Energy Finance Report

The Brownfield Gold Rush: Municipalities Give Contaminated Properties New Life- Published by Cleantechnica

Posted by Administrator on 7/26/16 10:05 AM

Solar_Brownfield.jpgInnovative local government leaders throughout the country are taking advantage of state and federal incentives to transform former landfills and contaminated industrial properties and waste sites into energy-producing wind and solar projects. Two examples of municipalities giving such contaminated properties new life are discussed in this article – redeveloping once polluted properties into solar installations in New Bedford, Massachusetts and revitalizing a former Bethlehem Steel plant into renewable energy projects in Lackawanna, New York.

In a recent article published by CleantechnicaJeffrey Karp, Jerry Muys, and Van Hilderbrand demonstrate how corporate property owners can revitalize brownfields into a useful asset and revenue generator.

Topics: Solar Energy, solar brownfield, contaminated property, brownfield

New Jersey's Proposed Renewable Portfolio Standard- Ambitious, but Uncertain

Posted by Jeffrey Karp on 4/20/16 11:28 AM

Co-authors Emma Spath and Morgan M. Gerard

New Jersey is poised to become a national leader in renewable energy by virtue of pending legislation that would substantially decrease the Garden State’s greenhouse-gas emissions through an ambitious Renewable Energy Portfolio Standard (RPS). An RPS is a regulatory mandate that requires utility companies to obtain a certain percentage of the energy they sell from renewable sources such as wind and solar, or purchase renewable energy credits (RECs) from qualifying energy sources. Recently passed by the State Senate, a new bill would require utilities to source 80 percent of their electricity from renewable energy by 2050.  If the General Assembly passes the bill and it survives the pen of Governor Christie, utilities must procure 11 percent of their electricity from renewables by 2017, with an increase every five years of approximately 10 percent until the 80 percent threshold is reached in 2050.

Although New Jersey passed its original RPS mandate in 1999, and has since updated its program to reach 20 percent by 2020-21 (including a solar energy “carve out” requirement of nearly 4 percent), the ambitious new bill faces an uncertain outcome. First, although the bill already has passed one legislative chamber, the Senate vote was strictly divided along party lines.  Second, the General Assembly, which is the next destination for S1707, delayed voting on a similar Senate bill in December 2015.  However, this General Assembly, like the Senate, has a Democratic majority; thus, it seems likely that the bill would pass.  Finally, the bill faces a veto-threat by Governor Christie, which could be overcome by a two-thirds majority in both houses.  In this scenario, a lack of bi-partisan support could doom the legislation due to a failure to obtain the requisite super-majority vote to overturn a veto. 

The bill also may be perceived as political by some or a “hot potato.” In addition to an increased RPS mandate, the legislation would allow the Board of Public Utilities (BPU) to establish an “emissions portfolio standard applicable to all electric power suppliers and basic generation service providers, upon a finding that [t]he standard is necessary as part of a plan to enable the State to meet federal Clean Air Act or State ambient air quality standards.”  The provision may reflect the State Senate’s desire to assure New Jersey’s compliance with President Obama’s Clean Power Plan, an Environmental Protection Agency (EPA) regulation presently under court review that seeks to limit greenhouse gas emissions under authority of the Clean Air Act.  In an omnibus litigation pending before the United States Court of Appeals for the D.C. Circuit, twenty-seven states, including Governor Christie’s administration, seek to block the Plan’s implementation.  Recently, the Supreme Court stayed the regulation and suspended any deadlines for state compliance until resolution of the litigation.

Another possible objection to the N.J. bill—based on the reaction to a similarly aggressive RPS in California—may be its potential significant implications for the power grid. A review of a study concerning the potential impact of California’s plan to increase renewables to 50 percent by 2030 provides insight into the challenges that such measures may pose. That study found that an aggressive RPS could result in over-generation of renewable energy. The study showed that once California reaches a 50 percent RPS, excess power would be generated for 23% of annual hours.  Such an occurrence could result in grid forecast uncertainty, which is very costly for utilities.  Thus, New Jersey lawmakers instructed the BPU to concomitantly evaluate how to ameliorate solar energy volatility. It may behoove the BPU to also look at longer-term grid strategies to mitigate the substantial increase in renewable energy.  Such viable mitigative methods may include requiring steps such as energy storage, smart inverters with future solar photo-voltaic installations, or encouraging a diverse renewable energy portfolio.  While each of these measures may come with its own political baggage, the consideration of such grid solutions may be the palliative that enables New Jersey to substantially increase its RPS.

