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Insights for the Global Energy Industry
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Los Angeles Kicks Off Its Feed-in Tariff Program

by | Jan 24, 2013 | ,

by Thomas Hefty

After years of studies and pilot programs, Los Angeles Department of Water and Power (LADWP), the United States’ largest municipal utility, unveiled the 100 megawatt  FiT Set Pricing Program (FiT 100), which will start on February 1, 2013.  Long favored in Europe to encourage renewable, distributed generation, a feed-in tariff or FiT offers generators standard long-term contracts, generally at favorable rates, eliminating the need for contract negotiations with utilities.  Feed-in tariffs are being introduced into U.S.’s renewable electrical generation market to fill the void between net-metering programs and utility-scale renewable energy projects.  While a range of renewable resources are eligible for the program, solar PV systems are likely to dominate the FiT 100 program.  

The FiT 100 allocation will be meted out in five 20 MW allocations, with one allocation made available every six months.  The first 20 MW allocation for the will be available from February 1, 2013 until June 28, 2013.  LADWP is using a fixed declining tier pricing system, with the Base Price of Energy (BPE) set at $0.17 per kWh for the first 20 MW allocation and declining one cent with each additional 20 MW allocation.  The price paid under the FiT Standard Offer Power Purchase Agreement (PPA) is the product of the BPE multiplied by a time-of-delivery (TOD) factor, which ranges from 2.25 for High Season (Jun-Sep), High Peak (M-F 1pm-5pm) to 0.50 for Base (M-F 8pm-10am, all day Sat/Sun).  The BPE and TOD factor are fixed throughout the term of the PPA, which is up to 20 years. 

To qualify for the FiT 100 program, the facility must be located within LADWP’s service area, have a nameplate capacity of between 30 kW and 3 MW, have a commercial operation date after the PPA effective date, and the facility cannot consume more than 10 percent of its energy generation.  All energy produced from the FiT Facility, as well as capacity rights and environmental attributes, must be sold to LADWP, and LADWP’s off-take obligation is capped at 115 percent of the facility’s monthly production profile as submitted by the FiT applicant.  Neither the PPA seller nor the owner of the FiT facility site can apply for or participate in any net metering program or receive any ratepayer-funded incentives.  In addition, to qualify for the program at least one member of the development team must have successfully developed and constructed at least one similar project using the same technology.  Additional terms and guidelines are available at LADWP’s website.

There are two general development models for FiT facilities: 1) property owners or long-term tenants with rights to the roof, parking field, or other underutilized real estate asset develop and own the FiT facilities (self developed model); or 2) independent power producers lease that underutilized asset from the real estate asset holder and develop the FiT facility (rent-a-roof model).  The rent-a-roof model has proven to be the more popular choice in Europe.  While rooftops are not the only location for solar photovoltaic FiT facilities, they [...]

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California Cap-and-Trade Program Marches Forward

by | Jan 10, 2013 | ,

by Ari Peskoe

California’s cap-and-trade compliance obligations became binding on January 1, 2013, culminating six years of regulatory proceedings. Although the California Air Resources Board (CARB) deemed the first auction for emission allowances in November a success, revised statistics revealed that two-thirds of all bids submitted were disqualified. In other recent developments, the state’s Public Utility Commission (CPUC) announced how revenues from the auctions will be allocated, and CARB (the program administrator) set the stage for emissions-offset projects. The second allowance auction is scheduled for February 19.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program aims to reduce the state’s greenhouse gas emissions to 1990 levels by 2020, a modest goal given the state’s numerous other initiatives aimed at reducing emissions. Approximately 75 participants, comprising utilities to large financial institutions, were authorized to bid in the first auction; all 23 million allowances offered for 2013 compliance were purchased. 

