Energy Finance Report

Joshua L. Sturtevant

Recent Posts

SunEdison: A Cautionary Tale?

Posted by Joshua L. Sturtevant on 9/27/16 9:53 AM

Cautionary_SunEdison.jpgU.S. Bankruptcy Judge Stuart Bernstein recently approved SunEdison’s proposed sale of $144 million of solar and wind assets to NRG Energy. The sale continues SunEd’s string of dispositions this year following its April bankruptcy filing. The company’s stunning descent has followed an equally aggressive rise over the preceding three years. According to The Wall Street Journal, citing its filing, the company “…spent more than $18 billion on acquisitions and raised $24 billion in debt and equity between 2013 and 2016.” While it’s acquisition strategy was highly aggressive, many point to two deals which did not occur - the proposed acquisitions of Vivant and Latin America Power - as the final straws in a failed strategy.


SunEdison, one of the “old-line” companies in the solar surge of the past decade, will undoubtedly serve as a cautionary tale to many. While the company bears the name of the Jigar Shah-founded pioneer in power purchase agreements, it’s DNA runs much deeper; MEMC, the company that acquired Shah’s company in 2009, was formerly an arm of Monsanto Company with history stretching to the 1950’s. Whether fairly or not, companies will likely consider the current woes of this former powerhouse before undertaking similarly acquisitive strategies in the future.

Is Renewable Energy in Puerto Rico Back On Your Radar?

Posted by Joshua L. Sturtevant on 9/1/16 5:30 PM


Renewable energy deal discussions centered on projects in Puerto Rico have been difficult – particularly for project owners – over the past few years. The foundations of most of the projects on the island were power purchase agreements (PPAs) with PREPA, the utility which, as an organ of the government was capable of issuing its own bonds and faced the same credit issues as the island itself. Therefore most projects have teetered along on life support for some time as financiers were unwilling to even open discussions with such a poor credit offtaker in the mix. However, interest in the island seems to have been heating up lately.

Proposals for behind-the-meter projects with private offtakers and wheeling scenarios have been popping up. Even old PREPA deals, many of which had died slow deaths in the wake of missed debt payments, may be in the process of resurrection. Why? Some may have missed it during the dog days of summer, but the main reason is the passage of PROMESA – the Puerto Rico Oversight, Management and Economic Stability Act. Among other things, the legislation: 1) created a fiscal control board; 2) granted the control board the power to force a debt restructuring; and, 3) allowed for the minimum wage to be lowered.

The Democrats on the Obama-appointed board are: Arthur Gonzalez, a senior fellow at New York University’s School of Law; Jose Ramon Gonzalez, president and chief executive officer of the Federal Home Loan Bank of New York; and Anna Matosantos, a financial and budget consultant at the Public Policy Institute of California. The Republicans are: Carlos Garcia, founder and chief executive officer of Bay Boston, a minority owned private equity firm; Andrew Biggs, a resident scholar at the American Enterprise Institute; and David Skeel, a University of Pennsylvania law professor; and Jose Carrion III.

While many – including some lawmakers who voted on the bill – have criticized PROMESA, and while it does not directly address solar deals on the island, it has seemingly given the island – and the solar industry along with it – a lifeline. If it hasn’t already, don’t be surprised if Puerto Rico shows back up on your radar very soon . . . .

NREL Report: Wind and Solar Could Supply 30% of the Eastern Grid without Increasing Reliability Concerns

Posted by Joshua L. Sturtevant on 9/1/16 12:39 PM

East_Coast.jpgA recent National Renewable Energy Laboratory (NREL) report noted that wind and solar, despite being intermittent sources, could supply 30% of the annual power for the Eastern grid without increasing reliability concerns. Noting that wind and photovoltaic are the fastest growing electricity sources in the U.S., the authors determined that “under the study assumptions, generation from approximately 400 GW of combined wind and PV capacity can be balanced on the transmission system at a 5-minute level.”  However, despite what many renewable energy advocates would consider to be good news, it was also clear that to do so would mean much more frequent start-ups and shut downs of fossil fuel plants – activities that can put stress – and increase maintenance costs – on these facilities. That said, the authors also left demand response and storage solutions out of their assumptions, which could increasingly counterbalance potential negatives of an increasingly green energy supply mix. The study itself can be found here.

Utility Merger Goals in a Decentralized Energy Future

Posted by Joshua L. Sturtevant on 8/25/16 4:36 PM

Iceberg.jpgAccording to Investopedia, mergers are typically undertaken to meet one of three major goals; 1) expand a company’s reach; 2) expand into new segments; or, 3) gain market share. While some of the $43.5 billion of utility deal activity in Q2’16 is undoubtedly linked to those goals, there is also a key question underlying recent deals from around the globe: how do utilities prepare for a cleaner, decentralized future?

