Energy Finance Report

Jim Wrathall

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U.S. Offshore Wind:  Mid-Year Update

Posted by Jim Wrathall on 6/7/16 2:13 PM

Co-Authors Hayden S. Baker and Morgan M. Gerard

Several speakers at the recent American Wind Energy Association (AWEA) annual conference in New Orleans lauded the positive impact of Congress's extensions of the production tax credit (PTC) and investment tax credit (ITC) in December 2015. As they noted, these extensions position wind energy for a period of unprecedented stability and growth—at least for the onshore wind sector.

Offshore_Wind_Update.jpgOffshore wind has tremendous potential in the United States, but unlike the onshore wind sector, offshore still has a long way to go to reach critical mass. The recent PTC/ITC extensions ramp down by the early 2020s. As a result, only a few early offshore projects are likely to be far enough along to benefit from the PTC/ITC extensions. Absent a further tax incentive specifically directed to offshore wind, as recently proposed by Senators Markey (D-Mass) and Whitehouse (D-RI), offshore wind will continue to rely on state-level policies to build out the necessary supply chain.

Where will U.S. offshore wind find support to attain critical mass? Here are six major areas of recent progress:

1. Massachusetts Offtake Legislation 

Massachusetts lawmakers recently introduced an omnibus bill, H.4336, which could spur as much as $10 billion of investment in offshore wind, according to Bloomberg. Several major Massachusetts projects could benefit, including those of DONG Energy, D.E. Shaw-backed Deepwater Wind and Blackstone-backed OffshoreMW. The bill would impose offshore wind energy procurement requirements on Massachusetts utilities, thereby ensuring guaranteed power sales and long-term revenues. In its current form, H.4336 would require utilities to purchase 1,200 megawatts of offshore wind, although industry proponents are pushing for a 2,000 megawatt commitment. Governor Baker is expected to support enactment of the bill although final details remain in play, particularly with regard to the balance between offshore wind and competing proposals to source clean energy from Canadian hydropower.

2. New York Renewables Standard and Proposed Lease Sale

Offshore wind should receive a major boost from Governor Cuomo’s Clean Energy Standard goal of 50% renewable generation by 2030. As Richard Kauffman, the state’s Chairman of Energy & Finance, has observed, New York is not going to meet that goal without offshore wind. Offshore developers and supply chain participants have heeded the call and are already mobilizing in anticipation of an offshore wind market centered in Long Island.

East_Coast_Offshore_Wind.jpgLong Island is a prime target for offshore wind developers. The wind resource is ample and the service territory massive (approximately 1.1 million people). In addition, the existing transmission infrastructure is constrained and the island’s geography is such that it would be difficult to construct new transmission lines. New lines would also likely become a rate-based asset, the costs of which would be passed along to the retail customer. Offshore wind could meet the island’s demand closer to the load reducing the need for new long-distance transmission lines coming from the mainland. Additionally, the price of power in Long Island and New York is generally expensive in comparison to the rest of the country, allowing developers room to benefit from higher competitive pricing.

On June 2, 2016, the U.S. Department of Interior (DOI) announced the proposed lease sale of over 81,000 acres for development approximately 11 miles south of Long Island. The proposed lease area was identified in March 2016 by the Bureau of Ocean Energy Management (BOEM) as a wind energy development area in response to an unsolicited proposal by the New York Power Authority to construct a potentially 700 megawatt installation. BOEM expects to issue its proposed sale notice soon, which will be subject to a 60-day public comment period. Additionally, there will be an associated environmental assessment and a 30-day comment period.

3. New Jersey Anticipating Post-Christie Policy Support

New Jersey is entering its gubernatorial election cycle, and offshore wind proponents are eagerly awaiting the next administration. Outgoing Governor Chris Christie recently vetoed legislation that would allow the New Jersey Board of Public Utilities (BPU) to approve qualified offshore wind projects and offer a 30-day window for developers to submit applications. The bill would have revived the 25 megawatt proposed Fishermen’s Energy project off the coast of Atlantic City, which was previously denied by the BPU. Fishermen’s Energy has garnered federal support and is eligible to obtain a nearly $50 million grant from the Department of Energy (DOE). Fishermen’s and other offshore proponents expect legislative efforts will ultimately succeed under a supportive state executive.

4. Steady Progress for Maryland 

Maryland has been supporting offshore wind since 2013 when Governor Martin O’Malley signed the Maryland Offshore Wind Energy Act. This legislation allows for the creation of credits to support wind projects 10 or more miles off the coast. The credits will act as fiscal mechanism in place to pay for at least some of the electricity generated from projected wind farms. Recently, US Wind procured federal leases to support approximately $2.3 billion in project development slated to start in 2017.

5. Industry Cooperation and Advocacy

In the last year activities of offshore sector groups and developers have picked up the pace in advocating for helpful state policies, coordinating strategies, and developing the supply chain. Offshore Wind Massachusetts and the Business Network for Offshore Wind have been central to the sector’s organizing efforts, supported by lobbying of several dozen other groups and companies. The entry of European heavyweight DONG Energy has been a major catalyst in moving the field forward not only in Massachusetts, but also elsewhere along the Eastern Seaboard, including New Jersey, where it recently acquired RES America's 160,480 acre lease area. DONG has been very active and successful in working with state policymakers.