CARB initially reported that 3.1 bids were submitted for each available allowance, but later issued a statement that just 1.06 “qualified bids” were submitted for each allowance. According to CARB, only qualified bids are used in the settlement process, and “a very small number of participants exceeded their purchase limit, holding limit, or bid guarantee.” Bloomberg News cleared up the ambiguity when it reported in December that one of the state’s investor-owned utilities (IOU) had erroneously submitted approximately 72 percent of all bids due to an apparent misunderstanding of the bid format. As a result, this IOU bought 40 percent more allowances than it needed, even though most of its bids were disqualified.

The state’s electric utilities, including municipal utilities, are allocated free allowances. However, the IOUs are required to consign all of their allowances to auction, with the proceeds remitted to ratepayers. For 2013, those revenues will be at least $650 million, and could total more than $22 billion by 2020.   In late December, the CPUC announced that these revenues will be distributed to certain industrial users that emit less than 25 MTCO2e per year, small businesses (which are defined based on their electricity consumption), and residential customers. The CPUC also determined that it was not appropriate to use auction revenues for energy efficiency or clean energy programs at this time, but part of its reasoning was based on its own administrative processes. It encouraged parties to propose increased funding for efficiency and clean energy in other “appropriate proceedings.”

Also in December, CARB approved two organizations to review carbon-offset projects and issue offset credits. These organizations will use CARB-approved methods of accounting to determine emissions reductions for four types of projects: forestry, urban forestry, dairy manure digesters, and destruction of ozone-depleting substances. A covered entity can use offsets to comply with up to eight percent of its obligation.

Finally, the second auction for 2013 allowances is scheduled for February 19 and has a January 22 application deadline. The reserve price is $10.71, which is slightly higher than the first auction based on a predetermined formula. More than twice as many 2013 allowances will be up for auction as [...]

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Key Energy Tax Provisions Included in ‘Fiscal Cliff’ Legislation

by | Jan 3, 2013 | , ,

by Gale Chan, Madeline Chiampou, Martha Pugh, Philip Tingle and Brian Levy

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012 to address the tax rate hikes and expiring tax incentives to avert the “fiscal cliff.”  President Obama signed the legislation into law on January 2, 2013.  The legislation included important provisions to businesses, including extending the production tax credit for wind energy facilities through 2013 and requiring that a qualified facility begin construction (rather than be placed in service) before January 1, 2014, to claim the credit.

To read the full article, click here.



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CPUC Orders On-Bill Repayment For Energy Efficiency and Other Demand-Side Projects

by | Nov 27, 2012 | ,

by Thomas L. Hefty

The California Public Utilities Commission (CPUC) recently ordered California investor-owned utilities (IOU) to implement on-bill repayment (OBR) programs by the end of the first quarter of 2013 to support “all types of demand-side investments.”  OBR enables building owners or occupants to repay eligible project obligations through their monthly utility bills. 

Unlike on-bill financing (OBF) loans, which are made by the IOUs under pilot program tariffs, OBR programs can be underwritten and funded by far wider array of third-party capital sources, including commercial lenders, investor funds and vendors.  Because default rates on utility bills tend to be low, OBR lenders/investors should be able to offer low finance rates, longer maturities and better terms as compared to conventional energy efficiency loans.  Repayment will be made through the IOUs’ billing and collections, meaning that the original owner/tenant will not be responsible for making payments after a sale of the property or after moving.

OBR programs are expected to be made available across a wide array of property types – governmental, institutional, commercial, non-for-profit and residential.  Program participation could come from a variety of funding vehicles including loans, energy service agreements and power purchase agreements.  Customers will pay a single monthly bill for both energy and OBR program payments that should be lower than their previous bills.  This “pay as you save” feature should enable greater market penetration across more property market segments.  In addition to IOU “back-office” support (billings and collections), OBR is linked to project performance measurement and verification by the IOU. 

The Environmental Defense Fund estimated that an OBR program in California could generate $2.7 billion of third-party investment per year, create 20,000 jobs and reduce annual CO2 emissions by seven million tons after five years.