If you believe that the answer to that question will remain a moving target for some time, it would seem likely that recent merger activity is only just the tip of the iceberg…

Solar Roofing Captures the Imagination – But is that Enough?

Posted by Joshua L. Sturtevant on 8/24/16 2:36 PM

"What if we can offer you a roof that looks way better than a normal roof? What if we could offer you a roof that lasts far longer than a normal roof? Now, it's a different ballgame." – Elon Musk on solar roofing.


While the development of building-integrated photovoltaic (BIPV), and specifically solar roofing, technologies is a natural evolutionary step in an increasingly solar-centric world—and while such technologies hold a wow factor for many—whether they are commercially viable remains an open question. While it is hard to bet against a man who is simultaneously involved in sports car, advanced battery and spaceship companies, Eric Wesoff makes a pretty compelling argument that the history of solar roofing might have a few more pitfalls than the always aspirational Mr. Musk would like to publicly admit. For an interesting take on the challenges facing solar roofing manufacturers, see Wesoff’s piece on Greentech Media.

PROMESA—Energy in Puerto Rico amidst the Debt Crisis

Posted by Joshua L. Sturtevant on 6/29/16 1:56 PM

Co-author Morgan M. Gerard

Renewable energy industry participants are hungrily eyeing the tiny U.S. commonwealth of Puerto Rico, trying to determine whether the island’s debt crisis-driven troubles – which recently put a halt on development activities on the island - are at an end. Until recent issues arose, the island was a hotbed of renewable energy activity. High energy prices, high insolation and the promise of 20 MW-plus deals with a government-backed utility generated excitement throughout the solar community. However, the widely reported debt crisis on the island, which has seen the government default on debt obligations, has caught the nascent solar industry up in its wake.

Despite Puerto Rico’s financial crisis, unreliable electric grid and overwhelming poverty, early movers are contemplating a return to the island betting on the idea that, when push comes to shove, the United States wouldn’t allow the island – and 3.5 million American citizens along with it – to sink into the financial sea. A bill that would provide some relief, the Puerto Rico Oversight, Management, and Economic Stability Act or “PROMESA” (House Bill H.R. 5278 / Senate Bill S. 2328), is currently on the table.  PROMESA is in the stage of reconciling the different drafts passed by the House and Senate for presentation to President Obama, and its implementation could have far-reaching ramifications for the debt-ridden island and help drive renewed activity in the development of badly needed renewable energy resources. 

Puerto Rico and PREPA’s Debt Crisis—A Primer

Puerto_Rico_Debt.jpgThe purpose of PROMESA is to establish an Oversight Board as a method for Puerto Rico “to achieve fiscal responsibility and access to the capital markets.” In recent years Puerto Rico borrowed money through the issuance of $70 billion worth of municipal bonds to combat declining government revenues and finance the operations of the territory.  More than $9 billion of the Commonwealth’s climbing debt is owed by the government-owned public utility company, the Puerto Rico Electric Power Authority (PREPA).

Established in 1941, PREPA is government-instrumentality and the island’s monopoly energy utility with approximately 1.5 million citizens in its service territory—one of the largest operating areas in the United States. However, until 2014 PREPA was an unregulated entity with very little fiscal or operational oversight which some complained was used for political purposes.  Poor financial decisions were made by the utility and politicians, including the incentivization of large corporate customers by providing essentially “free” power and turning a blind-eye toward widespread electricity theft by citizens.  Thus, according to Reuters, PREPA’s 2014 operating income was just $223 million against $1.6 billion in accounts receivable.

Given the circumstances surrounding the island’s revenue versus debt payments, Governor Alejandro García Padilla acknowledged in a statement last year that the debt was “not repayable.”  As it became clear that PREPA would similarly be unable to meet its obligations, the local legislature established a utility regulatory, the Puerto Rico Energy Commission (PREC) and passed the Puerto Rico Corporation Debt Enforcement and Recovery Act (Recovery Act), which sought to allow PREPA to restructure its debt.  While PREC is actively trying to reign in PREPA and establish new norms for the utility, the Supreme Court struck down the Commonwealth’s attempt to modify its debt obligations ruling that Puerto Rico, as a territory, is not entitled to Chapter 9 bankruptcy protection, which is reserved exclusively for use by States.