Topics: Energy Storage, Solar Energy, Renewable Energy, clean power plan, Wind Energy, renewable portfolio standard, Clean Air Act, New Jersey, Grid Security

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.

Conclusion

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

Secondary Market Looks for New Tricks After Yieldco Hiccup

Posted by Administrator on 2/23/16 11:37 AM

Republished from Solarplaza by Jason Deign & Susan Kraemer

Solarplaza.jpgUS investors are questioning what measures could stimulate the secondary market for PV now yieldcos have lost their luster. Solar investors are looking for new formulas to boost the secondary market after yieldcos, the most popular vehicle to date, took a beating last year.

“In the US market you are limited to how you can access the secondary market because of the tax recapture rules,” said Elias Hinckley, who leads the energy group at law firm Sullivan & Worcester’s Washington DC office. These “can claw back the tax credits claimed on the project if it is sold within the first five years of operation,” he said. “This limitation means that transfers are all of equity interests that represent the later years of operation or debt.” Consequently, “we have seen some securitized debt transactions and some similar structures into the private markets on the debt side for both utility-scale and residential portfolios,” Hinkley said. Similarly, “we see a healthy amount of activity in the private markets for the equity pieces, but other than the yieldcos not much on the public market side." 

"I do think there is a huge amount of available institutional capital looking at these kinds of assets because the profile of a proven operating solar asset is a very appealing stable infrastructure investment.

Such investors “are still learning the market and looking for consistency in asset pools at scale,” said Hinkley. Standardised contracts could be an important way to achieve that consistency, according to Jigar Shah, founder of SunEdison. "Secondary markets only happen when there is a certain standardisation that occurs with projects," according to him.

Shah’s current firm, Generate Capital, aims to standardise financing documents for sustainable firms so it is easier for secondary market players such as insurance companies, university endowments and general pension funds to become involved. That could cut the cost of solar financing, since secondary investors typically charge less for finance.

And by restricting the loans to just one standardised contract, regardless of technology, Generate Capital could also make a large group of sustainable startups more attractive to a secondary market, with its lower cost finance. It can do this by conglomerating multiple smaller loans with the same standard terms and conditions. In order to sell seamlessly into a secondary market, loans have to be standardised with no variations.

"You might be issuing million-dollar loans in a primary market but the secondary market generally is buying $100 million at time, so they are buying 100 of your $1 million loans at a time," Shah explained. Not everyone is convinced, however. Benjamin Cohen, chairman and chief executive of T-REX Group, a renewable energy finance analytics vendor, said: “In theory it would help, but nobody’s going to adapt [their contracts].

"SolarCity is not going to change their standard documentation to be the same as Sunrun.

Instead, Cohen said the use of technology platforms could help bring greater transparency and efficiency to secondary market transactions. T-REX Analytics, for example, helps fixed-income investors analyze, assess and price the risk associated with renewable energy investments. Nevertheless, Hinkley said there could still be a role for standardized contracts. “In the small utility style, commercial and industrial distributed solar, and virtual power-purchase agreement markets it would help a great deal,” he said.

“Consistency will lower transaction cost and make it easier to consolidate pools of assets for future investors. We spend a lot of time working towards this consistency, but so far success has been limited to relatively small pools of assets.”

Solarplaza organizes international high-level conferences and exploratory trade missions in both established and emerging markets across the globe. With a track-record spanning five continents, twenty-four countries, thirty-seven cities and a total of over seventy events Solarplaza is a pioneering industry inspirer

Elias Hinckley and Benjamin Cohen will both be speaking at the Solar Asset Management North American conference, on March 16 and 17 in San Francisco. Register now for your early bird discount.

Topics: Solar Energy, Solarplaza, Solar Rooftop

With Proper Policies, A $12.1 Trillion Investment Opportunity for Renewable Energy Can Be Realized

Posted by Van Hilderbrand on 2/19/16 1:20 PM

Solar_Investment.jpgCo-author Morgan M. Gerard

Despite the currently low prices of oil and natural gas, renewable electric power generation is poised for rapid growth. Based on a “business-as-usual” scenario, Bloomberg New Energy Finance’s New Energy Outlook, June 2015 predicted a $6.9 trillion investment in new renewable electric power generation over the next 25 years. A newly published report by Ceres, Bloomberg New Energy Finance, and Ken Locklin, Managing Director for Impax Asset Management LLC, predicts a much greater opportunity for private sector companies and commercial financiers to invest in new renewable energy.