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Commerce Department Announces New Duties on Chinese Solar Panel Imports

by | Oct 19, 2012 | ,

by Raymond Paretzky and William Friedman

The U.S. Department of Commerce (Commerce) published its final affirmative antidumping (AD) and countervailing duty (CVD) determinations on October 17, 2012, imposing new duties on Chinese solar panel producers and exporters.  Commerce determined that Chinese producers/exporters sold solar photovoltaic cells in the United States at dumping margins ranging from 18.32 to 249.96 percent, and that Chinese producers/exporters have received countervailable subsidies of 14.78 to 15.97 percent. 

Dumping occurs when a foreign company sells a product into the United States at less than fair value prices.  Countervailable subsidization occurs when a governmental authority directly or indirectly conveys benefits that support production by specific companies or sectors, or are contingent upon export performance or the use of domestic goods over imported goods.

As a result of its determinations, Commerce will instruct U.S. Customs and Border Protection to collect cash deposits or bonds equal to these margins on imports.  The cash deposit rates, however, will be reduced by 10.54 percent, the export subsidy rate.  Additionally, Commerce found that “critical circumstances” exist in the CVD investigation for all companies and in the AD investigation for all companies except one, Wuxi Suntech.  As a result, provisional duty deposits, which are normally collected as of the date of publication of Commerce’s preliminary determinations, will be collected 90 days prior to that date (except in the case of AD duty deposits for Wuxi Suntech).

For the early duty deposit collection to be maintained and the AD/CVD duties to stand, the International Trade Commission (ITC) must make an affirmative final determination that dumped and subsidized imports of solar cells from China “materially injure, or threaten material injury to,” the domestic solar panel industry.  If the ITC makes a negative final injury determination, the investigations will be terminated and the duties will not be imposed.  The ITC has tentatively scheduled its final determination vote for November 7, 2012.



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Changing Qualification Requirements for PTC Could Have Big Impact for Wind

by | Oct 9, 2012 | , , ,

by Martha Groves Pugh and William Friedman

The wind industry is pushing for an extension of the renewable energy production tax credit (PTC), which is currently scheduled to expire at the end of the year.  The PTC has helped spur investment in wind by providing a tax credit of 2.2 cents per kilowatt hour of wind energy produced.  It has been successful in growing the industry, but new wind projects have slowed this year to due uncertainty over the PTC’s extension. Historically, when Congress declined to extend the PTC, new wind projects fall drastically.  

Despite the political battles surrounding the tax credit, the Senate Finance Committee voted 19-5 to extend the PTC as part of a proposed tax extender package.  The bill, called the Family and Business Tax Cut Certainty Act of 2012, would extend the wind production tax credit for one year, through December 31, 2013.

The bill also contains a change to the qualification requirements for wind facilities, which has received little attention despite its important implications.  Previously, wind facilities had to be placed in service before they could qualify for the PTC.  Under the proposed extension, facilities will be eligible for the tax credit so long as construction begins before January 1, 2014.

The new qualification requirement would extend the impact of the PTC beyond 2013 by providing an incentive to begin construction during the year regardless of when the facility becomes operational.  The change would also provide certainty to new wind projects.  Under the old qualification requirement, a wind facility had to meet an operational deadline on the back end of their construction schedule.  The new qualification requirement front ends the relevant date, providing greater certainty that the facility will be able to take advantage of the tax credit.  The new qualification requirements have the potential to reinvigorate the wind industry.

Extending the PTC has implications for job growth, a critical issue in November’s election. One recent study by the Natural Resources Defense Council predicts that extending the PTC could create 17,000 new jobs, while letting it expire could cost 37,000. Despite the impacts on job creation, the House and Senate will likely consider the tax legislation, including the extension of the PTC for wind facilities, after the November election.