Although the ruling disallowed Puerto Rico from authoring its own bankruptcy plan, the government developed a plan to transfer PREPA’s debt to a new entity. Under the Puerto Rico Electric Power Revitalization Act (Revitalization Act), the government created the PREPA Revitalization Corporation, which issued its own bonds and exchanged these new bonds for outstanding PREPA bonds.  Uninsured bondholders wishing to participate in this exchange agree that “Revitalization Debt” issued by the revitalization corporation will have a lower interest rate and a five year delay on the payment of principal.  This bond issuance and exchange will provide some relief for PREPA and enable a securitization to help finance $400 million worth of the new Aguirre liquefied natural gas facility. 

To further this end, the Revitalization Corporation filed a petition with PREC to create a new structure of raising revenue in lieu of taxes for cities though a hike in utility rates. On June 21, 2016, PREC ordered the creation of a “transition charge” that will provide security to bondholders that PREPA will pay its outstanding obligations, and hopefully provide enough stability to allow some liquidity into the starved utility market.  This “transition charge” will not in-and-of-itself raise rates on customers, but rather signifies which monies are being set aside by PREPA for bond repayment.  A separate rate case will weigh the wisdom of raising utility rates—it is anticipated that PREPA will raise rates for the first time since 1989.

The Revitalization plan is seen as something of a stop-gap to calm investors; however, more work needs to be done to shore up the Commonwealth’s credit. Notably, since Puerto Rico is not a country, it cannot access assistance from the International Monetary Fund (IMF).  With no true independent long-term means of debt relief, the responsibility over Puerto Rico’s fate shifted to the U.S. Congress.

PREPA and PROMESA—Renewable Energy on the Island

Puerto_Rico_Wind_Farm-2.jpgPuerto Rico has few conventional energy resources and, due to PREPA’s heavy investment, shipped in petroleum products are the dominant energy sources for the island. In 2012, 65% of Puerto Rico’s electricity came from petroleum, 18% from natural gas, 16% from coal, and 1% from renewable energy.  Given the island’s high insolation rates, Puerto Rico enacted a Renewable Energy Portfolio Standard (RPS), offering generators Renewable Energy Credits (RECs) and requiring PREPA to obtain 12% of its electricity from renewable sources starting in 2015, scaling up to 15% by 2020 and 20% by 2035.  To achieve this objective, PREPA signed a number of large scale Power Purchase Agreements (PPAs) with solar developers, which largely fell apart or expired amidst the debt crisis.  As the utility’s credit-rating fell so too did the financeability of PREPA offtake agreements.  Relevant to developers and investors, PREC has wide latitude over future PPAs signed with PREPA and the Commission may be able to push through new generation through pre-approved or existing agreements.


PROMESA, the solution under discussion in the U.S. Congress, is an attempt to quell bondholders and facilitate the long-term financial reliability of the island and its government instrumentalities, which includes PREPA. The focus of the bill is an Oversight Board that will pass its own bylaws to help Puerto Rico implement responsible fiscal policies.  The bill may also help facilitate long-term investment in renewable energy projects, potentially stabilizing the utility and providing opportunities to investors and developers. Key components of the plan include:

Oversight Board: PROMESA, as written, seeks to establish an Oversight Board that would have the authority to “enforce fiscal reforms, negotiate and enforce debt restructuring agreements with owners of Puerto Rican debt, force the sale of government assets, establish efficiencies that consolidates (sic) agencies and reduce workforce levels, prevent the execution of legislative acts, executive orders, regulations, rules, the issuance of new debt, and contracts that undercut economic growth or violate [the] Act.”  Thus, PROMESA could allow for a forced sale of PREPA assets.  Under the bill, it appears that creditors would be the recipient of funds from a forced sale; however, there may be opportunities for developers to purchase and privatize energy assets if such an event occurs.

Debt Restructuring: The Oversight Board may be able initiate a proceeding for debt restructuring of an entity, including PREPA, if the Oversight Board determines that certain criteria have been achieved; specifically: “1) the debtor must have engaged in good-faith debt negotiations; 2) the debtor must be on the path towards producing audited financials, and must have public draft financial statements available that would allow the Oversight Board to be able to make an informed decision in regards to restructuring; and 3) the debtor must have an Oversight Board approved five-year fiscal plan in place.”  A debtor would be able to access restructuring in the instance that the debtor meets these criteria, and has not reached a consensual negotiation with its creditors.  Five of the seven Oversight Board members must vote in favor of the restructuring. Thus, the Oversight Board could allow PREPA to restructure its debt obligations, likely freeing up capital in the short term to commit to offtake from new renewable energy projects.