Mapping the Gap- the Road from Paris

Mapping the Gap: The Road from Paris concludes that achieving a temperature change goal of 2ºC or below, as outlined in the recent climate accord reached in Paris at the United Nations Framework Convention on Climate Change’s (UNFCCC) twenty-first session of the Conference of the Parties (COP 21), is now a $12.1 trillion investment opportunity. (This is in addition to a predicted $20 trillion investment in legacy low-carbon electric power generating sources such as large-scale hydro and nuclear.) Thus, the current investment trajectory of $6.9 trillion in a “business-as-usual” scenario leaves a massive gap of $5.2 trillion needed to reach international goals. Financial markets have the capability to close this gap, especially given the dropping price of renewables, a maturing market offering lower-cost capital deployment, an expanding need for global energy, and the ability of this level of investment to drive local jobs and economic growth.

United Nations Policy Analyst and Global Strategy Advisor of the Citizens Climate Lobby, Sarabeth Brockley, agrees. According to Ms. Brockley, who witnessed first-hand the participation at the conference by the private sector, particularly large power purchasers such as Google and Facebook could provide the catalyst for energy investments in renewables and drive the future direction of the global energy economy. Ms. Brockley notes that with the accord in place and with an increased push to decarbonize, the private sector recognizes that energy investments in zero- and low-carbon emitting resources are the planet’s future while the unknowns surrounding the future of fossil fuels make them a riskier proposition.

New Policies Are Needed to Bridge the Investment Gap

Some investment opportunities are available today under existing policy frameworks and market conditions; however, new policies will need to be deployed to assist in this endeavor. “There is huge opportunity for expanded clean energy investments today. But to fully bridge the investment gap, policymakers worldwide need to provide stable, long-lasting policies that will unleash far bigger capital flows. The Paris agreement sent a powerful signal, creating tremendous momentum for policymakers and investors to take actions to accelerate renewable energy growth at the levels needed” says Sue Reid, Vice-President of Climate & Clean Energy at Ceres, a nonprofit organization promoting corporate responsibility and environmental stewardship.

This article explores which incentives, policies, and approaches may be on the horizon for U.S. energy market participants – both generators and consumers – as the global energy mix moves towards carbon consciousness.

Carbon Pricing

As the world looks ahead to the twenty-second Conference of the Parties (COP 22) in Marrakesh, Morocco, Ms. Brockley believes that carbon pricing will certainly be on the agenda. Pricing carbon emissions will help create incentives to develop new, cleaner energy technologies and to encourage demand reduction.

One way to price carbon is by placing a tax on harmful emissions. A carbon tax places a price on emissions and allows the market to determine the quantity of emission reductions. An alternative way to price carbon is through a cap-and-trade program. Here, the program sets the quantity of emissions reductions while giving market participants the opportunity to determine price and trade credits to meet overall emissions reduction goals which are lowered over time to reduce the amount of pollutants released.

Some countries are moving ahead with plans to implement carbon pricing. For example, in September 2015, President Xi Jinping of China made a landmark commitment to start a national program in 2017 that will limit and price greenhouse gas emissions in the country. Other countries are implementing similar measures based on discussions at COP 21. The United States, however, has a long road ahead. Congress came close to a greenhouse gas cap-and-trade system in 2010 with the Waxman-Markey Climate Bill; however, the legislature ultimately balked at passing the bill and discussions involving climate change on Capitol Hill have been somewhat toxic ever since.

Moreover, any type of binding international agreement on a price for carbon will be difficult to adopt given the aggressive opposition towards President Obama’s Clean Power Plan (CPP). The CPP is currently facing attack by Congressional Republicans and an omnibus litigation brought by twenty-seven states and an amalgam of private actors. The Supreme Court recently granted a delay for implementation of the CPP, leaving the policy strategy to lower carbon emissions in jeopardy.

Meanwhile, states and private companies in the U.S. are starting to act. California’s state-wide, expanded cap-and-trade program is off to the races and is being intently watched as a potential model that could be replicated in other states or regions. Amongst the private sector, Microsoft is leading the way by already accounting for the price of carbon internally, which industry leaders believe is both changing internal behaviors and saving the company more than $10 million annually. Additionally, many traditional fossil companies are pricing carbon. ExxonMobil is assuming a cost of $60 per metric ton by 2030, BP currently uses $40 per metric ton, and Royal Dutch Shell uses a price of $40 per ton.

