Renewable Energy Post

While some believe that New York State is a relatively sunny state, this spring has, so far, made others question this tag.  However, New York is looking to take advantage of its sunshine through the NY-Sun Competitive PV Program, which recently awarded $46 million for 76 large-scale solar energy projects.  These solar energy projects will add 52 megawatts of energy capacity, enough to power almost 9,000 homes.  Over the next couple years, the program has the potential to quadruple the amount of customer-sited solar photovoltaic capacity in New York.

New York’s commitment to solar energy may provide opportunity for solar supply chain manufacturers.  It is expected that incentives will result in a demand for solar installation professionals and servicing companies, and solar component manufacturers may also benefit from increased solar capacity incentives such as the NY-Sun program and resulting market growth, especially since newly-imposed import tariffs on Chinese solar cells improves the competitiveness of domestic solar cell manufacturing.  Also, New York’s commitment to the NY-Sun program adds to the predictability of the solar energy market at least at the state level.  In fact, Governor Cuomo committed in his recent State of the State address to extend the NY-Sun program through 2023.  

The surge of  solar energy usage in New York State is following the national trend.  According to the U.S. News and World Report, solar is the fastest growing energy source in the United States, with growth upwards of 65 percent predicted for 2013.  Thus, supply chain opportunity is not limited to New York State, but could extend nationwide.  Additional solar development will result from the federal government’s opening of federal lands for solar development.  Accordingly, manufacturers should be looking at opportunities to support the growing solar sector before they are left in the dark.

Last week, a group of U.S. Senators submitted a letter requesting swift clarification by the Department of the Treasury (“Treasury”) and the Internal Revenue Service (“IRS”) of language regarding the wind production tax credit (“PTC”) under Internal Revenue Code Section 45 (“Section 45”). The letter addressed the recent change in the Section 45 language that was added when the PTC was extended for a year by the American Taxpayer Relief Act of 2012 (“Taxpayer Relief Act”). 

Under the Taxpayer Relief Act, the 2.2 cents per kilowatt hour tax credit now applies to any new wind project that “commences construction” prior to January 1, 2014.  The original PTC language mandated a project be “placed-in-service” by a certain date in order to be eligible. The Senators, led by Michael Bennet (D-CO) and Jerry Moran (R-KS), asked the IRS to issue guidance as soon as possible regarding the “construction threshold and criteria necessary” to take advantage of the PTC.  The Senators and many in the industry fear the uncertainty surrounding eligibility of projects may chill investment and development in the field.

Both the Senators and industry group AWEA have stated they hope the Treasury and IRS will issue guidance as soon as possible, in line with their past interpretation of the definition of “construction commencement.”  Specifically, Treasury guidance on the Section 1603 cash grant program of the American Recovery and Reinvestment Act of 2009 discussed what constitutes construction.  The Treasury’s guidance stated that construction commences:

• when either on-site or off-site physical work of a significant nature begins (e.g., excavation of a turbine foundation or the manufacture of turbine equipment and components);
• work performed by a third person under a written binding contract has begun; or
• more than 5% of the total cost of qualifying property has been paid or incurred.

North American Wind Power had previously reported that the IRS had imposed an internal deadline of March 31 for the clarification of the language.

President Obama proposed several broad energy-related initiatives in his State of the Union address last week, which are summarized in David Flynn’s post below. Noticeably absent from the President’s address was “clean coal,” which had been part of the President’s “all of the above” approach to domestic energy development. The apparent absence of coal from the President’s energy agenda is another setback to the future of the coal industry, which has been declining in the U.S. due to greenhouse gas regulations and competition from natural gas. Nevertheless, recent developments in carbon capture and storage (“CCS”) technology may help the coal industry adapt to a changing regulatory environment.

Momentum for development of CCS technology had largely stalled in the U.S. because of the absence of any requirement or incentive to limit greenhouse gas emissions from fossil fuel-fired power plants. This will soon change, because the U.S. Environmental Protection Agency expects to finalize the first-ever greenhouse gas “new source performance standards” for power plants in March, which will limit carbon dioxide emissions from fossil fuel-fired power plants that commenced construction after April 13, 2012. Carbon dioxide limits affecting existing plants may not be far behind.

Also, CCS recently received a boost from the U.S. Department of Energy (“DOE”), which suggests that “clean coal” is still a part of the President’s energy agenda. The DOE recently approved proceeding to the second stage of the FutureGen project. This project would retrofit a coal-fired power plant in Meredosia, Illinois to capture more than 90 percent of the plant’s carbon emissions, or more than 1 million tons of carbon dioxide per year, according to the DOE. Additional CCS projects in Mississippi and Texas are in the pipeline.

However, commercial-scale CCS is not a proven technology in the U.S. and has faced criticism of its effectiveness in creating a net environmental benefit. An article recently published in the Energy Policy journal concluded that although CCS could deliver a 90 percent reduction in direct emissions from a power plant, the reduction is only 70 percent when full life cycle emissions are considered. Also, geophysicists in the UK are questioning whether CCS is worthwhile when close to 3.5 billion tons of carbon dioxide must be stored per year with a leak rate of less than 1 percent per thousand years to match the carbon footprint of renewable energy sources. Proponents of CCS should also note the strong public opposition to “fracking,” which, in several ways, is perceived as similar to CCS.