Puerto Rico Infrastructure Revitalization: Under the Oversight Board there would be a Revitalization Coordinator that may expedite “critical energy projects” when responding to an “emergency” need for infrastructure.  The draft bill’s framework would have a developer identify a project and submit it to the Revitalization Coordinator.  The application for expedited permitting services must include: “1) the impact the project will have on an emergency; 2) the availability of immediate private capital or other funds, including loan guarantees, loans, or grants to implement, operate, or maintain the project; 3) the cost of the project and amount of Puerto Rico government funds, if any, necessary to complete and maintain the project; 4) the environmental and economic benefits provided by the project, including the number of jobs to be created that will be held by residents of Puerto Rico and the expected economic impact, including the impact on ratepayers, if applicable; and 5) the status of the project if it is existing or ongoing.  In addition to these requirements, the Revitalization Coordinator may require a submission to outline how the project will reduce reliance on foreign oil, improve performance of energy infrastructure and overall energy efficiency, diversify energy resources, support PREC in achieving its goals, contribute to transitioning to privatized generation capabilities in Puerto Rico and promote the development and utilization of energy sources found on the island.

This last provision could provide a foothold for renewable energy advocates to grasp onto, though it remains to be seen how quickly development of financeable projects can be undertaken in the face of ongoing financial issues.


It appears under the most recent draft of PROMESA that the Oversight Board will have considerable weight in determining the future financial position of PREPA, either stabilizing the utility or selling off its assets. Notably, although there are multiple independent generators in Puerto Rico, PREPA is the sole distribution and transmission entity; therefore, its financial health and ability to transmit uninterrupted electricity as well as develop a wheeling tariff are vital to project development.  As Congress moves closer to recess, the fate of Puerto Rico could be either determined quickly or delayed until fall.  Within the current drafts, much is still uncertain concerning the debt restructuring process. For example, whether or not renewable energy PPAs will be considered imputed debt that falls under the control of the Oversight Board is unclear.  Also, it is yet to be determined how the Oversight Board and PREC will cooperate together since much of their authority over PREPA may overlap.

In short, the opportunity may be large for an investor or developer to participate in providing electric service to PREPA’s expansive territory, and PROMESA could offer a fast track to a more renewable future for Puerto Rico if its execution does not become a bureaucratic quagmire. However, much is yet to be determined, and even bullish developers and investors will be watching developments with a wary eye.

Hedging with Distributed Renewable Generation Sources in Times of Fossil Fuel Price Volatility

Posted by Joshua L. Sturtevant on 3/11/16 2:20 PM

Volatility_Ahead.jpgCo-author Morgan M. Gerard

Until very recently, mainstream power purchasers have not viewed renewable energy as a reliable hedge against other energy sources, mostly because the costs associated with constructing or purchasing the output of renewable energy systems were very high. However, renewable energy generation systems are increasingly being viewed by large and small consumers alike as a viable hedge against fossil fuel price volatility.

Two main factors have contributed to this. First, recent price declines in both hard and soft costs have precipitated a decline in installation costs. In other words, systems are cheaper to install, making renewables more attractive on an absolute basis. Second, myriad models for both direct ownership and third party ownership have allowed beneficiaries of renewable systems to lock-in long-term pricing certainty. Against this backdrop of profound changes to the cost and ownership structure of renewable energy sources, volatility in natural gas prices has forced power consumers to evaluate the attractiveness of alternatives.

Renewable Energy Prices are Falling

The price of constructing renewable energy projects has dropped precipitously in recent years. For example, according to the Department of Energy (DOE), wind power prices have reached an all-time low, and Power Purchase Agreements (PPA) for wind fell from rates around 7 cents/kilowatt-hour (kWh) in 2009 to an average of 2.4 cents/kWh in 2014. Dramatic price declines have been seen in the solar space as well. For example, between 2008, and 2014, the cost for a PV module declined from $3.57/watt (W) to about $0.71/W. Total install costs declined due to these hardware declines, the reduced soft costs brought about by DOE and industry efforts, and the increase of standardization in contract terms: the total cost of utility-scale PV systems fell from $5.70/W in 2008 to $2.34/W in 2014—a decrease of 59%. Additionally, Deutsche Bank recently predicted that the price of solar would reach grid parity in most states this year. That prediction seems increasingly sound in the face of the extensions of the Investment Tax Credit (ITC) and Production Tax Credit (PTC) late last year.