Tax Incentives

Tax incentives use the U.S. tax code to subsidize the development of renewable energy. These incentives include accelerated depreciation for investment in renewable power-generating plants or manufacturing facilities and tax credits tied to a renewable power project’s output or overall capital expenditures. Conversely, there is increasing interest in phasing out traditional fossil fuel subsidies, long deployed in support of high carbon emitting resources.

The driving incentives behind renewable energy in the United States are the federal Production Tax Credit (PTC) and the Investment Tax Credit (ITC). The PTC has been the largest driver of the wind energy industry as it provides 2.3 cents per kilowatt-hour generated. The ITC, which has been the major driver of solar energy and also has served as a potential alternative credit for wind energy, provides a credit for 30% of the development costs of a renewable energy project. The credit is applied as a reduction to the income taxes for that person or company claiming the credit.

The ITC was originally slated to be cut from 30% to 10% for non-residential and third-party-owned residential systems, and to zero for host-owned residential systems by the end of 2016. However, Congress authorized the extension of both the PTC and ITC at the end of 2015. The ITC will now be in place for an additional five years, including three years at the current value followed by graduated step-downs. The impact of the tax incentives extensions are set to be significant, and will likely inject new life into abandoned projects, protect existing jobs, support additional job creation, and ensure that the renewables sector remains poised for an upward growth trajectory.

Renewable Energy Targets

Governments can set renewable energy targets to drive lower carbon emissions. Also known as Renewable Portfolio Standards (RPS), these targets generally requires local utilities to generate electricity through renewable energy sources or purchase Renewable Energy Credits (REC) that represent essentially the environmental benefit of the zero-carbon power system. Typically, these involve annual goals which increase over time.

In the aftermath of the defeat of the Waxman Markey Climate Bill, many renewable energy friendly states such as Massachusetts, New York, and California, enacted RPS frameworks. This approach has been successful in lowering carbon emissions, but remains a patchwork method that has no national systemization. There have been calls to create a national RPS, all of which have been soundly defeated in Congress to date.

Net Energy Metering

Net energy metering (NEM) programs allow renewable energy system owners, such as homeowners with photovoltaic solar systems, to sell their excess power back to the electric grid. NEM has been enacted domestically on the state level and is only available in certain jurisdictions, such as Maryland, California, Massachusetts and the District of Columbia. Although studies have found that NEM has greatly contributed to the adoption of rooftop solar generation, there are battles being waged around the country between utilities and distributed generation advocates about the future of the incentive.

For example, the Nevada Public Utilities Commission (NPUC) voted recently 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. This means that these new prices will apply not only to new solar customers, but to existing customers as well. The result has been that many prominent rooftop solar companies have exited the market, and some solar customers have joined a class action law suit against the NPUC and their local utility, NV Energy.

On the other hand, some jurisdictions like New York are seeking to incorporate more distributed generation into their electricity grid systems and reevaluating NEM as an efficient mode of compensation to the non-utility generator. New York is trying to create an interactive distributed generation marketplace where generators sell their power not only to the electric grid, but also to neighboring energy customers. New York is exploring whether or not a fixed NEM charge is the best way to handle marketplace transactions, or if determining the value of distributed generation to the electric grid is more efficacious. If successful, New York’s model could become the template for growth in other states.

Feed-in-Tariffs

Feed-in-tariffs (FIT) enable renewable power generators to sell their electricity at a premium above typical market rates. Historically, FITs have been utilized in Germany and the rest of Europe, where the government mandates that utilities enter into long-term contracts with renewable generators at specified rates; typically well above the retail price of electricity.

On the federal level in the United States, regulators have chosen to enable tax credits versus utilizing the FIT approach. However, there is a recent example of a FIT from 2013 in Virginia where Dominion Virginia Power allowed a voluntary FIT for residential and commercial solar photovoltaic (PV) generators. Participants received 15 cents/kilowatt-hour (kWh) for a contract term of five years for all PV-generated electricity provided to the electric grid, and will continue to pay the retail rate for all electricity that they consume. In 2012, the average retail electricity price was 10.5 cents/kWh for residential customers and 7.8 cents/kWh for commercial customers.

