Energy Finance Report

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

Posted by Jeffrey Karp 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

Mid-Atlantic: Distributed Energy Opportunities

Posted by Jeffrey Karp on 11/3/15 11:58 AM

Solar panels at a roof with sun flowersThe Mid-Atlantic region (Maryland, Delaware, Virginia and the District of Columbia) is currently at the forefront of discussions regarding the next generation of distributed electricity markets. Notable developments pushing the region into the spotlight recently include M&A activity, creativity on the part of public service commissions, local innovations in PACE finance, and increasing flexibility on the part of local utilities.

Programs and developments of particular note include:

- Net metering and renewable portfolio standards in Maryland

- PACE financing in Montgomery County, Maryland

- Discussions around undertaking a REV-like proceeding in Maryland

- Interconnection standardization in D.C.

- Microgrid studies being undertaken in D.C.

- Potential third-party bidding for large-scale solar in Virginia

- Renewable portfolio standards and net metering in Delaware

- Community solar innovations and discussions throughout the region

Please join SEIA and Sullivan & Worcester’s Energy Finance team on November 5th live in SEIA’s new offices, or by dial-in, as we host a roundtable discussion on developments in the region and the unique business opportunities they could present. After Rhone Resch’s introductory remarks, Elias Hinckley will moderate a panel comprised of industry experts with unique opinions, including Maryland PSC Commissioner Anne Hoskins, Dana Sleeper of MDV-SEIA, Anmol Vanamali of the DC Sustainable Energy Utility, Bracken Hendricks of Urban Ingenuity and Rick Moore of Washington Gas. Interested parties can register here.

Topics: Water Energy Nexus, Utilities, Water, Carbon Emissions, Energy Security, Thermal Generation, Energy Policy, M&A, Structured Transactions & Tax, Energy Storage, Energy Efficiency, Power Generation, Microgrid, Energy Finance, Distributed Energy, Energy Management, Solar Energy, Renewable Energy, Wind, Oil & Gas

First Democratic Presidential Debate Recap— Where Do the Candidates Stand on Energy?

Posted by Jeffrey Karp on 10/16/15 9:59 AM

American Republican and Democratic party animal symbolsIn stark contrast to the Republican match up in September, energy and climate change related policy was freely discussed during the first Democratic presidential debate. For energy industry participants, the question becomes: how will climate policies affect the kinds of projects that get built and financed if a Democrat becomes President? The takeaway after surveying the positions of the candidates presented on Tuesday night is that Americans would be building a great deal of new energy infrastructure.

Martin O’Malley: Former Maryland Governor O’Malley advocated for a green energy revolution, and put forward a plan to move the country to a 100% clean electric grid by 2050. He claims that his clean energy plan would create 5 million jobs along the way. Stressing the fact that he was the only candidate to set forth a compressive energy plan, Mr. O’Malley took issue with President Obama’s current “all of the above” strategy. In particular, Mr. O’Malley’s plan would ease financing for solar and wind energy project development by extending tax incentives through the Investment Tax Credit (ITC). His plan also calls for stricter rules to curb greenhouse gas emissions and to encourage energy efficiency. Although hawkish on clean energy, Mr. O’Malley did not address the recent domestic oil and natural gas boom. He also did not address the country’s transition towards 100% clean energy while maintaining base load and peaking.

Jim Webb: Former Virginia Senator Jim Webb was the outlier pro coal candidate on the slate who also supports offshore drilling and the Keystone XL oil pipeline. He touted his Senate record as an “all of the above” energy policy legislator, and highlighted his introduction of alternative energy legislation. Mr. Webb also pledged his strong support for nuclear energy as both clean and safe.

Bernie Sanders: Senator Bernie Sanders challenged Mr. Webb on the issue of nuclear energy as “safe,” but wants to act aggressively on the climate change front. Although, Mr. Sanders did not promote a plan for the nation’s energy future, he advanced a bill in July in the Senate that would make solar energy more accessible to low income families. The Sander’s bill would allocate $200 million of Department of Energy loans to offset the upfront costs of installing solar facilities.

Hillary Clinton: Former Secretary of State Hillary Clinton did not address energy policy, but seems comfortable following an “all of the above” strategy. She is a defender of the Clean Power Plan. According to Mrs. Clinton’s “climate change fact sheet,” she would extend the ITC and expand installed solar capacity to 140 gigawatts by the end of 2020, a 700% increase from current levels. Mrs. Clinton’s plan lacks a strategy on the natural gas shale boom occurring in America, but she just may be holding back discussing her complete energy policy as she did with her decision to oppose the Keystone XL oil pipeline.