 Renewables Provide Price Certainty for Offtakers

It is both the decline in costs noted above and the ability of renewable sources to provide cost certainty over long time periods that allow these sources to be utilized in a hedging capacity. Consumers benefit from the output of renewables in two main ways. The first is through direct ownership, also called ‘on balance sheet’ ownership. The second is through a contractual relationship with a third party owner, typically through a lease or a Power Purchase Agreement (PPA). Direct ownership is most prevalent among large, sophisticated entities such as utilities and corporates, while contractual relationships predominate in residential and commercial and industrial (C&I) contexts, though these are by no means hard and fast rules.

Regardless of whether the system is on balance sheet or not, the usefulness of the system as a hedge is simply a function of cost certainty. In the context of an on balance sheet system, there is a known up-front cost and relatively easy to calculate annual costs in the form of insurance and maintenance; once the solar or wind facility is built the owner of the generation source will be able to forecast his fixed costs over the lifetime of the project. In the context of a contractual relationship such as a lease or PPA, the costs are typically clearly known by the consumer as contracts are often set price, or contain an easy to calculate escalator. While obvious, is also important to emphasize what is not a part of the long-term cost structure of renewables; fuel inputs. Given that costs are possible to calculate, the lack of input prices, and the fact that certainty is locked in for the long-term due to long asset lives and contracts terms, renewables provide the best widely available opportunity for long-term energy pricing certainty in existence.

The contrast against traditional sources could hardly be more stark. According to the Wall Street Journal, as natural gas has become an increasingly prominent fuel in the international energy mix, increasingly erratic weather patterns (like El Nino and last year’s polar vortex) have sent commodity traders “scrambling.” Data from BNP Paribas SA shows that realized volatility (a measure of day-to-day price moves) hit an eight-year high for the two-month period covering this past December and January. Additionally, natural gas trading in 2014 “was four times as volatile as the U.S. stock market by that measure, the data shows.”

Renewables May Provide for Future Additional Cost Savings and Revenue Streams

On top of current cost savings and hedging opportunities, renewables have the added benefits of both producing monetizable environmental attributes and helping owners avoid added costs related to carbon production in the future. Environmental attributes already have value in some jurisdictions, and it seems likely that list will grow with the implementation phase of the Clean Power Plan potentially looming and developments such as New York’s Reforming the Energy Vision program underway. Additionally, it has been reported that one of the goals of COP 22 will be the implementation of a “carbon tax”. While it seems unlikely that the U.S. would sign up to a carbon tax regime in the near term, the likelihood of it doing so within 10, 15 or 20 years seems potentially higher. In addition, given that fossil fuel markets are global in nature; additional carbon tax programs abroad could conceivably impact volatility in the U.S., another factor that makes a potential hedge in the form of renewables attractive.


Renewable energy has traditionally been more expensive for the output provided than fossil fuel sources. Additionally, as a result of the energy boom in North America consumers in the United States have paid slightly lower prices for electricity in recent years. On a strictly short-term basis, it is often true that traditional sources are cheaper than renewables. However, the extreme volatility that exists in commodity markets reduces the ability of consumers to effectively account for their fuel costs in the long-term.

In contrast, the price declines in renewable energy sources coupled with the ability to accurately account for long-term costs have made renewables attractive, and consumers have taken notice. Berkshire Hathaway Energy has already adopted renewables as a fuel-hedge for its various portfolios. Additionally, tech players like Google, Apple and Microsoft are all experimenting with distributed renewable energy to take control of their energy consumption regarding both price and source. Big box stores like Wal-Mart, Walgreens, and most recently Whole Foods, have chosen renewables not only as an environmentally responsible energy choice, but a smart fiscal choice as well. Even as the price of traditional energy remains relatively low, a combination of commodity price volatility in that space and price declines in the renewables space have led consumers of energy to find renewables to be an attractive alternative.

Topics: Distributed Energy, Solar Energy, Renewable Energy, Distributed Generaton, Wind Energy, Grid Parity, Natural Gas, Volatility, Natural Gas Volatility, Electricity Price

Renewable Energy Remains Poised for a Banner Year in 2016

Posted by Joshua L. Sturtevant on 2/25/16 1:24 PM

Co-author Morgan M. Gerard

Solar_Poised_for_Growth.jpgOpposition to the Clean Power Plan (CPP), promulgated by the EPA and championed by the Obama administration as a path to a cleaner energy future, recently came to a head as the Supreme Court granted opponents a stay halting implementation of the plan. The future of the CPP is full of uncertainty; motivated states on both sides of the debate, the recent passing of Justice Antonin Scalia, one of the votes against implementation, and the tumult created by the presidential election cycle make prognostication a difficult task. However, despite the uncertainty surrounding the CPP, renewable energy remains poised for a banner year in 2016.