Conclusion

The United States is already experimenting with many of the above incentives and approaches, but more work will be required on the policy side to meet the investment target projected by the Ceres-BNEF report.

While the scale of this new investment opportunity is massive, the report finds that it is dwarfed by the capacity of global financial markets to unleash the needed investment capital. In the United States alone, consumers borrowed $542 billion over the past year to purchase cars, and assumed $1.4 trillion in new mortgage debt. Clearly, the financial markets have the capacity to absorb the financing “gap” between “business-as-usual” and the 2ºC goal outlined at COP 21. Thus, Ceres remains optimistic about the investment opportunities. “Renewable energy investment volume needs to more than double in the next five years,” noted Ms. Reid. “With the tailwind of the Paris Climate Agreement, buttressed by advancements around the world such as the US renewable energy tax extenders, there is tremendous opportunity ahead for clean energy investors.”

Although our markets have the capability of achieving the COP 21 pledge, those looking to capitalize on this unprecedented opportunity should understand the policies on the horizon that could promote safe returns on their investments.

Topics: Carbon Emissions, Biomass, Solar Energy, Renewable Energy, COP21, ITC, Energy Investment, Investment Tax Credit, renewable energy investment, PTC, carbon tax, Wind Energy, Climate change, Ceres, United Nations, UNFCCC, production tax credit, cap-and-trade, renewable portfolio standard, feed-in-tariff, COP22, carbon pricing

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 City Examines Issues Facing Rooftop Solar

Posted by Morgan Gerard on 1/20/16 11:39 AM

Kramer_Testimony.jpgThe New York City Council is considering a breakthrough bill to mandate installation of solar power systems on all municipal buildings.  The Big Apple in many ways has already taken the initiative and adopted policies to promote cleaner air and combat the local greenhouse gas emissions that contribute to climate change. To this end, the de Blasio administration has articulated the goal of reducing greenhouse gas emissions by 80 percent by 2050.  Merrill L. Kramer recently testified at a hearing on the bill where he applauded the Council’s initiative, but also discussed the private market challenges facing roof-top solar that may hinder the Mayor in achieving his carbon reduction goals.  Particularly, Mr. Kramer identified delays and bottlenecks at the Department of Buildings (DOB) and New York City Fire Department (FDNY) for obtaining permit approvals, and the lack of a "one-stop shop" decision-making authority to identify problems and implement processes for streamlining permitting.  Mr. Kramer highlighted the manual review process for solar permit applications as the single largest obstacle to deploying roof-top generation, causing delays for projects already on a tight timeline. The State of New York offers city residents a property tax abatement for the value of their panels, which expires at the end of the year. 

Mr. Kramer offered three recommendations: that new regulations be adopted to "Permit the Use of Full Professional Self-Certification for All Solar Rooftop Installations," that the FDNY implement "E-Filing and Other Automated Procedures" to streamline the variance process, and that "an ad hoc Solar Task Force composed of empowered representatives of the Administration" be established together with solar installers, homeowners, and other stakeholders to improve processes and programs to expedite solar deployment and lower the cost of installations. Mr. Kramer concluded by saying he and the solar community are "encouraged by the Administration’s commitment to eliminating obstacles to the use of solar power in the City. These steps will have the effect of allowing more and more New York City residents to convert to solar power, reducing the costs and burdens on the City, increasing employment, improving the air, and making the Mayor’s solar initiative a success."

Merrill L. Kramer's video testimony can be found here.

The full text of Merrill L. Kramer’s testimony before the New York City Council can be found here.

Topics: Distributed Energy, Solar Energy, New York City, DG, DER, Distributed Generaton, New York City Solar, New York Solar, rooftop Solar, Rooftop PV, new york city rooftop solar

2015 Year in Review - Renewable Energy in the U.S.

Posted by Joshua L. Sturtevant on 12/23/15 3:33 PM

2015-_Green.jpgCo-author Morgan M. Gerard

Despite the low price of oil throughout the year, 2015 may have been an inflection point for renewable energy as a competitive generation source in the U.S. Deutsche Bank has noted that renewable sources, like solar, have reached, or will soon reach, grid parity with fossil fuel sources in many states. As non-fossil energy has become more economically viable, the industry has responded by standardizing and streamlining project processes, and by accessing financing vehicles like yieldcos and public bonds. Despite growth, the past year has also been a tumultuous one full of unexpected developments and policy shifts including the COP 21 agreement and the Clean Power Plan (CPP), and the formation of intriguing grassroots coalitions, like the green tea party. All of these developments were, of course, set against the specter of a potential step-down of the Investment Tax Credit (ITC), and its surprising last-minute revival. The following is a breakdown of some of the major developments impacting renewables in 2015.

