Congress Extends PTC and ITC--More Analysis to Follow
In an email alert that we just sent out, my colleagues in the Stoel Rives Tax Section report:
Today the House passed, and President Bush signed into law, H.R. 1424, which includes the Energy Improvement and Extension Act of 2008 (the Act). The Act contains the much-anticipated extension of the production tax credit (PTC) and investment tax credit (ITC) sunset dates.
The Act extends the PTC placed-in-service sunset date for certain wind and refined coal facilities until December 31, 2009, and extends the PTC placed-in-service sunset date for certain other qualifying facilities until December 31, 2010. The Act also expands the PTC to include certain marine and hydrokinetic renewable energy facilities placed in service on or before December 31, 2011.
The Act extends the ITC placed-in-service sunset date for solar, fuel cell and microturbine property until December 31, 2016 and expands the ITC to include combined heat and power system property, qualified small wind energy property, and geothermal heat pump system property.
In addition, H.R. 1424 contains a variety of other renewable energy tax provisions, including provisions allowing the energy credit to offset alternative minimum tax liability; increasing the amount of the biodiesel and renewable diesel fuel credits and extending the sunset dates until December 31, 2009; authorizing new clean renewable energy bonds and qualified energy conservation bonds; and extending the energy efficient commercial buildings deduction and the new energy efficient home credit.
Our Tax Section is working on preparing a more detailed analysis of the tax aspects of HR 1424. If you'd like to receive updates concerning H.R. 1424 and other renewable energy and clean tech issues, please subscribe to our Renewable Energy Mailing List.
Utah and the U.S. Department of Energy See Promise in Algae Research for Biofuel Production
On September 29, 2008, the U.S. Department of Energy announced a $900,000 government grant to Utah State University (USU) and Montana State University for the team's plan to grow species of algae that can thrive in geothermal vents and in the Great Salt Lake. This research is one of six biofuel projects throughout the country funded by the U.S. Department of Energy. The Utah Science Technology and Research (USTAR), a Utah legislative initiative, sees so much promise in this, and other USU biofuel research, that USTAR has awarded the USU Biofuels Program $6 million for five years. USTAR makes highly-selective, strategic investments in research with the potential to benefit Utah’s economy. The goal of biofuel research is to find or develop a renewable fuel that is dependable and economically viable. Algae that consumes carbon dioxide could be used to consume the carbon dioxide released from power plants’ waste gases and the oils produced would be converted into fuel. Using algae in this way requires an algae that can tolerate the high temperature environment of a power plant and therefore the research team is growing an algae in geothermal vents. In addition, the team is hoping to produce biofuels from algae grown in a saltwater environment, such as our oceans and the Great Salt Lake, which would spare tapping more valuable fresh water resources. There is great interest in this research because algae is not subject to the same problems of other biofuels and may very well prove a viable fuel source. Algae doesn’t compete with corn or other crops for good farmland and its production wouldn’t drive up food costs. Algae can produce up to 10,000 gallons of oil per acre. Any technological advances learned by this particular research is likely several years away, but USU plans to produce an algae-biodiesel that is cost-competitive by 2009.
Michigan Passes Renewable Portfolio Standard
On September 18, 2008, the Michigan legislature sent the state's first Renewable Portfolio Standard to the Governor's desk for signature. The package mandates "10 percent of the state's energy come from renewable sources by 2015, regulatory reform that protects Michigan ratepayers and allows utility companies to build new electricity generation in Michigan, and a requirement that utilities meet an additional 5.5 percent of Michigan's annual electricity demands through energy efficiency by 2015." AWEA estimates that Michigan is one of the top twenty states in terms of wind energy potential.
The RPS package, however, has its skeptics. The Detroit News published an editorial that criticized the RPS for imposing a high financial burden on customers - for example, all customers must immediately begin paying a monthly surcharge to allow the utility to recover the incremental cost of complying with the utility's renewable energy plan, although utilities aren't required to take any concrete steps until 2012.
Michigan joins Ohio, which passed its RPS last spring, as the latest Midwestern state (and the 28th state nationwide) to pass an RPS.
Upper Midwest Transmission Development Initiative Created
On September 18, 2008, the Midwest states of Minnesota, Iowa, Wisconsin, North Dakota and South Dakota announced creation of a regional transmission planning effort that will "promote regional electric transmission investment and cost sharing" among the states. Several entities, including MISO (which is currently conducting transmission planning studies in the region) and ITC, have issued press releases in favor of the initiative. The initiative, scheduled to have its first planning meeting in October, will coordinate efforts among entities involved in transmission matters, including state regulatory agencies, transmission companies, utilities, independent generation owners and other key stakeholders.
Senate Passes Renewable Extensions
Despite the urgency of the crisis gripping Wall Street, the Senate stepped up yesterday to resoundingly pass HR 6049. The bill must still be reconciled with the competing House version, HR 6899, particularly on the pay-go issues associated with energy measures. The White House released an administration position on HR 6049 suggesting that, while the President opposes the revenue raisers in the bill which raise taxes on the oil and gas industry, the President does not plan to veto the bill. The Senate is pushing the House with this leverage to coalesce behind the Senate version.
Kudos to renewable energy leaders like Senator Cantwell and Representative Inslee who have steadily advocated for the industry. Unless one of the pending bills is successful, the sun will set on the Production Tax Credit, Investment Tax Credit and several related measures that have proven highly effective in the expansion of the wind, solar and biofuels industries. Congress is scheduled to adjourn on September 26th for the electoral season and perhaps the remainder of 2008. Absent a quick Congressional action compromise behind a unified bill, these renewable industries will suffer from lost investment, delayed projects and the dark cloud of future uncertainty.
