Renewable Energy Post

Wind energy development in the Great Lakes has seemingly stalled, but a new Memorandum of Understanding (MOU) between five Great Lakes states and ten federal agencies may renew hopes for locating wind turbines in the Great Lakes. 

The purpose of the MOU is to “support the efficient, expeditious, orderly and responsible review of proposed offshore wind energy projects in the Great Lakes by enhancing coordination among federal and Great Lakes state regulatory agencies.”  Specifically, the MOU requires the creation of a regulatory roadmap, to set forth a streamlined permitting process with joint reviews of applications and clear guidance on data collection, permit processing times and agency responsibilities.  Although the MOU will likely clarify the role of federal agencies in the permitting process for offshore wind farms, it does not address the underlying cost of developing wind energy in the Great Lakes, which has stymied previous efforts. 

The Great Lakes is a substantial wind resource, with the potential for more than 700 gigawatts to be generated by wind turbines.  This estimate includes the more than 143,000 megawatts of wind power that could be generated off of New York’s Great Lakes coastlines alone.  Thus, it was a huge disappointment to many when the New York Power Authority (NYPA) abandoned its effort to generate up to 500 megawatts of electricity on Lake Erie and Lake Ontario, citing the likely cost to the state of up to $100 million annually in subsidies and a construction cost of up to $1 billion. 

Moreover, wind energy development could potentially drop off at the end of this year, with the expiration of the production tax credit.  Is the MOU a sign that this tax credit will likely be renewed and wind development again made a policy priority?  Or, as certain sources suggest, solar may be taking over the spotlight and seen as a better long-term investment because of lower prices for panels and new financing options.  Thus, whether the MOU is in fact a valuable resource will be highly dependent on the future existence of tax incentives and price competitiveness with other energy sources such as solar and natural gas.

Considering the current climate of hostility toward renewable energy in the wake of the Solyndra debacle, it may come as a surprise that in general, renewable energy remains a strong investment.  

To place the return on the federal government’s clean energy research and development (“R&D”) investment into the proper context, Joseph Romm of Climate Progress recently referenced a report by the National Academy of Sciences (“NAS”) which independently verified the U.S. Department of Energy’s (“DOE’s”) venture capital success.  The NAS found that a handful of clean energy technologies developed through the DOE Office of Energy Efficiency and Renewable Energy have returned about $30 billion on an R&D investment of about $400 million.  These numbers don’t even take into account the benefits of reducing pollution or from carbon reductions.  

Of course, the economic benefit of such investment is compounded by regulations and policies, such as renewable portfolio standards and energy efficiency goals, which encourage nationwide adoption of clean energy technologies.  According to the Energy Information Administration (“EIA”), a national clean energy standard requiring 80 percent of our country’s power from low-carbon and zero-carbon sources would effectively serve just that purpose.  Under the EIA’s proposal, electricity generation from renewable resources would almost double, providing potential for an even greater return on investment from future R&D efforts.  

While momentum for implementing a national clean energy policy has stalled, New York has several programs to encourage clean energy investment and may soon become a leader in the embattled solar industry, which just got a boost from Warren Buffet’s purchase of a $2 billion solar project.  Enacted in 2009, the Green Jobs -  Green New York program promotes energy efficiency and the installation of clean technologies through access to energy audits, installation services and low-cost financing.  New York also has a robust Renewable Portfolio Standard, with a total renewable capacity that could reach up to 1,562 MW by 2012, or enough clean energy to supply nearly 630,000 average homes.  

A potential follow-up to these programs is the New York Solar Industry Development and Jobs Act of 2011 (“Solar Jobs Act”).  This legislation, which was put on hold last summer but may see movement in early 2012, would, among other things, amend the Public Service Law and put in place a Solar Renewable Energy Credit (“SREC”) program that requires utilities to procure enough SRECs to meet a certain percentage of the utility’s total electric sales each year.  From 2013 through 2020, that percentage would incrementally increase from 0.15% to 1.5%.  Systems would be in place to track the purchase and sale of SRECs, and a compliance payment would need to be made in the event a utility could not meet its obligation.  The program has been designed to foster a diversity of solar project sizes.  

Given past success with clean energy R&D, legislators should consider the Solar Jobs Act as insurance towards future returns on clean energy investment in New York.