COP 21

On the world stage, nearly 200 leaders, including representatives from key nations such as the United States, China, Russia and India, adopted an agreement that seeks to reduce global emissions. Expectations were tempered going into the much-anticipated conference with France calling for a binding treaty, and the U.S. balking at an arrangement that would almost certainly be struck down by a Republican-led Congress. In the end, the agreement established a long-term goal of maintaining a temperature rise “well below 2 degrees Celsius.” To achieve this objective, each country must submit emissions targets by 2020 with an ongoing reporting requirement. This victory for climate change advocates may serve as a leading indicator for a growing market for renewables.

The Clean Power Plan

The Clean Power Plan serves as the unofficial, yet primary domestic implementation framework for the COP 21 agreement. The CPP was promulgated by the Environmental Protection Agency (EPA) under its Clean Air Act (CAA) authority to regulate ambient emissions from stationary sources. The final Plan sets a target of a 32 percent decline in carbon dioxide emissions from 2005 levels by 2030, and contemplates a much larger role for renewables in the nation’s energy mix. Under the CPP each state will submit a compliance plan to achieve the emissions targets by retiring coal fired facilities, increasing natural gas as a fuel source and incorporating more renewables.

However, as the year draws to a close, the final disposition of the plan is far from certain. Hours after the regulation was published in the Federal Register, twenty-seven states filed more than 15 separate cases against the EPA, which have been consolidated before the U.S. Court of Appeals for the District of Columbia Circuit. In support of the CPP, 18 states, including New York and California, have sought to defend the EPA.

Before the merits of the case are even addressed, 2016 will see a three-judge panel address a “stay” of the rule, which halts the CPP’s implementation until the litigation is finalized. The parties seeking the stay, including West Virginia, feel that by meeting their prescribed standard they will be irreparably harmed. Renewable energy advocates argue that the granting of the stay could greatly damage the efficacy of the rule and its ability to be implemented in accordance with CPP (and unofficially COP 21) targets.

Solar_Panels_and_Wind_Farm.jpgThe Production and Investment Tax Credits

While the U.S. government has sought to assist the nascent renewables industry through tax credits in recent years, through most of 2015 the long-term status of the Production Tax Credit (PTC) and Investment Tax Credit (ITC) appeared grim. The PTC has been the great driver of the wind industry as it provides 2.3 cents per kilowatt-hour generated by a wind facility. Its expiration in 2014 led to a noticeable drop off in new wind projects. The ITC, which has been the driver of solar and also serves as a potential alternative credit for wind, provides a credit for 30% of the development cost of a renewable project, and is applied as a reduction to the income taxes for that person or company claiming the credit. The ITC was originally slated to be cut from 30% to 10% for non-residential and third-party-owned residential systems, and to zero for host-owned residential systems by the end of 2016.

Congress had been considering a PTC extension, which passed the Senate earlier this year. However, many thought an ITC extension was “off the table,” despite the fact that the reduction in credit value would render solar as unviable in many areas of the country. Thus, the industry was swept by uncertainty throughout the year. After solar businesses spent the past year reconsidering their business models to ease the pain of the step-down and speeding along projects to clear the credit requirements, Congress, to the surprise of industry, authorized the extension of both the PTC and ITC. The ITC will now be in place for an additional five years, including three years at the current value, followed by three years of more graduated step-downs. The impact of the ITC extension is set to be significant, and will likely inject new life into abandoned projects, protect existing jobs, support additional job creation and ensure that the renewables sector remains poised for an upward growth trajectory.

Yieldcos

In addition to using tax equity, larger solar companies have been able to raise public funds through the “yieldco” approach. Yieldcos are dividend growth-oriented companies, typically created by a parent company that bundles renewable and/or conventional long-term contracted operating assets in order to generate predictable cash flows. With about one dozen YieldCos now trading on North American exchanges, the vehicle has seen explosive growth in the last year.