6. Federal Activities and Preparing for the Next Administration

DOI and BOEM are pushing forward with ocean area wind leasing, environmental analysis and streamlined permitting. The Obama Administration has been generally supportive of offshore wind, but has not launched any major support at the federal level. The outcome of the upcoming presidential election obviously will be critical for offshore wind. Donald Trump is on record as a virulent opponent of offshore wind and has embraced a fossil-focused energy policy. By contrast, a Clinton Administration in 2017 could be fertile ground for executive actions seeking to accelerate progress in the industry. Offshore wind participants should begin organizing now to present transition materials and advocate for inclusion in first 100 days initiatives.

Topics: Renewable Energy, Offshore Wind, Wind Energy, DONG Energy, BOEM, New Jersey Offshore Wind, Maryland Offshore Wind, Massachusetts Offshore Wind, New York Offshore Wind

EDGE Advisory: Distributed Energy Finance Report—Highlighting Trends in an Evolving Energy Marketplace

Posted by Jim Wrathall on 5/16/16 10:43 AM


S&W, in conjunction with the World Association for Decentralized Energy (WADE), recently released our EDGE Advisory:  Distributed Energy Finance Report for May 2016.  EDGE examines energy macro-trends in distributed generation through articles and expert contributions focusing on market direction, policy updates, and innovations in finance. 

Distributed generation (generally referring to energy that is produced at or near the point where it is used) has been a growing trend for nearly a decade, but has seen recent acceleration with the confluence of improved technologies, greater levels of financing, and supportive public policy.  These developments are layered upon long standing utility infrastructure and regulatory frameworks.  State policymakers generally have mandated that utilities are ultimately responsible for providing power, particularly at the distribution market level.  Yet, to support growth in renewable energy and distributed generation, policies like net energy metering (compensating DG at the retail rate of electricity for over-generation) have proliferated.  These incentive policies have been largely successful, and have contributed substantially to the growth of rooftop and small commercial solar.

With distributed generation markets maturing, we are entering into a transitional phase as utilities focus on the added stress new technologies and resources place on their grid assets and the further complexity of grid management to account for bi-directional and intermittent power. Battles over net metering are raging in several public service commissions across the country. Certain states, such as New York in its Reforming the Energy Vision (REV) docket, are entirely revamping  the way customers will buy, sell, and consume energy at the granular level.  In the meantime, market forces have severely punished business models that have been overly aggressive, most notably yieldcos such as SunEdison, with resulting impacts at the project development and finance level.

This month’s EDGE Advisory addresses these current issues and more.  It provides market intelligence for active participants and new entrants, ranging from policy and regulatory developments to financing and structural choices.  Featured topics include:

  • Wither Yieldcos? How Better Methodologies Can Improve Yieldco Prospects
  • The future of NY-REV: A New Model for Distributed Energy in New York
  • Net Metering in Play in New York
  • Anaerobic Digesters Give Universities Food for Thought
  • Mid-Atlantic States and Distributed Generation
  • Federal Update
  • Report from the States
  • Global Perspective: COP 21—Clean Energy After Paris

We hope EDGE Advisory will provide helpful intelligence and add value to participants across the market.  Please do not hesitate to contact any of us on the S&W Energy team if there are topics of particular interest or further follow up that may be of assistance in your business or investment projects. 

Topics: Edge

U.S. Offshore Wind Seeks Critical Mass

Posted by Jim Wrathall on 3/9/16 3:30 PM

Co-author Hayden Baker

Wind_Turbine_Offshore_Under_Construction.jpgLast week’s U.S. Offshore Wind Leadership Conference in Boston had the vibe of a technology sector ready to break out. Industry leaders, federal officials, and a panel of Massachusetts legislators extolled the economic opportunities, and U.S. Senator Edward Markey and Massachusetts Energy and Environmental Affairs Secretary Matthew Beaton delivered inspiring keynotes. Speakers were interspersed with high-energy videos of offshore wind installations in European waters, along with many side meetings among project developers and hopeful supply chain participants.

Offshore wind is garnering more than just hype in 2016. Key developments have this once fledgling energy source poised to finally gain momentum in the United States.

As detailed in our Wind Systems magazine article, the merits of U.S. offshore wind are compelling. At the conference, representatives of DONG Energy and other developers active in U.S. waters described the enormous wind potential of the mid-Atlantic and New England coastlines, focusing on the proximity to underserved energy demand around major urban centers.  Siemens U.S. Offshore Wind Director Jason Folsom discussed a recent study demonstrating the overwhelming economic value of offshore wind relative to conventional power generation when all costs and benefits are considered – even before taking into account greenhouse gas reductions.  Comparing cost curves to other renewable energy technologies in the U.S. marketplace, industry observers expressed confidence that as the industry ramps up there will be sufficient competition to quickly drive down the costs of installation and transmission.