The U.S. Senate’s recent vote to repeal $5.4 billion worth of ethanol subsidies indicates an uncertain future for many renewable energy incentives.  In fact, the current climate in Congress appears generally hostile towards subsidies for any energy sector, with Democrats calling on Republicans to cut oil and gas subsidies and Republicans calling for the elimination of renewable energy subsidies.  With renewable energy subsidies on the table as part of ongoing deficit-reduction negotiations, Congress will need to consider other policy options and tools if, after losing significant subsidy support, renewable energy is going to be able to compete economically with fossil fuels. 

There are other options for incentivizing renewable energy even if certain current subsides are reduced or eliminated.  A recent bi-partisan Congressional Research Service (CRS) report discusses allowing the renewable energy sector access to the master limited partnership (MLP) business organizational form which can have significant tax benefits, attract additional capital, and stimulate lower-cost investment in renewables.  The oil and gas extraction industry has had access to the MLP structure since it was first established in the 1980s.  The MLP structure would allow renewable energy companies to be treated as partnerships for tax purposes but behave as corporations with access to public equity markets to obtain greater amounts of capital.  The CRS report cites a number of concerns to consider, such as narrowing the U.S. corporate tax base and the possibility of renewable energy investments being used as a tax shelter.  Allowing the renewable energy sector access to the MLP structure would, however, level the playing field with fossil fuels, which have enjoyed this benefit for decades.

Offshore wind has the potential to play an important and unique role in the US renewable energy supply.  Whether it is off of the Atlantic, Pacific or Gulf Coasts or in the Great Lakes, a significant wind resource may, unlike many upland projects, be proximate to many significant load centers.  The May/June edition of North American Clean Energy contains an article I wrote regarding some of the work we need to do to move forward with a robust offshore wind industry.  I encourage you to read “The Siting Process for Offshore Wind: Are Environmental & Visual Impacts Stalling the Process?”.  The active, thoughtful participation by all offshore wind stakeholders in the siting process is vital to the sustainable, large-scale development of this clean energy resource.

The House of Representatives has set its sights on limiting the Environmental Protection Agency’s (EPA) authority to enforce several environmental laws in this country.  For example, the House voted last week to strip the EPA of all authority to regulate greenhouse gases.  Such a measure is unlikely to pass the Senate and the president has indicated he would veto such a bill; however, the House is seeking leverage to prevent regulation of greenhouse gas emissions.  

One tactic is to exploit the Economy vs. Environment debate, which is based on the premise that too much environmental regulation over industrial activities kills jobs. This ignores the benefits to the economy from innovations in energy efficiency, renewable energy and domestic alternative fuel sources.  A recent manifestation of this thinking involves a proposed bill from Rep. Pete Olson, R-Texas.  According to an article on timesunion.com, Rep. Olson’s legislation would require the EPA to include in any proposed rulemaking a statement identifying any net gain or loss in domestic jobs, both direct and indirect, that would result from the regulation.  Olson stated his bill would “establish some accountability and make (the) EPA go on the record.”

As evidenced by the recent budget negotiations, the climate in Washington is clearly favorable towards substantial spending cuts, including eliminating regulations to decrease the burden on business and provide regulatory certainty.  Rep. Olson’s proposed legislation, requiring an analysis of direct and indirect impacts to employment, may create many conundrums that cannot be meaningfully resolved, leaving any information provided by the EPA to be of questionable utility.  Whether pro or con, every regulation will result in some impacts to employment that cannot be predicted with an economic model.  Jobs may be lost because of production efficiencies and the closing of antiquated facilities that cannot be updated to modern standards.  Alternatively, innovations in pollution control technology and the development, installation and monitoring of those technologies could create jobs.  Also, the EPA would have to grapple with difficult questions of geographic scale and the definitions of “direct” and “indirect” gains or losses.  Implementing such legislation could stall any rulemaking for the foreseeable future, which may be the objective.

Nevertheless, the Olson bill raises fundamental questions, such as whether the EPA must balance the economic impacts of its regulatory actions against improving environmental quality.  The EPA’s mission already includes consideration of economic growth in establishing environmental policy, and that consideration is reflected in the EPA’s greenhouse gas regulations, which target only the largest industrial emitters of greenhouse gases, leaving out small businesses.  Until the House can go “on the record” and demonstrate how greenhouse gas regulations would “put the American economy in a straitjacket, costing us millions of jobs and hundreds of billions of dollars a year,” as Rep. Joe Barton, R-Texas, has said, moving forward with legislation requiring the EPA to put a number on job gains and losses should be carefully considered.