The cost of capital required for energy projects has been reduced via the YieldCo model due to access to cheap corporate debt and as their use of standardized project structures and documents have lowered transaction “soft” costs. YieldCos have created efficient homes for the assets that large companies formerly kept on their balance sheets and have additionally allowed nascent entities to raise relatively cheap capital for acquisitions. They have also facilitated diversification of the renewable energy investor base as typical dividend-focused individual investors have been able to "go green" as an alternative to low yield bonds in a way that has been difficult in a tax credit-driven environment. Arguably, this has lowered return expectations, and therefore the cost of capital, further.

However, despite significant growth in 2015, the future of the YieldCo model is less than certain as the fourth quarter of 2015 saw great variability in YieldCo share prices. The reasons are myriad with theories addressing MLP values, rising interest rates, negative public statements from management teams, a slowing Chinese economy, lower oil prices, capital constraints and YieldCo disassociation from parents entities all being floated as potential reasons for recent losses in shareholder value. While it is important to decouple share price from the ability of a YieldCo to remain in business, lower share prices paired with rising interest rates could hinder the ability of many entities to continue to grow portfolios and dividends at current rates.

Distributed Energy Resources—Grid of the Future Proceedings

ThinkstockPhotos-178976522_1.jpgIn the wake of super-storm Sandy and the ensuing power outage to downtown Manhattan, the New York Public Service Commission (NYPSC) is proactively exploring revamping incumbent utilities to better incorporate Distributed Energy Resources (DERs) to ease the transition toward a more dynamic and robust energy generation and distribution system. DERs present a challenge to the tradition grid system, which only envisions energy flowing in one direction, typically from one large source located far from the end user. The proliferation of DER has caused a grid issue in that energy now flows bi-directionally—from the utility customer’s generating system into the utility.

NYPSC’s Reforming the Energy Vision (REV) docket envisions many user-sited DERs that will sell capacity into the system or to other energy consumers. Utilities will act in a new capacity, Distributed System Platforms (DSPs), as “gatekeepers” to a multi-sided platform market with the utility functioning as the platform provider. The utility will facilitate the transaction between the DER owner/operator and the consumer.

Similarly, California is also experimenting with incorporating and leveraging DER formally within their grid framework. The California Public Utility Commission is in the process of facilitating the utilities to develop distribution resource plans (DRPs) that incorporate DER into utility grid-planning and investment regimes. Currently, the Commissions’ mandate is for the utilities to determine the value of DER to their systems, specify where on their systems DER should be incorporated, and propose demonstration projects.

Solar in the Southeast

Developments in several Southeastern states, such as North Carolina, Georgia, Florida and South Carolina are highlighting changing shifts in attitudes toward solar in previously unfriendly jurisdictions. Policymakers in the Southeast are enabling both increased utility scale solar and the introduction of rooftop generation. For example, the Georgia legislature, thanks in part to a coalition comprised of environmentalists and conservative Republicans known as the green tea party, passed the Solar Power Free-Market Financing Act of 2015. The new law opens up third-party ownership of leased rooftop solar projects up to a maximum of 10 kW generation capacity.

Similarly, in South Carolina, utilities were required to submit their plans to implement the Distributed Energy Resource Program Act (DERPA), which mandates programs to achieve at least 2% renewable energy adoption by 2021, including plans to invest in or procure distributed resources. Earlier this year, Southern Carolina Electric & Gas (SCE&G) and Duke Energy reached separate agreements with state regulators, ratepayers and environmental advocates on programs for meeting this objective. SCE&G committed to invest $37 million to install approximately 84 MW of solar on the state’s electric grid by 2021, including 42 MW of utility-scale solar and 42 MW of residential, commercial-industrial, and community solar. Duke Energy agreed to a $69 million program to place in service 53 MW of utility-scale solar and 53 MW of residential and commercial solar.

Net Metering Debates

Utilities are not all for adapting to new and innovative business models, and in many states are continuing to push back against distributed generation. Net metering, which has incentivized hundreds of distributed energy projects, is a legislative policy that allows generators to sell unused electricity into the utility grid. Once supported by utilities, these policies are becoming more contentious across the country since in cost-of-service versus the rate-of-return regulatory jurisdictions, there is the argument that net metering prevents utilities from recouping their full return on grid investment. Utilities have raised concerns that net metering policies create an inequitable cost-sharing paradigm, whereby customers are paid for over-generation, but do not bear the responsibility or cost for updating and maintaining transmission lines.