With backing from D.E. Shaw, Deepwater Wind is on schedule to complete its Rhode Island Block Island Wind Farm later this year. The 30 megawatt, 5 turbine project will be the first to come online in U.S. waters.  Block Island is only a precursor to the larger projects currently slated for Massachusetts by DONG Energy, Deepwater Wind and Blackstone-backed OffshoreMW, each of which holds a sizeable federal lease south of Martha’s Vineyard. 

The U.S. industry appears at a tipping point. Sophisticated, experienced developers are ready with mature technology, supportive regulators and abundant wind resources located near load centers.  But the sector needs sufficient reliable demand to justify the massive supply chain investments necessary to scale-up development. 

As the necessary parties for offshore wind step into place, the desire for coastal wind resources, particularly in New England, is becoming acute. Major coal and oil fleet retirements in ISO New England alone are expected to drive at least 3,500 MW of new capacity demand by 2018 – and the ISO estimates several thousand more megawatts are at risk of retirement by 2020. Natural gas plants are not a viable replacement at this scale without significant investment in pipeline infrastructure, leaving offshore wind and imported Canadian hydropower as the primary options for new energy resources in the region. Responding to these factors, Massachusetts legislators reported they expect to announce a comprehensive energy bill this spring.  The sector is poised to receive a huge boost if the bill promotes long term utility purchases of offshore wind energy – and assuming it becomes law. A strong Massachusetts bill could be a prompt for other states, particularly New York, and set the stage for regional cooperation on supply chain development and transmission. Recognizing that the U.S. industry would benefit from a longer glide-path to achieve those lower rates, Senator Markey also touted his forthcoming proposal to extend the 30% federal investment tax credit for offshore wind until 2025.

While all eyes are on the Massachusetts energy bill for the next step, developers are positioning themselves for growth down the coast as well. For instance, in New Jersey, DONG Energy recently acquired from RES Offshore a lease in federal waters off the Garden State’s coast.  Meanwhile across the Hudson River, Deepwater Wind is reportedly considering a waterfront terminal in Brooklyn to stage its offshore activities in the Empire State and to build up the regional infrastructure. In Maryland, US Wind’s proposed $2 billion, 250 MW project has passed initial screening tests and is in the process of qualifying for valuable credits under Maryland’s Offshore Wind Energy Act of 2013.

State policies supporting long term utility offtake agreements are the key to filling the project pipeline. But as the Massachusetts legislators reminded Leadership Conference participants, short term electricity rates are the political measuring stick against which state energy proposals will be evaluated. Koch brother-supported opponents are well funded and undoubtedly will continue their grass roots strategy stoking fears of increasing electricity rates.

In light of these developments, what was the bottom line takeaway from the U.S. Offshore Wind Leadership Conference? The opportunity is huge.  But given the broader political dynamics, business as usual for offshore wind developers likely will not be sufficient.  For offshore wind proponents, now is the time for redoubled public advocacy informing both politicians and the public alike of the vital stakes in this debate.

Topics: Wind, Massachusetts, Offshore Wind, Wind Energy, DONG Energy, Deepwater Wind, BOEM, Siemens

Nevada Solar Update: Senator Harry Reid Takes On Warren Buffet’s Berkshire Hathaway in Net Metering Debate

Posted by Jim Wrathall on 9/8/15 8:00 AM

Nevada ThinkstockPhotos-78779262

Co-author Morgan Gerard

Nevada’s solar net metering policies will continue until year end, perhaps in part thanks to Senator Reid (D-NV) who threatened to intervene in the state’s Public Utilities Commission’s (PUC) review of the policy. Senator Reid, a staunch renewable energy advocate, believed that residential solar in Nevada had gotten a “lousy deal,” and pointed the finger at Warren Buffet’s Berkshire Hathaway. The Silver State’s Senator was referring to changes to Nevada’s net metering program, which gave solar-rooftop homeowners credit for system’s over-generation up to an aggregate of 3% of the peak load of Nevada’s Berkshire Hathaway-owned utility, NV Energy. As solar installations quickly neared the 3% cap, renewable advocates struck a compromise with NV Energy in supporting Senate Bill 374, which raised the limit to 235 megawatts of residential systems to qualify under net metering through the end of the 2015.

NV Energy had assured the legislature that this cap wouldn’t be reached until 2016; however, the net metering boundary had again been reached, and to catastrophic effect for some solar installers. The second largest U.S. rooftop solar installer, Vivint Solar, ramped up operations in July in reliance on enjoying stable net metering policies. In response to learning the cap was nearly at capacity, Vivint exited the state after only two weeks of operation, leaving a warehouse and 30 employees in its wake.

The deal struck with the Senate’s bill also moved jurisdiction over the broader net metering issue to the PUC, which approved an extender on the existing net metering and rebate policies to stabilize the residential market. The PUC will re-review net metering polices and grid costs before the end of the year, and NV Energy has submitted a thousand page proposal to include new fees, taxes and a nearly $14 demand charge for rooftop solar system owners.

This demand charge would force solar systems owners to in essence pay a “premium” for demanding electricity from the grid based on their peak usage during the month. Solar users would be charged for electricity by NV Energy: first, with a basic service charge; second, an energy consumption charge, based on total consumption in a given month; and third, for demand, based on the highest capacity required during the given billing period, measured in 15-minute intervals during that month’s billing cycle. Thus, NV Energy’s demand charge would require the peak demand each month to be multiplied by $14, a hard hit for any homeowner’s electric bill.

