are not yet clear. By extending its jurisdiction to RECs at all, FERC has expanded its reach and now has the authority to create additional requirements relating to the REC portion of a bundled REC transaction, which could increase the administrative and financial burden of selling RECs. For power producers who are selling bundled RECs and already [...]

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Texas PUC Approves Proposals to Raise Energy Price Offer Caps

by | Apr 23, 2012 |

by Kimberly Brame Glasspool

The Public Utility Commission of Texas (PUCT) approved two proposals to raise system-wide energy price offer caps at an open meeting held on April 12, 2012. The proposals aim to ease growing generation resource adequacy concerns in the Electric Reliability Council of Texas (ERCOT) power market, which is one of the few major energy-only electric power markets that exist worldwide and represents about 85 percent of electric power usage in Texas.

The overarching goal of the PUCT in approving these two price cap hikes is to ensure adequate electric power supply in ERCOT as forecasts for reserve margins, or the difference between available generating capacity and expected peak system load, grow increasingly narrow. The target reserve margin for the ERCOT region is 13.75 percent. Projections from ERCOT representatives indicate that reserve margins for the remainder of 2012 may be tight but should exceed the target reserve, while reserve margins may dip below that target in 2014 (potentially around 7 percent) depending on various uncertainties, such as environmental regulations and gas prices.

Under Section 25.505 of the PUCT Electric Rules energy price offers are currently limited to $3,000 per MWh. When competitive energy price offers in ERCOT become scarce, the price of energy from certain types of services, particularly power dispatched for reliability purposes, is administratively set to the high system-wide offer cap. The first of the two recently-approved proposals raises the high system-wide offer cap to $4,500 per MWh beginning on August 1, 2012. The second of these proposals raises the high system-wide offer cap incrementally over a two-year period to $5,000 per MWh beginning on June 1, 2013, $7,000 per MWh beginning on June 1, 2014 and $9,000 per MWh beginning on June 1, 2015. 

A difference of opinion among the three-member PUCT resulted in the high system-wide offer cap increases being tentatively approved in two separate proposals. Chairwoman Donna Nelson and member Rolando Pablos approved the August 1, 2012 increase to $4,500 per MWh. PUCT member Ken Anderson argued against raising the cap this August and instead for long-term, permanent change to give market participants direction to plan, finance and build new generation. He stated that the August 1, 2012 increase won’t “make a wit’s bit of difference” in bringing mothballed generation back online this summer or encouraging long-term development of generation resources. Commission Anderson also argued such sudden action might leave market participants with insufficient time to readjust their risk strategies and might enable retail electric providers that offer fixed-rate contracts to residential customers to raise retail prices under these fixed-rate contracts to cover costs associated with the difference between the current system-wide offer cap and any higher cap approved by the PUCT. Note that Section 25.475 of the PUCT Electric Rules limits the ability of retail electric providers to increase charges during the term of fixed-rate contracts but contains an exception for changes resulting from laws that impose new or different costs on a retail electric provider that are beyond its control.

PUCT staff will conduct a public [...]

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Nord Pool Spot Chosen as First UK Virtual Power Hub

by | Apr 16, 2012 | ,

by Simone Goligorsky

On April 13, 2012, it was announced that Nord Pool Spot (NPS), the Norwegian operator of the day-ahead and intraday energy trading markets, has been chosen to develop and operate the United Kingdom’s first virtual energy hub. The decision was taken following a competitive tender process run by the UK’s National Grid Interconnectors Ltd., the operator of a 2,000MW high voltage direct current link between the UK and France. The aim of the virtual hub is to integrate the UK into the proposed North West Europe (NWE) coupling project, with the ultimate goal of creating a single European market by 2014.

According to a statement released by NPS, the new hub is due to facilitate the pooling of GB liquidity. As the market currently operates, each power exchange may have different prices. However, it is envisaged that the creation of the hub will allow for the formation of a common, more robust, reference price for electricity across all participating UK power exchanges by the end of 2012.

Currently, the UK is the only country involved in the NWE market that allows for multiple power exchanges and interconnector operators to participate in the market. The launch of the new hub is designed to assist access to the numerous power exchanges, as well as establishing one electricity price for the UK. Market participants will continue to maintain their existing contractual relationships with their power exchanges, with the virtual hub being designed to ease inter-exchange transactions and arrange interconnector flows with interconnector operators. 

The NPS statement went on to state that their experience in market coupling has already allowed for the successful integration in the Nordic countries, and Estonia, with NPS currently working with the Polish power exchanges to establish price coupling between the Nordic markets and Poland. Under the NWE umbrella, NPS is aiming to deliver market coupling and capacity allocation into the UK, the Central Western Europe region and the Nordic areas. 

The announcement regarding NPS comes a month after further steps were taken to create a third electricity interconnector between the UK and mainland Europe, this latest interconnector being a joint project between the National Grid and the Belgian transmission operator Elia. The project involves putting in place an interconnector between Kent in South East England, and Belgium.



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