Lincoln Chaffee: Former Rhode Island Governor Lincoln Chaffee stated that he consistently has taken on the coal lobby during his time in the Senate and named the lobby the enemy he is most proud of combating. Although he didn’t have an opportunity to comment on energy policy, his campaign website states that he always has opposed the Keystone XL oil pipeline, as well as drilling in the Artic region.

Energy and climate change issues will remain a priority topic for the Democratic candidates on the campaign trail and it will be interesting to watch the role these issues play in future debates. Both parties appear to support building more energy infrastructure. However, they seem to diverge on the types of projects that would be promoted, with Republicans leaning towards building oil and gas pipelines with varying stances on renewables while Democrats favor solar energy development. Although the primary season has just begun and it is early in the election cycle, participants in the energy sector should be mindful of how the candidates’ energy policies may impact their business model.

Topics: Carbon Emissions, Energy Policy, Energy Finance, Distributed Energy, Solar Energy, Renewable Energy, Wind, Oil & Gas

Will Methane Emission Reduction Requirements Affect Renewable Energy Investment?

Posted by Natalie Lederman on 6/2/15 8:15 AM

oil and gas well-178604463Early this year, the White House announced its plans to impose new regulations on the oil and gas industry’s methane emissions. Controlling methane emissions from oil and gas well flaring and leaks has been identified as a critical step in slowing global warming. Domestic oil and gas production has surged over the past few years, and with it concerns have been growing over the potential global warming effect of methane emissions. Beyond the obvious direct impact on methane emissions, there are concerns that the new regulations could have a meaningful impact on the energy market at large.

The rules, if enacted, would be the first direct regulation of methane emissions from oil and gas production in the U.S., and would be a further expansion of Environmental Protection Agency (“EPA”) powers under the Clean Air Act. Proposed regulations are due this summer, with final regulations expected in 2016. Initial targets call for reduced emissions by up to 45% from 2012 levels by 2025. While the President’s announcement did not suggest how the industry would accomplish these reductions, it did specify that the EPA’s proposal would apply to new and modified oil and gas sources.

Critics of President Obama’s new requirements have argued that the cost of emission control is already excessively high; the proposed regulations don’t just further increase operating costs, but they are also redundant, particularly in an industry that operators claim is already self-regulated. However, the oil and gas industry emits more methane than any other nation-wide, suggesting that existing state laws and voluntary measures being taken are not, in themselves, sufficient.

The regulations and the oil and gas industry’s complaints come at a time when oil and gas prices are plummeting. In the short term, natural gas spot prices are currently projected to average $3.05 Million British Thermal Units (MMBtu) in 2015 ($1.34/MMBtu lower than in 2014), which could mean increased consumption of natural gas for power generation. However, U.S. oil and gas drilling companies are currently operating well below their $70/per barrel break even point, and prices are as low as $48 in 2015. As operators face cash flow problems resulting from low returns on capital expenditures, exploration and production related spending in North America is expected to decrease by 30% this year. Obama’s methane regulations could add an additional cost for new wells as exploration and drilling slows down.

Renewable Investment Operating Along Side Low Oil and Gas Prices

Notably, the long-term forecast for U.S. natural gas per MMBtu is projected to increase, which may stabilize the oil and gas industry. As natural gas sets the marginal price of wholesale electricity in many U.S. markets, this upward pressure may increase electricity prices (particularly when considered in conjunction with the newly proposed regulations). The result could be a shift in the balance of natural gas and renewable use due to renewable energy becoming more cost-competitive.

Deutsche Bank and Lazar published reports in 2014 that hold that renewables are now cost competitive in many U.S. states. With national oil and gas market price set to rise, and the regulations set to increase costs on new and modified wells, renewables may become more attractive in states that have not reached price parity. Additionally, though the Administration did not explicitly state that the EPA would develop regulations applicable to already-existing oil and gas sources, its regulation under Section 111(b) of the Clean Air Act creates a legally implied requirement to regulate facilities under Section 111(d) of the Clean Air Act.

Given the current Administration’s “all of the above” energy strategy, natural gas and renewable energy sources will likely continue to evolve as complimentary. However, the low cost of oil and gas coupled with the President’s new regulations may encourage a shift toward more renewable energy options where natural gas was previously preferred. The newly proposed regulations could foreseeably raise the floor for natural gas pricing, providing low-end pricing certainty. This, in turn, will attract more interest and investment in competitive alternatives in the wholesale power markets.