While NV Energy is promoting policies that make roof top solar potentially uneconomic, Warren Buffet has boosted his holding company’s massive investments in large-scale renewable energy—an attractive investment in the state due to Nevada’s ample solar incentives for industrial sized installations for businesses and power companies. The state has enacted a sizeable Renewable Portfolio Standard (RPS) and provided property tax exemptions for utility-scale projects. Although, as the holding company is monetizing the federal Investment Tax Credit (ITC) and taking advantage of these favorable state policies, residential roof top solar has lagged behind due to a combination of an ad-hoc interconnection policy, historically inconsistent solar rebate programs and lack of a residential property tax exemption. Net metering was among the incentives available to homeowners to become self-generators; however, the battles over the cap are disincentivizing the growing industry.

Utilities maintain that solar, net metering customers are not participating in contributing to the fixed costs of the grid and shifting costs onto non-solar customers while still reaping the benefits of consistent grid power. Although solar energy has only reached a one-percent penetration rate in the United States energy mix, the storyline in Nevada is unfolding all over the country as utilities grapple with distributed generation. Some states are moving towards more utility owned renewables, like in South Carolina where the local utilities are mandated to submit plans to include and procure distributed energy resources. On the other hand, New York and California are experimenting with different rate schemes that would allow the utility to survive and perhaps thrive in a distributed energy environment. The Nevada Public Utilities Commission is set to vote before December 31, and Senator Reid is set to interfere stating that the “monopolistic attitude that no longer works and the utilities can’t keep people from generating their own electric power in a diversified and much greener system.”

Topics: Utilities, Energy Policy, Legislation, Distributed Energy, Solar Energy, Renewable Energy

Six Questions to Consider about Microgrids

Posted by Jim Wrathall on 7/14/15 2:30 PM

microgrid ThinkstockPhotos-156606910


What is a microgrid?

The traditional electricity distribution model can be viewed as a “macrogrid,” using a large centrally located power station to provide electricity over an extensive service territory. This model was designed during the early days of electrification with the objective of providing affordable and reliable power to as many customers as possible. However, with technological advancements, a localized microgrid may provide the multiple benefits of grid resiliency and cleaner, more efficient energy production and distribution. Regarding resiliency, the microgrid may be able to disconnect or “island” from the macrogrid, minimizing and isolating blackout incidents and providing for power redundancy. Concerning energy efficiency, the microgrid uses local sources of energy to serve local loads, reducing energy loss in transmission and distribution. Additionally, this smaller grid can more easily deploy distributed energy resources (DER) such as solar energy and combined heat and power (CHP) to meet grid demand.

Why the push towards microgrids?

As stated above, microgrids provide the dual benefits of energy efficiency and resiliency. Picture Superstorm Sandy in Manhattan, if downtown had the capability to island and maintain power notwithstanding the downed Con Edison station? Or, perhaps, picture the upper east side of Manhattan being able to provide some power to the seven million people left without electricity? Even the nation’s capitol is vulnerable, as demonstrated when a PEPCO transmission line recently took out power in downtown D.C., with power disruption affecting federal buildings including the White House Complex. Not to mention, electricity can be saved by diminishing losses from long transmission.

Ok great! Why not build microgrids everywhere?

Currently, developers face uncertainties as there is not a clear policy or regulatory path in place, thus affecting the potential to obtain private financing. Previously, we lacked the technological capability to deploy a variety of distributed generation (picture roof-top solar, a traditional combined heat and power station, and a small wind turbine working together in different locations) through a set of advanced, real-time controls to manage energy demand across the entire microgrid. While the idea of a clean-tech microgrid is relatively new, the concept of a microgrid is not so new. University campuses, military bases and some industrial parks have been operating them for years, maybe even decades, but all such grids are on a solitary campus with one stand-alone energy customer. What is new is the desire to place microgrids throughout a utility grid system servicing commercial customers, perhaps in competition with the utility. The potentially competitive relationship with the utility may be why we haven’t seen microgrids popping up everywhere, unless they are utility-sponsored.

What is the utility’s stake in microgrid adoption?

Where a third-party, non-utility provides electric generation and distribution to retail customers, the utility may have a lot at stake. The traditional model always has been the use of a macrogrid, in which a solitary utility provides both the generation and distribution of electricity for a specified geographic area, their “service territory.” Simplifying the regulatory terrain, utilities are heavily regulated in exchange for their exclusivity and must set rates through a proceeding before the state’s public service commission (PSC). This is why electricity bills typically remain constant because change can only occur in a rate making proceeding. Depending upon how the state set up its relationship with the utility (during the late 1800s or through some subsequent restructuring), the utility may own its right to exclusivity, making it very difficult for a state to change its laws.