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Coming Soon: California’s First Cap-and-Trade Auction

by | Sep 25, 2012 | ,

by Ari Peskoe

On November 14, California’s Air Resources Board (CARB) will conduct the first greenhouse gas (GHG) allowance auction as part of the state’s cap-and-trade program. Earlier this month, CARB issued two notices, one identifying the deadlines between now and November 14 and the other explaining financial requirements for participation. Compliance obligations for the electricity industry and some industrial facilities start in 2013, and CARB estimates that sources responsible for 85 percent of the state’s current emissions will ultimately be covered by the program. Although this new market is the first of its kind in the United States, given the declining GHG emissions in California over the past few years, the program’s goals are relatively unambitious.

Authorized by the Global Warming Solutions Act of 2006, California’s cap-and-trade program is intended to reduce the state’s GHG emissions in 2020 to 1990 levels. Its first phase covers facilities generating electricity, importers of electricity, and large industrial sources, such as facilities used for fossil fuel extraction or refining, mining and manufacturing. Initially, only sources that emit more than 25,000 tons of CO2 equivalents per year are required to participate. In 2013, approximately 90 percent of allowances will be distributed for free to electric generators and operators of industrial facilities based on their most recent emissions. In 2015, distributors of petroleum, natural gas and other fuels will also be required to hold GHG allowances, as will many stationary sources that emit less than 25,000 tons of CO2 per year. In addition to covered entities, financial institutions and other intermediaries are allowed to participate in auctions and trading.

In 2007, CARB set the 1990 baseline (and 2020 goal) at 427 million metric tons (MMT) per year and estimated that the 2020 business-as-usual forecast would be approximately 600 MMT. With that estimate, the 2020 goal represented a decline of about 30 percent. While GHG emissions increased slightly from 2000 to 2007, they dropped sharply in 2009, roughly at the same rate as national GHG emissions fell in the wake of the recession. As a result, in 2010, CARB reduced its 2020 business-as-usual scenario from 600 to 508 MMT. With the new estimate, the 2020 goal represented a decline of 15 percent compared to the business-as-usual scenario. This updated estimate, however, did not account for California’s increase in its renewable portfolio standard target from 20 percent by 2010 to 33 percent by 2020, or for new state and national vehicle efficiency standards. CARB estimates that these measure alone would more than account for the difference between today’s actual emissions and the 2020 goal. 

California has long been a pioneer in energy regulation. In 1996, for example, the state legislature restructured its electricity industry, becoming the first in the country to rely on market-bidding to procure power and services for its electric grid. Two years after the markets opened, prices soared, FERC declared the market structure to be seriously flawed, and California scrapped the original market design and tried again. Today, it is considered a model market for policy makers.

California may see this initial cap and trade program [...]

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United States’ First Offshore Wind Farm Obtains Critical Federal Approval

by | Aug 21, 2012 | , ,

by Bethany K. Hatef

For the fourth time the Federal Aviation Administration (FAA) on August 15, 2012 issued a Determination of No Hazard to the proposed Cape Wind project, which, if constructed after a decade of planning, will be the United States’ first offshore wind farm.  Energy Management Inc., the project’s developer, proposes to construct and operate 130 wind turbines in a 25-square-mile shallow area of Nantucket Sound known as Horseshoe Shoal at an estimated cost of $2.5 billion.  The project has now received all required permits, including Construction and Operations Plan approval from the Bureau of Ocean Energy Management, Regulation and Enforcement and various other federal and state approvals, and a 25-year commercial lease from the Department of the Interior.

The FAA began its review of the Cape Wind project in 2002 and originally approved the project in May 2010, but the Cape Cod town of Barnstable and the Alliance to Protect Nantucket Sound, an environmental group created in 2001 to oppose the project, appealed the agency’s decision.  In October 2011, the United States Court of Appeals for the District of Columbia reversed the FAA’s decision and remanded the matter to the agency for further review of whether the project posed safety hazards to air traffic.  The D.C. Circuit found that the FAA had ignored its own regulations and failed to demonstrate that it had analyzed whether the project would negatively impact air traffic in approving the Cape Wind project.