Topics: Carbon Emissions, Energy Policy, Renewable Energy, Oil & Gas

Understanding the Fracking Landscape

Posted by Jeffrey Karp on 5/5/15 8:01 AM

The approach in the United States to modernizing energy markets has entailed an “all of the above strategy”—a combination of retiring coal plants and supplanting “dirty” carbon intensive fuels with natural gas and renewable energy sources of power. The advent of horizontal drilling technology together with hydraulic fracturing (referred to here as “fracking”) has transitioned the United States from a massive net energy importer to an energy exporter. As a result, in 2013 the U.S. energy consultancy PIRA reported that the United States had officially outpaced Saudi Arabia as the world’s largest oil producer.

Despite the benefits derived from increased oil production, there are certainly downsides to fracking. The Oklahoma Geological Survey recently released the results of a study concluding that fracking activities were contributing to seismic activities in that state. Similarly, The U.S. Geological Survey recently has noted increased seismic activity in a number of eastern and central U.S. states ranging as far west as Colorado, as far south as Texas and Alabama and as far east as Ohio.

While The Energy Finance Report has not previously addressed fossil fuel developments, it is also true that fracking could impact renewable energy developers in several ways, making it incumbent that they follow recent trends. First and foremost, despite community opposition, fracking will continue being a part of the "all of the above" approach, at least in certain regions and despite opposition, for the foreseeable future. At the same time, in some states, New York being one example, political pressure against fracking is a positive leading indicator for renewables.

Local Fracking Developments

As of the date of publishing, more than 400 cities, towns, counties, districts, and states across the U.S. have attempted to ban fracking or practices associated with fracking, according to advocacy group Food & Water Watch. Other states have taken more permissive approaches to the practice. Below are updates from several of the current "hot" states on both ends of the spectrum that are driving the fracking discussion.


In the Lone Star state, friction between municipalities such as Dallas and Denton on the one hand and drillers on the other have sparked legislative action. Dallas and Denton struck first by issuing bans on fracking within a specific radius of certain land uses. The oil industry fought back, leading to a bill which would preempt local government authority to enact their own fracking legislation. H.B. 40 was overwhelmingly passed by the Senate early in May 2015 after passing the House, ensuring that it will be placed in front of the Governor for signature.

New York

The ability of home rule municipalities to ban fracking already has been upheld in the New York courts. Additionally, in 2014, New York Governor Andrew Cuomo placed a state-wide moratorium on fracking by prohibiting the approvals of required permits. In related litigation, the Court of Appeals recently ruled that the fracking freeze did not extend the life of pre-existing land leases between oil companies and property owners under an unavoidability (force majeure) theory. The effect of this ruling is that oil and gas companies that signed leases with land owners and offered them large signing bonuses will never recoup those costs. Companies now face the option of seeking to renew leases and offer additional signing bonuses to land owners.


The state of Maryland is considering banning hydraulic fracking, and its House passed a bill in April 2015 that would place a moratorium on the activity for three years while the long-term impacts of drilling are investigated. Maryland’s Senate is now considering a bill prohibiting granting or reviewing applications for fracking licenses in the western part of the state until April 30, 2018.


In the typically fracking-friendly Commonwealth, Pennsylvanian Governor Wolf proposed a new five percent severance tax on natural gas extraction. The Governor would like to use these tax revenues to pay for an education fund. The natural gas industry has fought hard against the proposal for fear that it would discourage continued investment in oil and gas exploration.


The Florida House of Representatives approved a bill in late April 2015 that would increase regulations on fracking. Despite opposition from environmental groups, which had been pushing instead for a ban on the extraction technique, H.B. 1205 passed with a large 82-34 majority. The bill would subject oil companies to higher levels of scrutiny and would require them to be clear with their intentions to undertake fracking activities during permitting processes. Currently, they can proceed with fracking extraction utilizing a conventional drilling permit after providing notice.


The Colorado Supreme Court recently ruled that plaintiffs will not be required to produce evidence of an injury before undertaking discovery in fracking-related toxic tort cases. Pundits predict that the ruling will lead to defendants seeking removal in any Colorado-filed fracking suit.

Fracking, while controversial, seems destined to remain a component of the "all of the above" U.S. energy strategy being encouraged at the federal level and managed at the state level. The Energy Finance Report will continue to provide updates on fracking on this page in the future. Anyone interested in additional analysis on fracking developments can contact any member of the Sullivan & Worcester Energy Team for assistance.

Special thanks to Morgan Gerard for her assistance in the preparation of this post.


Topics: Fracking, Energy Policy, Oil & Gas

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The Energy Finance Report analyzes developments in energy finance as well as provides updates and perspectives on market trends and policies.

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