Some states and their utilities have opened the market to multiple electricity generating entities and, for example, enabled solar providers such as SolarCity through third party roof-top leasing. However, utilities have invested a great deal of capital in fixed wire distribution systems that physically connect your homes or businesses to electricity. Microgrids would directly compete with such fixed wire distribution; therefore, utility resistance may be expected. Depending upon the jurisdiction, fixed wire distribution may be the exclusive franchise of the utility. However, some states, like New York with its Reforming the Energy Vision (REV) docket, are seeking to modify the utility relationship, showcasing the vast differences in utility precedent by jurisdiction.

Are there other obstacles to microgrid adoption?

Lawmakers and public service commissions may need to realign their energy laws and regulations to enable the clean-tech microgrid. For example, to make a private microgrid financeable, the developers will need to know approximately how many customers (ratepayers) they can lock into their grid. Many states have competition laws that allow customers to choose their electric generation supplier. This approach may disadvantage a financed microgrid, as customers may be able to switch providers. Also, it is unclear what level of regulation microgrids will experience. Are they utilities? The common answer is most likely not, but the question remains: will there be any requirements in place to prevent rate spiking? Another unknown, will the microgrid as a whole be able to net-meter to the macrogrid? What will the interconnection procedures look like? The list of uncertainties needs to be addressed to provide developers and financers with better clarity.

With all of these challenges, what is the future for microgrids?

There is accelerating momentum behind the push to deploy microgrids. SolarCity already is offering a microgrid service to collaborate with municipalities and universities. With more severe and unpredictable storms and increased vulnerability to cyber-attack, microgrids are becoming the next horizon for our energy future. Utility and policy concerns are surmountable as demonstrated by REV and the market restructurings that enabled competitive generation. To gain a foothold, the microgrid revolution will take a tailored approach to local issues, and will be led by some pioneering developers, and, perhaps, a handful of forward-thinking utilities that are ready to capitalize on a new opportunity.

Topics: Utilities, Energy Policy, Structured Transactions & Tax, Energy Storage, Energy Efficiency, Microgrid, Energy Finance, Distributed Energy, Energy Management, Solar Energy, Renewable Energy, Public/Private Partnership, Wind

EDGE Distributed Energy in Focus: How Can Hybrid Resources and Microgrids Overcome Financing Challenges?

Posted by Jim Wrathall on 7/8/15 2:48 PM


In Sullivan & Worcester’s most recent quarterly newsletter, the EDGE Advisory, we address one of the major advancements in distributed energy clean-tech, the microgrid. This year has seen major headway in the deployment of hybrid distributed energy resources and microgrids, along with accompanying innovation in financing for these solutions. Several leading players in solar, battery storage and advanced power management automation have announced major investments in new microgrid adaptable technologies.

Expanding sources of financing will be critically important to achieving growth in this emerging sector. However, hybrid distributed generation and microgrid projects raise unique operational, technology and regulatory issues that must be carefully assessed in evaluating and structuring financing. The ability of the financial markets to understand, accept and properly price these factors will impact the pace and breadth of deployment of these technologies.

Financial investors focus on several key gating and due diligence items in evaluating microgrid and hybrid projects. Major considerations include:

Wind turbine and small town in Germany• Resource evaluation and costs—economic returns on these projects are somewhat different than the standard renewable energy installation as microgrids involve an interplay of various technologies to create a small grid eco-system that may involve innovative pricing for maintaining distribution fixed-wire channels, regulatory overlay and cyber-security concerns.

• Power control technology assessment—advanced software controls are necessary to deploy multiple, and sometimes diffuse, generation sources to meet grid demand. Additional cyber-security measures may become a compulsory added cost feature.

• Portfolio aggregation—financing a microgrid entails an aggregation of assets that may be attractive to investors as a grid system may be pooled into a yieldco structure.

• Valuation of grid services—the public benefit of supplementing the macrogrid for added services like demand management may be difficult for PSCs to quantify, but may allow for opportunities for utility partnerships and perhaps supplemental income to power generation for investors.

• Valuation of grid resilience and security functions—the added resiliency and security benefits may be difficult to quantify. Valuation metrics need to be developed to determine the overall macrogrid public benefit that added energy security provides.

Microgrids present complex regulatory issues, as they involve the erection of wires, substations, conduits and other facilities that require rights of way, easements and interconnection to the larger grid. Unlike utilities, private microgrid owners do not enjoy the powers of eminent domain. Nor can they “rate base” their investments like utilities. Microgrids should be incorporated in a manner to avoid redundancies and overlaps with utility planning and facilities. Other obstacles include lack of an existing regulatory framework, unclear safety standards, utility opposition and permitting delays. With respect to utility opposition, three factors can be particularly problematic: (1) excessive fixed and stand-by charges; (2) interconnection barriers; and (3) restrictions on rights to sell back to the grid.

Financing frameworks for hybrid distributed energy and microgrid projects present unique considerations and may require time to gain acceptance by money center banks and other financial institutions. Leasing, shared savings, and portfolio models can borrow from existing approaches used for single-technology solar and wind transactions. Developers and investors looking at particular states or projects also should identify existing programs seeking to establish standard rules and procedures for addressing the regulatory issues cited above. To the extent such efforts are in process, there may be opportunities to shape the standards and ultimately to optimize prospects.

For other insights on microgrids and the future of distributed energy please see our EDGE Advisory for a full report.