The objective of the CPP, as currently constituted, is to reduce carbon emissions through the retirement of coal plants, improve the efficiency of natural gas generation and encourage the development of more renewable energy facilities. Renewable energy proponents had hoped that the implementation of the plan would help to drive the adoption of policies intended to stimulate renewable energy project development, particularly in states where deployment of renewables has lagged behind national averages. However, that hope may be missing the broader point; even with the uncertain fate of the CPP, the market data seems to be pointing to cost reductions as the driving forces behind what has been an extraordinary uptick in renewables coming online in recent years.

While some, particularly large consumers of electricity, have tapped into the commodity price hedge opportunities afforded by solar and wind deployment, and while those in off-grid situations and those with green goals have been utilizing renewables for decades, observers point to price declines which have made renewables more competitive with traditional sources as the main driver behind explosive mainstream adoption in recent years. While renewable install costs were very high in the early to mid 2000’s, the declines since then are nonetheless striking. AWEA has noted a two-thirds drop in wind power costs over the past six years while Lawrence Berkeley National Laboratory reports a seventy percent drop in solar panel cost since 2009. National Laboratory reports also point to a 50% decline in solar installation costs over a similar time period.

The impact of these price declines has been stark, and renewables are well on their way toward reaching the holy grail of grid parity. Renewable sources of power accounted for almost two-thirds of the new electrical generation placed in service during 2015 in the United States according to the Federal Energy Regulatory Commission (FERC). The continuing rise of wind generation was a particular highlight of this past year with the FERC’s December 2015 Energy Infrastructure Update showing that 69 new units of wind power accounted for 7,977 MW of new generating capacity (the American Wind Energy Association’s (AWEA) estimate was 8.6 gigawatts) – nearly a third more than the 50 new units of natural gas providing 5,942 MW of added capacity. Other renewable sources also scored well in 2015, with solar adding 2,042 MW of capacity, biomass adding 305 MW, hydropower adding 153 MW, and geothermal steam adding 48 MW. On the other hand, concerning conventional resources, FERC reported no new capacity at all for the year from nuclear power, 15 MW from oil and one new coal unit producing 3 MW.

Though it is early, the trend of new capacity being comprised mostly of energy from clean sources seems to be continuing into 2016. In January Invenergy reported that it signed a 225 MW wind power purchase agreement (PPA) with Google to provide the latter’s facilities with renewable energy to help support its data center operations. Other tech giants have also been focused on going solar in 2015, with Apple announcing that it will buy $848 million worth of solar energy from a First Solar-owned 130MW power plant.

Despite cost declines and national trends, there are still some states where adoption of renewables has lagged significantly. The ‘stasis trend’ is most predominant in the Southeast and the gulf region. It is also true that some states which had recently favored renewables have implemented regressive policies, typically at the behest of large utilities. Nevada provides a recent example as the state’s public utilities commission (NPUC) cut net metering payments by half while simultaneously raising the fixed fees for solar customers to around 40% by 2020. Because of these negative local approaches to solar, a permanent stay of the CPP, with the loss of a national mandate as a result, will certainly be a negative development in the short term for renewable progress. That said, and given both the price declines that have made renewables competitive with other generation sources and 2015 development trends, renewable energy appears positioned to make equally great strides in 2016. Even without the underlying certainty that would be provided by an unchallenged CPP, consumers, financiers, and regulators have received the message that renewables are an efficient, financeable and profitable proposition.

Topics: Solar Energy, Renewable Energy, clean power plan, Renewable Energy 2016, Wind Energy

Solar Storm- Net Metering in Nevada

Posted by Joshua L. Sturtevant on 1/29/16 2:13 PM

Co-author Morgan M. Gerard

Battles over net energy metering (NEM) policy are currently raging nationwide, and are only expected to intensify in the face of the recent investment tax credit (ITC) extension. NEM, a state statute-Solar_Storm_.jpgbased policy incentive that allows small generators of electricity to sell their excess generation into the grid typically subject to an overall cap, has been a great contributor to the proliferation of residential rooftop solar. It has also stimulated commercial and industrial-sized facilities in some locations, particularly those jurisdictions that allow for the slightly more complicated ‘virtual’ net metering approach. 

However, as solar has gained greater market penetration, utilities have increasingly pushed back against NEM. As with many issues, the arguments on both sides of the NEM debate are complicated. Opponents, typically utilities, claim that NEM policies shifts pro rata grid costs from solar customers onto the rest of their rate-paying base. They also argue that the rates being paid to the small producers are too high. NEM advocates, on the other hand, claim that these arguments are overblown, and are merely smokescreens promoted by utilities more worried about embedded monopoly powers than pro-rata grid costs.