Without CCS, the regulatory environment remains hostile to new coal plants and existing plants are endangered by the likelihood of future greenhouse gas regulation and market forces that currently favor natural gas. Thus, the coal industry faces significant pressure to demonstrate the success of CCS if it hopes to continue to be a key component in meeting the country’s energy needs.

Co-authored by Thomas F. Puchner and David P. Flynn

Like the famous Punxsutawney Phil seeing his shadow, DEC has not timely emerged from its long-running study of environmental and health impacts of High-Volume Hydraulic Fracturing (“HVHF”), suggesting that there will be at least several more weeks, if not months, of delay before the final decision.  On Tuesday, Health Commissioner Nirav Shah, sent a letter to DEC Commissioner Joseph Martens stating that his review is “on-going” and anticipated to be completed “within a few weeks.”  According to Shah, the additional time is necessary “based on the complexity of issues” and for his team to attend briefings on several HVHF studies underway at the federal and state level.

The additional delay means that DEC cannot issue the Final Supplement Generic Environmental Impact Statement (“FSGEIS”) in time to meet regulatory deadlines and will be unable to complete the State Environmental Quality Review Act process necessary to finalize its proposed HVHF regulations.  The proposed regulations will expire after February 27, requiring the agency to restart the rulemaking process.  A new rulemaking process is widely expected to delay the Supplemental Generic Environmental Impact Statement (“SGEIS”) process by at least several months.  Commissioner Martens, however, suggested in a statement to the press that if the health review finds the SGEIS adequate, and the FSGEIS is completed, DEC may issue HVHF permits without final regulations in place, since the “regulations simply codify the program requirements.”

The D.C. Circuit delivered a mixed decision recently regarding an American Petroleum Institute (“API”) challenge to the 2012 EPA Rule (“2012 Rule”) outlining blending requirements for cellulosic biofuels.  Cellulosic biofuel is an advanced biofuel that comes from sources such as switchgrass and agricultural wastes.

Background

Under the Renewable Fuel Standard (“RFS”) program, EPA must promulgate regulations to ensure that transportation fuel includes an increasing percentage of renewable fuel, including “advanced biofuels.”  Each year, EPA then makes “applicable volume” determinations estimating biofuel production for that year.  The applicable volume for a particular biofuel is used to determine how much of that fuel a refiner must purchase each year to comply with the RFS.

In the 2012 Rule, EPA projected 10.45 million ethanol-equivalent gallons of cellulosic biofuel would be produced in 2012, thereby requiring refiners to blend this amount into traditional transportation fuels.  If refiners do not blend the required amount, they must instead purchase “cellulosic waiver credits,” which essentially amount to a fine, for the difference. 

EPA stated it based this prediction on several sources, but also took into account the “objective of promoting growth in the industry,” and that the standard it set “helps drive the production of volumes that will be made available.”  The agency also noted concern that using a lower projection could hurt the market for cellulosic biofuel. In reality, only 22,000 gallons of cellulosic biofuels were produced in 2012.  API argued refiners were essentially forced to purchase credits for “phantom gallons” of cellulosic biofuel.

Ruling

The court held EPA exceeded its statutory authority by basing the unrealistic projections upon the desire to spur investment in the industry.  The court found EPA “did not take neutral aim at accuracy.”  While noting that agencies in the past have been allowed to base a standard or mandate upon future technology, the court explained there was always a connection between the regulated entity and the proposed innovation.  Because the refiners are not the producers of cellulosic biofuels, they have no control over whether or not production reaches a level high enough to allow them to come into compliance.

Despite vacating the 2012 Rule, the court rejected API’s argument that EPA should have lowered the applicable volume of all advanced biofuels.  The court also found that EPA may rely on information from producers of cellulosic biofuels in forming their projections, calling producers an “almost inevitable source of information.”

Implications

While a headline on E² Wire, The Hill’s Energy and Environment Blog, called the decision “a blow to the biofuel industry,” biofuel groups are downplaying the impacts of the decision.  Issuing a joint statement, biofuel producers and industry groups noted the rejection of the argument that EPA must reduce the applicable volume of all advanced biofuels.  The groups also noted EPA is not prevented from setting targets in the future as long as the information available demonstrates the volumes are reasonably achievable.

There is no denying the potential impact upon investments in cellulosic biofuel production that may result from such uncertainty in EPA targets from this point forward.  EPA is faced with the task of basing projections off of an industry in its early stages of growth, with little information available.  The potential exists for a significant reduction in the blending requirements in the future, which could halt, or at least depress, investment in the field. 

On January 31, EPA released its 2013 RFS proposal. To calculate the percentage standard for cellulosic biofuel for 2013, EPA used an applicable volume of 14 million ethanol-equivalent gallons. The API said in a statement that the proposed rule ignores the recent decision.  However Renewable Fuels Association President Bob Dineen has suggested that this number may ultimately prove to be a conservative estimate as cellulosic biofuel is now finally beginning to be produced on a commercial scale.