Topics: Energy Security, Power Generation, Microgrid, Energy Finance, Distributed Energy, Energy Management, Renewable Energy

New Programs Implementing South Carolina’s Distributed Energy Legislation

Posted by Jim Wrathall on 6/4/15 12:44 PM

SC flag-117956223Last week South Carolina’s major utilities announced new residential solar incentive programs under the state’s Distributed Energy Resource Program Act (DERPA). Signed in mid-2014 by Governor Nikki Haley, DERPA requires utilities to establish distributed energy resources programs, authorized third-party solar leasing, and updated the state’s net metering program.

As reported in earlier posts, other Southeastern states such as North Carolina and Georgia, are supporting solar energy as an economic development driver and job creator. Development spurred by North Carolina’s renewable energy policies is reported to have resulted in 5,600 new jobs, at 166 different companies, in recent years. By contrast, despite plentiful resources, in 2014 South Carolina installed only 1 megawatt (MW) of solar electric capacity, for an aggregate total of 9 MW, and was ranked 33rd nationally, well behind North Carolina at 4th and Georgia at 16th.

South Carolina’s New Utility DER Programs

DERPA requires each major South Carolina utility to submit a proposed distributed energy resource (DER) program 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. Duke Energy announced that later this year it will issue a request for proposals (RFP) for more than 50 MW of utility-scale solar facilities. As part of the RFP, Duke Energy will solicit purchase power agreements (PPAs) with 15-year terms and proposals to acquire projects. SCE&G has already issued its first RFP, for approximately 4 MW total, and is finalizing project terms with award recipients.

Residential Solar

DERPA requires the utilities to promote residential DER ownership and leasing programs. The leasing mechanism allows a third party to own the rooftop solar system and its attributed tax credits and environmental benefits while selling power to the homeowner via a PPA. The third-party typically installs and maintains the system at their expense. This model has been successful for solar giants like SolarCity, and is incentivizing “big solar” to increase activity in the Palmetto state.

South Carolina residential solar also is supported by its Solar Energy Tax Credit, a state tax credit of 25% of the purchase and installation costs. The maximum credit that can be applied in a single tax year is $3,500 or 50% of state tax liability, whichever is less. Unused credit may be carried forward for 10 years. This credit can be used in addition to the 30% federal Investment Tax Credit (ITC).

Net Metering Updates

DERPA also established new net-metering standards, adding to the attractiveness of rooftop solar. A settlement between the utilities and ratepayers and environmental advocates was filed with the Public Service Commission in December 2014. This arrangement would allow residential and commercial customers to receive full credit for excess generation at retail rates, and bars utilities from imposing additional fees on projects installed by 2021. However, total net metering payments are capped at an aggregate of 2% of the utility’s peak demand, a cap that can impose a major constraint on the potential for net metered energy.

“Rush to Solar” For Residential, But Not So Clear for Utility-scale

Recent utility press announcements have described the new programs as creating a “solar power rush” in South Carolina. While the new incentives undoubtedly will accelerate momentum towards residential solar deployment, it remains unclear whether the new utility programs will foster sustained growth in larger scale solar in South Carolina.

While the utility RFPs are positive steps, opportunities for developers and investors may be limited. The processes and timeframes for project review and approval, interconnection requirements, and PPA terms will need to be carefully considered. In a market that was not that big to begin with, the goal of 2% renewables is quite modest. Given these factors, while there certainly will be increased opportunity in South Carolina, it is doubtful that these efforts will pay off in job creation and investment opportunity at the relative scope we have seen in North Carolina.

Topics: Utilities, Energy Policy, Energy Finance, Solar Energy, Renewable Energy

Georgia: Renewable Energy on the Rise

Posted by Jim Wrathall on 4/22/15 12:35 PM

welcome to georgia-136566123Developers and investors are seeing increasing clean energy opportunities in Georgia. Below we discuss recent Georgia solar legislation, growth in biomass, and the major potential for wind power in the state, as well as related ancillary benefits in reduced energy-related water demands.

New Solar Legislation Approved

Solar markets in Georgia appear poised for major growth following recent legislative activity. On March 27, the Georgia legislature 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. In addition, the bill permits third-party ownership of commercial solar energy installations, up to a limit of 125 percent of the customer’s actual or expected annual peak energy demand. Georgia Governor Nathan Deal is expected to sign the bill soon.

Despite lacking strong policy incentives such as a Renewable Portfolio Standard (RPS), Georgia ranked 7th among the U.S. states in 2013 in new solar installations, attracting $326.2 million in private investment in the solar energy sector, a 1,025 percent increase over 2012, the largest gain of any state in that year. In lieu of mandatory standards such as an RPS, Georgia has relied largely on voluntary clean energy programs, which are expected to bring nearly 900 MW in renewables online by the end of 2016.

The state’s largest utility, Southern Company subsidiary Georgia Power Co., has been recruiting private sector participants through its Advanced Solar Initiative. Additionally, the utility is working with the U.S. Army Energy Initiatives Task Force to build, own, and operate 90 MW of solar power across three Army bases, which will, when operational, cover an estimated 18% of the energy used by the Army in Georgia. Another potential opportunity is presented by power sales in out-of-state markets, with a study by Arizona State University finding Georgia to be one of the top three states that could benefit from cross-border sales.