Even in jurisdictions where support for the practice remains, such as New York and Massachusetts, debates are occurring over the value of solar, grid cost sharing and caps, suggesting that the net metering of today may not look like the net metering of tomorrow. In other places, proponents are undermining net metering policies by using a ‘death by one thousand cuts’ approach, where benefits are chipped away to the extent that policies are rendered functionally moot.

Perhaps nowhere has this latter approach more prevalent in recent times than in Nevada where clashes have occurred at the legislative level, in front of the Nevada Public Utilities Commission (NPUC), and have more recently spilled over to the courts.  After the NPUC surprisingly voted to enact changes which would essentially render the current NEM regime unviable, residential solar customers filed a class-action law suit on January 12 against their utility alleging, among other things, that NV Energy is seeking to monopolize energy production by crippling the solar market. They also allege that rising rates have caused net metering customers to experience a 40% cost-hike. 

How did the debate over NEM in Nevada get to this point?

Nevada has been one of the fastest growing solar markets in the country in recent years, particularly in the residential space. Rapid growth allowed the state to reach its 3 percent solar net metering cap in August of last year, leading the NPUC to extend payments under the old program until the end of 2015 to buy time to evaluate next steps. However in December, the NPUC voted to cut net metering payments by half while simultaneously raising the fixed fees for solar customers to around 40% by 2020. Additionally, the NPUC is applying these changes retroactively, which distinguishes actions in Nevada from those in other states that have altered their net metering, and means these new prices will apply not only to new solar customers, but to existing customers as well. 

This decision was met with significant backlash by local solar companies, customers and advocates and even gained the attention of the three major Democratic candidates for the 2016 presidential election. As a result of the decision and a general lack of support for solar, three major solar companies have decided to pull back significantly from Nevada. For example, Vivint suspended its plans to expand into Nevada right after the August cap was reached, but continues to release statements condemning Nevada’s continued actions as a barrier to it ever deciding to reenter the state. SolarCity announced on January 6, 2016 that it was ceasing operations in Nevada, thus eliminating more than 550 jobs and closing its newly minted training center.

Sunrun has also declared its exit from Nevada citing the actions of Nevada politicians, the NPUC and NV Energy. Additionally, on December 24, 2015, the Nevada Bureau of Consumer Protection filed a petition with the NPUC, explaining that the new ruling “is not consistent with the Governor's stated objectives of SB374 or the governor's initiatives and focus to increase jobs and employment for Nevada residents. Now, solar customers have joined the fight by filing the class-action suit with similar allegations against the NV Energy.

Potential Ripple Effects

In the wake of the extension of the ITC, many believe that debates in the solar space will take on a distinctly local flavor in the years to come. In the absence of an extension, it was likely that solar projects would have had difficulty attracting low cost capital.  However, with federal incentives secured, many believe that solar in general, and the residential market in particular, are set to explode over the next few years.  Although the credit extension will likely positively impact solar development, it has also made battle lines clear and has provided ammunition for opponents of rooftop solar who will now strategically pick at other incentives, arguing that the extension has rendered them unnecessary. Nevada provides a good, early example of this.

It is also true that as more distributed solar comes online, grid management policies will need to be reexamined to ensure both fairness and continuity of service. Recent battles at state utilities commissions have resulted in favorable outcomes for proponents of solar. However, if the NPUC ruling is a sign of the times, it is possible that it could be a bumpy road ahead, particularly in states nearing their NEM cap. 

Topics: Distributed Energy, Solar Energy, ITC, Net Metering, Net Energy Metering, Investment Tax Credit, NEM, DG, Distributed Generaton, rooftop Solar, Rooftop PV, NPUC, Solar Rooftop, Solar Roof, Nevada, NV Energy, Net Metering Battle, Nevada Public Utilities Commission

New York Seeks Value for Distributed Energy and Reevaluates Net Metering

Posted by Joshua L. Sturtevant on 1/7/16 12:02 PM

Co-author Morgan M. Gerard

NY_REV_Notice.jpgOn December 23rd, 2015, The New York State Public Service Commission (NYPSC) issued a Notice under which it is soliciting comments concerning the value that Distributed Energy Resources (DERs) contribute to the distribution grid system. It is also soliciting feedback on a successor methodology to its current Net Energy Metering (NEM) policy that will help drive development in the interim. Both of these issues are being tackled by the NYPSC as part of New York’s broader Reforming the Energy Vision (REV) initiative.