For example, contention over net metering in Hawaii brought a regulatory proceeding to halt as the island’s utility maintained that costs are shifted to non-net metering customers. The utility recommended a model for distributed energy resources where owners would be compensated for net-metered electricity at $0.18 per kWh, which lengthens the payback period for solar infrastructure investments. Similarly, the Arizona Public Service Company (APS) established a charge for new rooftop solar panel installations connected to the electric grid through net metering, amounting to $0.70/kW—approximately a monthly charge of $4.90 for most customers.

Regulators and legislators from Nevada and California are considering whether NEM has run its course as a method to encourage solar adoption, or if the policy is a fair method of compensating rooftop generators. Utilities argue, not without merit in some cases, that they are purchasing electricity at a dollar rate greater than what it would take them to generate an equivalent amount of electrons. Moreover, electrons are only part of the story, as utilities still need to provide solar customers with standby power and voltage support to turn on their appliances and open their garage doors. Thus, NEM is heavily tied into the “grid-of-the-future” discussions as utility’s role evolves from vertical integration to DER network operators.

Offshore Wind

One of the drawbacks to renewables increasing their percentage share of the domestic energy mix is that these sources are intermittent with solar PV only generating electrons when the sun shines and wind turbines only turning when the wind blows. However consistent power - base-load - is still required, usually in the form of a fossil-fueled plant, or a nuclear facility. Offshore wind has long been touted as the next big addition to the U.S. energy mix since the wind blows harder and more consistently offshore, which would potentially allow this renewable energy source to replace some portion of base-load. Offshore wind had a rocky start in the United States as these large infrastructure projects face difficult regulatory obstacles, including a maze of permitting and environmental laws and requirements as well as classic NIMBY issues. One prominent example is the first proposed off-the-coast wind farm, Cape Wind, which has faced 14 years of litigation surrounding its development process. However, many are hoping that the start of construction of the Block Island Wind Farm off the coast of Rhode Island will trigger a gale force of offshore wind energy

Looking Ahead to 2016

The year ahead shows promise for the U.S. renewable industry—the COP 21 agreement and CPP set the stage for policies to drive and incentivize renewables, new states are opening as potential markets for both utility scale and residential rooftop solar and grid systems across the country are adapting to incentivize greater DER deployment. The stabilizing extension of the ITC and PTC ensures that these energy sources remain financeable in the New Year, and new financers may feel comfortable entering the market as the industry matures. With these policies in place, the U.S. has the opportunity to deploy more renewable infrastructure to meet stated targets, and those working in the renewable energy industry have cause for cheer this holiday season.

Topics: NY REV, Energy Policy, Energy Finance, Distributed Energy, YieldCo, Solar Energy, Renewable Energy, Wind, COP21, Renewable Energy 2015, Distributed Energy Resources, CPP, Green Tea Party, Net Metering, Net Energy Metering, NEM, DG, Energy Project Finance, Renewable 2015, Green Energy, Green Energy 2015, Solar Energy 2015, DER, Offshore Wind, Clean Power, clean power plan, Georgia Solar, 2015, energy, Wind Energy, Energy Project, Green 2015, California DRP

Odds on an Solar Investment Tax Credit (ITC) Extension Seemingly Rising by the Minute

Posted by Joshua L. Sturtevant on 12/16/15 7:22 PM

Members_only.jpgDespite “grinchy” recent predictions from some, the solar industry looks set to receive some holiday cheer with the odds on an investment tax credit (ITC) extension seemingly rising by the minute. Many credit the ITC as one of the predominant factors behind the surge of solar in the U.S. Despite some pushback from House Republicans last week, the lower chamber is set to vote on an omnibus appropriations bill by the end of this week, which includes a five-year extension of the credit.

The five-year extension would include a three-year continuation of the current 30% credit, keeping the status quo intact through 2019. This would be followed by three years of graduated step-downs. The credit would step-down to 26% in 2020 and 22% in 2021. It would finally drop to 10% in 2022. Some have speculated that the extension was a trade for a repeal of the decades-long oil export ban, which has been a sore spot for the GOP in recent years.

Until recently, and despite some pockets of great optimism, everything from posts on this page to share prices to long faces at conferences reflected pessimism regarding the possibility of an extension. However, while the bill’s failure is always a possibility, odds on an extension for the solar investment tax credit have risen dramatically in recent weeks. In short, it looks like the optimists have won this round. Admitting that one is wrong doesn’t always have to be painful… 

Topics: Structured Transactions & Tax, Solar Energy, Renewable Energy, Oil & Gas, ITC, Oil Export Ban, Investment Tax Credit, Congress

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