All of this activity is translating into substantial job creation. According to one study, solar jobs in Georgia are expected to increase by nearly 40% from 2014 through the end of 2015.

Setting the Pace for Biomass Energy

According to data compiled by The Pew Charitable Trusts, 100.5 MW of biomass capacity was installed in Georgia in 2013, the most out of any renewable energy sector in the state. With its substantial forest resources, Georgia is set to become a beacon for biomass, aided by investments by Constellation, a subsidiary of Exelon Corp. For example, Constellation is set to build a $200 million cogeneration plant in Albany, Georgia, to provide electricity to Southern Company’s Georgia Power and steam to Proctor & Gamble (P&G). This commitment represents a major investment by P&G which plans to use the steam to dry its paper products, substantially reducing the carbon footprint of the energy intensive pulping process.

Major Potential for Wind

Georgia does not presently host large scale wind farms, but may soon be in for a wind makeover based on recent models demonstrating the potential for wind resources. The National Renewable Energy Laboratory’s (NREL) new wind resource potential maps, which bases its projections on the use of more advanced turbine designs on newly available land, show a gross capacity factor of at least 35%, indicating over 8 gigawatts of land-based wind potential in the state. NREL’s Jobs and Economic Development Index (JEDI) indicates that developing just one gigawatt of this wind power in Georgia would result in around 4,400 direct, indirect and induced jobs during construction and 130 ongoing operation jobs with a total annual payroll of $7 million.

The shoreline potential for wind power in Georgia is also bright. A recent report by the Southern Alliance for Clean Energy focuses on the role that Georgia’s nearshore and offshore development areas could play in replacing expensive peak generation providers to avoid summertime blackouts. Georgia Coastal and Marine Planning, in conjunction with Georgia Tech, Georgia Department of Natural Resources (DNR), and the National Oceanic and Atmospheric Administration, has created the Georgia Coastal and Marine Planner, which is a GIS data collection that will help determine ideal locations for offshore wind development. Additionally, Georgia Power recently announced that it has applied to deploy a site-specific wind data collection configuration off the coast of Tybee Island, Georgia.

Water Considerations

An added benefit of deploying wind and solar energy is the inherent reduction in water use, which is particularly vital in Georgia and other states that are prone to droughts. Georgia, which has also been entangled in “water wars” with neighboring states, stands to benefit greatly from the water-saving aspects of wind and solar. A recent NREL study estimates that an addition of 1000 MW of wind energy in Georgia would result in annual savings of 1.628 billion gallons of water, as well as related reductions in energy use for managing that water.

If you have any questions regarding renewable energy projects in Georgia, please contact our Energy Finance group.

Special thanks to Morgan Gerard and Emma Spath who assisted in the preparation of this post.


Topics: Utilities, Water, Biomass, Energy Policy, Solar Energy, Renewable Energy, Wind

Arizona Update: Solar Controversies Causing Market Upheaval

Posted by Jim Wrathall on 3/4/15 7:57 AM

cactus at sunset - 526116097

Co-author Eli Hinckley

Market Update

Arizona’s solar industry has grown tremendously in recent years. With abundant solar resources and (until recently) favorable policy frameworks, the state has grown to total 701 MW of installed solar capacity, ranking it second nationally behind only California. However, Arizona’s growth in solar has slowed since 2013, in part as a result of ongoing controversies involving the state’s major electric utilities. Arizona is seen by many as ground zero in the evolving battle between utilities and distributed generation proponents.

Utility Charges Impeding Solar Deployment

In 2013, the Arizona Public Service (APS) sought to impose major charges on distributed generation customers, but was largely rebuffed by the Arizona Corporation Commission (ACC). APS requested a monthly charge for net-metering customers of $8 per kilowatt of installed capacity for grid connectivity, a charge that could have exceeded $50 monthly on average. A compromise was approved by the ACC, authorizing a “connection fee” of $0.70 per kilowatt of installed capacity per month for net-metered customers, about $5 a month based on average usage. This result was generally viewed as averting a major threat to distributed generation deployment in the APS service territory.

In February 2015, however, Salt River Project (SRP), the retail electric utility for Phoenix, approved a pricing plan that would add a fee of about $50 per month to all leased and owned solar systems, through a higher fixed service charge and demand charges. The new charges are scheduled to take effect in April.

SRP claims the new fees are needed to ensure solar customers pay their fair share for their use of the electrical grid, and to support maintenance and upgrades on the network. According to Credit Suisse, the $50 per month charge makes the economics of solar in SRP’s area “effectively non-viable.”

In response, SolarCity filed a lawsuit in federal court in Arizona, asking the court to stop SRP’s allegedly anti-competitive behavior. SolarCity says that SRP has “sabotaged the ability of Arizona consumers to make this choice if they happen to live in SRP territory. We can already see the intended effects: After the effective date of SRP’s new plan (December 8 of last year), applications for rooftop solar in SRP territory fell by 96%.” SolarCity contends that the fee would jeopardize the more than 9,000 solar jobs in Arizona.

worker and solar panels - 465047912Utilities as Solar Providers

As an alternate strategy, in mid-2014 APS sought regulatory approval of its proposal to install solar panels at no cost to the homeowners. The program, called “AZ Sun DG” would install 3,000 residential 4-8kW solar systems. APS would effectively be leasing consumers’ rooftops for a $30 a month savings on their bill.

