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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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FERC Defers to Exclusionary State and Local Laws in Transmission Planning

In three separate rehearing orders issued last Thursday, May 15, 2014, the Federal Energy Regulatory Commission reversed course on its decision in Order No. 1000 to prohibit references in transmission tariffs to state laws such as rights of first refusal (ROFR) to build transmission expansions.  The Commission determined on further consideration that excluding such state and local laws from transmission tariffs could lead to inefficiencies and delays in the regional transmission planning process because regions would have to spend time and resources evaluating potential transmission developers that would ultimately be prohibited by state or local law from developing a transmission project.  Commissioner Norris issued a statement opposing the Commission’s orders on the basis that they will exclude non-incumbents from participating in the regional transmission planning process, choking innovation and insulating incumbents from competition.

Order No. 1000 requires public utilities to participate in regional transmission planning and cost allocation planning for new transmission facilities.  In order to allow competitive bidding of projects and developers, Order No. 1000 requires public utility transmission providers to remove provisions in Commission-jurisdictional tariffs that establish a federal ROFR for an incumbent transmission provider with respect to building transmission facilities selected in a regional transmission plan.  Order No. 1000-A stated that it was not “intended to preempt or otherwise conflict with state authority over sitting, permitting, and construction of transmission facilities.”  However, the order also stated that it “would be an impermissible barrier to entry to require, as part of the qualification criteria, that a transmission developer demonstrate that it either has, or can obtain, state approvals necessary . . . to be eligible to propose a transmission facility.”

On rehearing of compliance orders for the PJM Interconnection, Midcontinent Independent System Operator and South Carolina Electric & Gas Company, the Commission held that while it will continue to require the elimination of federal ROFRs, regional operators and utilities could recognize exclusionary state and local laws and regulations as a threshold issue in the regional transmission planning process.  Specifically, the rehearing orders provided that tariffs could include state and local laws, giving incumbent utilities ROFRs and provisions excluding projects that alter the transmission providers’ use or control of rights-of-way.  The Commission reasoned that ignoring these state or local laws or regulations at the outset of the regional transmission planning process would be counterproductive and inefficient, and could delay needed transmission facilities.  In a dissenting statement, Commissioner Norris argued that this approach was irreconcilable with Order No. 1000 and condemns consumers to bear the burden of incumbents’ lack of innovation in developing transmission solutions and interest in preserving the status quo.




Southwest Power Pool to Finalize New Integrated Marketplace

by Christopher S. Bloom

The Southwest Power Pool’s (SPP) deadline for revising its tariff to add day-ahead and real-time energy to its Integrated Marketplace is this Friday, February 15.  Federal Energy Regulatory Commission (FERC) granted conditional acceptance of SPP’s revised tariff in October, contingent upon SPP submitting various complying revisions.

The Integrated Marketplace is a change of course from the Energy Imbalance Service (EIS) market that SPP launched in 2007. The EIS market has served as a real-time platform for generators to sell excess energy and for load servers to purchase that energy. EIS reduced dependence on bilateral contracts, and enabled competition between generators to provide the lowest-priced energy, using locational imbalance pricing. The new Integrated Marketplace revamps the EIS by creating a day-ahead market along with a real-time energy and operating reserve market. To reduce energy and transaction costs, the new marketplace will consolidate 16 balancing authorities into a single SPP-operated balancing authority. The Integrated Marketplace will also utilize locational-marginal pricing and will include virtual transactions, auction revenue rights, and a market for transmission congestion rights.

The new day-ahead market will allow generators to submit offers to sell energy and operating reserves, and load-servers to submit bids to purchase energy. After the day-ahead submissions, SPP will clear the offers and bids via security-constrained unit commitment and security-constrained economic dispatch algorithms. The end product will be a financially binding schedule that matches sale offers with demand bids and satisfies operating reserve requirements. For day-of energy sales, settlement will be based on the differences between quantities cleared in the Real-Time Balancing Market and the day-ahead market clearing.

The Integrated Marketplace will also bring virtual bidding to the SPP. For a fee and subject to meeting credit requirements, market participants can enter into transactions that essentially short the price of the day-ahead market. Should those virtual transactions clear, the market participant will be obligated to purchase or sell the energy at the real-time locational marginal price, at a profit or loss. The benefit of virtual transactions is that they allow for convergence of day-ahead and real-time prices, allowing a more accurate reflection of the true value and price of the energy. Market participants will be limited to a single offer or bid per hour at each settlement location for each asset owner it represents.

An additional feature of the Integrated Marketplace is its incorporation of auction revenue rights (ARR) and the related transmission congestion rights (TCR) auction. ARRs are awarded to market participants based on firm transmission rights on the SPP grid. ARR holders can choose to retain their rights and receive a share of the revenue generated in the TCR auction, or ARR holders can convert their ARRs to TCRs. TCRs are tradable and TCR holders are entitled to revenue streams or charges based on the cost of congestion in the hourly day-ahead market associated with the TCRs.

In its October 18 order in Docket No ER12-1179, FERC addressed a number of issues raised in protests to SPP’s proposed Tariff Revisions, conditionally approving the Integrated Marketplace, subject to SPP submitting a compliance filing incorporating [...]

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