The FAA’s most recent determination found that the Cape Wind project poses no hazard to air navigation, as the project falls within the agency’s obstruction standards and would not have any electromagnetic radiation effect on air traffic.  FAA regulations provide that a structure negatively affects visual flight rules (VFR) air navigation if its height is more than 500 feet above the surface and if it is located within two miles of a commonly traveled VFR route.  The Cape Wind project does fall within two miles of a commonly traveled VFR route, but the project’s proposed turbines will only reach 440 feet above the surface.  The FAA found that, provided the Cape Wind project adheres to the agency’s height restriction, files construction forms with the agency as required, and properly lights structures that may obstruct planes, the project will pose no hazard to air traffic.

Appeals of the FAA’s decision are certainly possible; the Alliance for the Protection of Nantucket Sound has already indicated it will appeal.  In addition, Republican Congressmen Darrell Issa (R-CA) and John Mica (R-FL) have suggested that the FAA may have been politically influenced to approve the Cape Wind project in 2010; a formal congressional investigation could add further delay to the Cape Wind project.

Energy Management Inc. plans to begin construction on the project in 2013.  Three-quarters of the Cape Wind project’s anticipated electricity output has already been sold through power purchase agreements with electrical utilities in Massachusetts, and Energy Management Inc. is now seeking to raise capital.  Each of the 130 proposed turbines [...]

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Nuclear Regulator Announces Temporary Suspension of Licensing Decisions

by | Aug 14, 2012 | ,

by Ari Peskoe

On the heels of a recent decision by the U.S. Court of Appeals for the D.C. Circuit, the U.S. Nuclear Regulatory Commission (NRC) issued an order last week suspending final decisions in reactor licensing cases. The recent court ruling struck down elements of the NRC’s Waste Confidence Decision (WCD), which, according to the NRC, “undergirds certain agency licensing decisions.” The suspension affects issuances of both new construction licenses and reactor license renewals that are dependent on the WCD or temporary storage rules. The NRC did not rule out taking action with respect to waste confidence on a case-by-case basis.

In New York v. NRC, the D.C. Circuit held that it “cannot defer to the Commission’s conclusions regarding temporary storage because the Commission did not conduct a sufficient analysis of the environmental risks.”   Petitioners challenged a 2010 update to the WCD, which has five findings about nuclear waste storage upon which the NRC based its rules on temporary storage. The NRC amended the WCD to state that a permanent repository for nuclear waste would be available “when necessary,” instead of “in the first quarter of the twenty-first century,” as the earlier draft stated. The NRC also extended the time horizon for safe storage of waste at reactor sites from 30 to 60 years beyond the licensed life of the plant. With regard to both amendments, the D.C. Circuit found that the NRC had violated the National Environmental Policy Act (NEPA). The Court determined that the WCD constituted a “major federal action” under NEPA and therefore the NRC must prepare an Environmental Impact Statement or an Environmental Assessment that makes a Finding of No Significant Impact.

This decision by the NRC comes less than one month after Dr. Allison Macfarlane was sworn in as the NRC’s Chairman. Macfarlane holds a Ph.D. in geology from the Massachusetts Institute of Technology, served on the Blue Ribbon Commission, and was most recently an associate professor of environmental science and policy. As an academic, Macfarlane was critical of the process that selected Yucca Mountain, a site that was long-considered to host a geologic repository until President Obama cancelled the project in 2010. For example, in 2003 Macfarlane wrote that “politics probably played as significant a role as science in the selection of Yucca Mountain” and argued that scientific studies and outcomes were oriented around the policy goal of approving Yucca Mountain. 

Earlier this year, the NRC issued licenses for new reactors at the Vogtle site in Georgia, the first licenses issued for new construction in a generation, and also issued licenses for two new reactors in South Carolina. The NRC has 16 applications for new licenses pending and an additional fourteen license renewals awaiting decisions. 



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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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