In late December, the ACC voted to approve APS’s request, although with certain restrictions and conditions. The ACC approved a similar type of program proposed by Tucson Electric Power Company. With these decisions, Arizona utilities may increasingly seek to act as active participants in the solar and distributed generation markets.

Tax Interpretation Under Fire

In July 2014 the Arizona Department of Revenue (ADOR) took the position that solar energy equipment is taxable if it is owned by a solar company and installed on another person’s property. ADOR assigned the value for property tax purposes at 20% of the system’s depreciated cost, which amounts to about $152 a year for an average solar customer. The Department’s action has prompted a lawsuit by SolarCity and SunRun. As 85-90% of the state’s rooftop solar installations are leased, rather than owned, this new tax could have a strong negative impact. The lawsuit is ongoing.

Solar Business Practices Investigation (or Anti-competitive Utility Assault?)

In December 2014 the ACC launched an investigation into the business practices of the rooftop solar industry, a move that aims to address mounting concerns that solar leasing companies are misleading consumers. More recently, information has surfaced that APS was behind a campaign to have members of the U.S. Congress call for similar investigations into alleged deceptive solar business practices.

As these developments indicate, distributed generation will continue to be a contentious issue in Arizona. Developers and investors considering the major opportunities presented there should give careful consideration to these shifting dynamics.


Special thanks to Morgan Gerard and Emma Spath who assisted in the preparation of this post.

Topics: Distributed Energy, Solar Energy, Renewable Energy

Virginia Solar Projects Moving Forward: A New Growth State for Clean Energy?

Posted by Jim Wrathall on 2/25/15 6:28 AM

Co-author Eli Hinckley

Governor McAuliffe Issues Public-Private Partnership Request

While Virginia historically has not offered robust clean energy incentives and programs, Governor Terry McAuliffe appears determined to reverse the trend. On January 16, 2015, the Governor’s office released a request for information (RFI) seeking data on potential public-private partnerships (P3s) for solar energy development in and around state owned property. The RFI is directed towards experienced individuals, firms, teams, and organizations that can help in development, financing, design, or building of P3 solar projects above 100kW. Responses are due by March 13, 2015.

magnifyglassDominion Power Proposed Solar Facility

Four days after this announcement, Dominion Virginia Power filed a request with the Virginia State Corporation Committee (SCC) to build what reportedly would be the largest solar facility in the Commonwealth. Dominion proposes to build the 20 MW facility near its Remington Power Station in Fauquier County on a 125-acre plot owned by the company. Dominion’s experience in solar energy includes 334 megawatts of solar generating capacity in six states outside of Virginia. The new solar array will be capable of powering around 5,000 homes at peak productivity, estimated by Governor McAuliffe to nearly double Virginia’s production of solar energy. Dominion Virginia Power is currently evaluating three fixed-price bids and will make a decision on contracting by April 1. The project targeted to be in service by October 2016.

Thoughts for Solar Developers and Investors

The recent actions by Dominion Power and Governor McAuliffe support the Governor’s statement that “Virginia is serious about enhancing its solar energy industry.” Last year the Virginia Office of Transportation Public Private Partnerships (OTP3) issued a project screening report that gave guidelines of suitability for public-private partnerships and identified hindrances to rapid solar energy uptake in Virginia. Among the challenges to development is Virginia’s voluntary Renewable Portfolio Standard (RPS), as opposed to the mandatory structure successfully adopted by twenty-nine states. Another obstacle noted is the lack of state tax incentives for private developers, causing project sponsors to rely solely on national tax incentives such as the Investment Tax Credit (ITCs), which will only apply to systems in service by the end of 2016 unless extended by Congress.

While the current RFI focuses on government support for leveraging state-owned sites, the P3 approach will bring private development and investment into the mix. The Governor’s stated objective is that with continued government support the market will take note of Virginia’s major untapped solar potential. The state has become haven for large commercial and industrial facilities, including data centers and manufacturing, which require high loads of power and may act as reliable off-takers for renewable generation. However, as was the case with Ikea, companies may choose to own their systems and possibly monetize the Renewable Energy Credits (RECs) in the nearby Pennsylvania market. Prospects for increased solar development and investment would be heightened by a mandatory and stable Virginia REC market. But this would require action by the Virginia General Assembly, which thus far has acted more as an obstacle for renewable advancement. The big question for the next couple of years is whether the substantial economic benefits called out by these kinds of projects will be able to overcome legislative inertia and opposition.

Investors and developers should stay tuned. As in certain other states in the South and Southeast, including Louisiana, Georgia and South Carolina, solar looks to be on the upswing in Virginia. Policy changes and projects such as these may unlock major new opportunities.

Special thanks to Morgan Gerard and Emma Spath who assisted in the preparation of this post.

Topics: Energy Policy, Solar Energy, Public/Private Partnership

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