The Production Tax Credit (PTC) applies to facilities utilizing wind, open and closed-loop biomass, landfill gas, geothermal, hydropower and waste to produce energy. The “placed in service date” in the PTC determines whether qualifying facilities will be eligible for crucial federal subsidies to improve their project economics. The solar energy and fuel cell Investment Tax Credit (ITC) provides powerful subsidies to these promising industries. The biodiesel blenders excise tax credit is crucial to the growth of this industry that is seeking to diversify into next generation feedstocks. While not strictly in the renewables sector, carbon sequestration, energy efficiency, plug-in vehicles, smart grid expansion and incentives for idling reduction units in heavy duty trucks are other promising energy programs awaiting extension or approval.
As referenced above, it is not the renewable energy sources, efficiency measures, or energy innovations that create the central dispute but the issue of “pay go” or “pay as you go”. A broad consensus has emerged that a diversified energy policy is an imperative. The problem arises from the price tag. The simple concept of “pay as you go” is that Congress should simultaneously appropriate or otherwise pay for any expenditures that it includes in a particular piece of legislation. The price tag for the comprehensive new energy package has been in the range of $17 to $18 billion dollars over the next 10 years. Notably, even the use of the 10 year cost evaluation period has caused recurring problems for the renewable energy industry as it encourages Congress to pass shorter term measures that cost less under the pay as you go accounting rules.
The two key pending bills in Congress illustrate the controversy vividly. The “Comprehensive American Energy Security and Consumer Protection Act” (HR 6899) passed the House on September 16th. The “Energy Improvement and Extension Act of 2008” (HR 6049) is the bill that was passed in the Senate with the sponsorship of Senators Baucus, Grassley and Reid. The two bills would both address the price tag issue by repealing some oil and gas domestic production tax subsidies and changing the rules for the calculation of foreign oil and gas extraction income. Renewable industry proponents had recently been encouraged that tentative compromises would allow one of the bills to be passed, thereby extending the sunset dates on the energy programs.
The hurricane and the crisis in the financial markets have shortened the time opportunity for Congress to work out the details of the compromise. There is speculation that even if Congress fails to act this year, a compromise will be reached next year that will be retroactive to January 1st. In other words, If Congress fails to act this year to extend the credits, they will act sometime next year and provide credits to the respective industries for the time when no credits were in place.
Continue Reading...Ocean Energy Makes Waves Again
For those who are following the development of ocean and wave energy on the West Coast of the United States and Canada, The Oregonian published an interesting article by Gail Kinsey-Hill entitled Off Oregon's Coast, Wave Energy Makes a Splash. The article provides a good overview of the latest Oregon developments in ocean and wave energy, describing the big payoffs, the challenges, the concerns of crabbers and fishermen, and the competing technologies (including Ocean Power Technologies' buoy-like "point absorbers" and Pelamis' sausage-like sea snake).
As The Oregonian's article suggests, those interested in learning more about cutting edge ocean technology should consider attending Oregon's Third Annual Ocean Renewable Energy Conference at the Mill Convention Center in Coos Bay. The two day conference will be held this Thursday and Friday (September 25-26). The event is hosted by Oregon Wave Energy Trust, and you can learn more about the conference and register for it at oregonwave.org.
My partner Cherise Oram, one of the nation's leading legal experts on ocean, tidal and other forms of hydrokinetic energy, will be speaking on a panel discussing how wave projects are developed from concept to commercialization. She'll have on hand plenty of complimentary copies of the new second edition of Stoel Rives' Law of Ocean and Tidal Energy , or you can download your own today.
Sapphire Energy Raises $100 Million for Algae Biofuel Development
Sapphire Energy, a start up located in San Diego, announced yesterday that it has raised over $100 million. Key investors include Cascade Investments LLC (Bill Gates' personal investment company) and Venrock (a Rockefeller family venture capital firm).
Sapphire Energy is using algae that has been genetically modified to produce maximum amounts of oil. The company hopes to reach commercial production in three to five years, and predicts that it will be able to produce crude oil at $50 to $80 a barrel. Now that Sapphire Energy has significant financial backing, its next challenge will be to make the economics of mass producing oil from algae work and proving that its technology is scaleable.
Article: The Implications of Ethanol Plant Optimization
A recent article co-authored by Boise partner John Eustermann in Ethanol Producer magazine highlights certain considerations that plant managers must keep in mind in the event of ethanol plant optimization. These considerations include examination and re-evaluation of common project-related documents, such as technology licenses and permits/site control issues, when investigating optimization activities or technological modifications to the plant.
Client Alert: FERC's Conditional Approval of MISO Queue Reform
Check out our client alert on FERC's recent conditional approval of MISO's revised large generator interconnection process. It provides highlights of the ruling and identifies next steps that MISO must take in order to flesh out some issues, including certain milestones that generators must meet in order to move towards getting their project interconnected.
Beth Soholt, executive director of Wind on the Wires, believes that the ruling is pretty consistent with what those in the industry expected, and that the intent was to give generators a more clear picture up front of what the actual costs are for carrying a project through to interconnection. She thinks that we'll have to wait and see how MISO interprets the clarification requirements, and how generators respond to the new process, to really understand what the impact will be and whether this will result in a material change in the number of projects entering the queue.
Stay tuned!
Portland General Electric's RFP Garners offers of 3,000 MW
The Portland Business Journal is reporting that Portland General Electric Company received 38 offers in its April 2008 RFP totaling up to 3000 MW in renewable energy.
http://portland.bizjournals.com/portland/stories/2008/09/01/story5.html PGE's RFP called for 218 MWs of energy to begin generating electricity between 2009 and 2014. Based on this response from bidders, PGE stated that it expects to meet its 2015 deadline of 15 percent renewable energy early. Oregon's renewable portfolio standard (RPS) requires utilities subject to the RPS to achieve 25 percent renewables by 2025.