New York needs critical energy infrastructure to the tune of billions of dollars at the same time that utility revenues are falling. Additionally, more distributed generation (DG) is coming online, including DG resources that net meter to the grid, and therefore potentially shift the pro rata costs of grid maintenance onto non-DG owners.  In response, the NYPSC opened the REV docket in an attempt to reconcile these trends as well as prepare for a more resilient and energy efficient future. 

It is hoped that the policies and rules promulgated under REV will facilitate the adoption of greater on-site and near-site energy resources and efficiency approaches, known under REV as Distributed Energy Resources (DERs). Under this new framework, DER owners will be able to sell their generation to utilities as well as directly to commercial and retail customers. Due to the complexities inherent in such a model, the Commission has worked with incumbent utilities who will help achieve ambitious DER goals by operating as Distributed System Platforms (DSPs), which will coordinate grid-wide DER activities as a market administrator, not unlike a distribution level independent system operator. 

However, a complication has arisen under this new paradigm: What is the value of these DERs to the system? Assessing the value of DERs is a key component in constructing an efficient market as transactions will consist of interactions among customers and service providers, and also between utilities and DER providers. It is also true that in the absence of clarity regarding the value of DERs it will be difficult to attract private capital to projects under development. Because of these complications, and the need to both resolve uncertainty and ensure that the burdens of systemic grid maintenance and upgrades are not being bypassed by DER and grid-exiting customers, a mechanism is required to establish accurate pricing. 

It was made clear in the NYPSC Staff’s Track Two White Paper that the system value of DERs will be divided into two components: 1) the energy value and 2) all other values associated with distribution-level resources. The energy value in New York is established by power markets and is called the location-based marginal pricing (LMP), a methodology where the price of energy at each location in the New York State Transmission System is equivalent to the cost to supply incremental load at that location. The full value of a particular DER can be expressed as the LMP plus the distribution delivery value (the value of D); together known as “LMP+D.” In the NEM Interim Ceilings Order, the Commission further elaborated that “[the] ‘value of D’ can include load reduction, frequency regulation, reactive power, line loss avoidance, resilience and locational values as well as values not directly related to delivery service such as installed capacity and emission avoidance.”  The Notice indicates that the NYPSC is seeking to establish a new methodology and process for determining the full value of DERs prior to December 31, 2016.

Determining the value of DERs to the grid system implicates possible changes to the future of net energy metering (NEM), which in the Empire State is a statute-based incentive that allows small generators of electricity to sell their excess generation into the grid subject to an overall cap. If a new value is being placed on all DERs, and DER outputs can be purchased by the utility and non-utility actors in real-time, the question of how the current NEM regime can co-exist within the REV marketplace is begged.  Despite this gray space, Staff saw no reason to adjust NEM for the mass-market per the Track Two White Paper, and stated that a bill-crediting mechanism used in NEM should continue to be considered as part of a successor to NEM. It also stated that changes to NEM should be focused on larger projects with substantial net export of electricity. 

The Commission decided in the subsequent Net Metering Ceilings Order that “until these valuation efforts [the value of D] are completed, and incorporated in tariffs that recognize the full benefit of DER, net metering must continue, to avoid the disruption of DG development efforts that would contravene the State’s energy policies.” Despite an overall lack of change, the cap on NEM under the Ceilings Order is now allowed to float to avoid “repeated disputes over the proper level of the ceiling . . . and shall be allowed to float in the interim until the calculation and application of ‘the value of D’ and other issues affecting valuation of DER is decided.”  In addition, and in recognition of the various paths NEM policy could take going forward, the current solicitation also seeks comment on how the Commission should consider the transition “from NEM,” and indicates that they favor a scenario where “a single comprehensive process should be embarked upon to adequately address the range and complexity of the questions raised [in this matter].”

The “value of D” may be the necessary component to determine how DERs, specifically on-site generation and microgrids, contribute to the efficiency and resiliency of the grid. Although New York is starting the process of targeting the valuation metric, and many DER providers and NEM advocates may disagree with the method, for the purpose of project financing the “value of D” may lend the clarity needed to ensure the stability of the REV-driven marketplace.  To take part in the discussion over NEM and the value of DER to the distribution system, potentially interested parties are able to respond and comment to the Notice until April 18, 2016.

Topics: NY REV, Microgrid, Distributed Energy, Distributed Energy Resources, Net Energy Metering, Reforming the Energy Vision, NEM, DG, DER, value of D, Distribution, New York Public Service Commission, Distributed Generation, LMP+D

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