President Obama’s Energy Plan: A Closer Look

President Barack Obama delivers the State of the Union address in the House Chamber at the U.S. Capitol in Washington, D.C., Jan. 24, 2012. (Official White House Photo by Pete Souza)

On Tuesday, President Barack Obama presented his annual State of the Union address. One of the most interesting topics discussed, at least to my biased ears, was the importance of pursuing an “all-of-the-above” strategy for developing every potential energy resource at the country’s disposal.

While I’m always thrilled when renewable energy policy gets a prominent place in our public discourse, the President’s remarks necessarily only skimmed the surface of the issues that the administration will face when seeking to continue promoting renewable energy in 2012, especially in light of the significant uncertainty caused by the PTC issue.  So, I went digging for more information.  Fortunately for me, the White House has released a “Blueprint for An America Built to Last”, which contains additional information about the President’s energy policy.  This is in addition to the “Blueprint for a Secure Energy Future“ issued by the White House last March.  Boiling these documents down into the main points, it appears that the administration is planning on focusing its renewable energy efforts on the following:

Implementing a federal clean energy standard: During the State of the Union address, I was surprised and pleased to see the President renew the call for a federal Renewable Energy Standard, something which has been introduced numerous times through legislation but has failed to gain any serious traction among the legislators.  We have discussed state-level Renewable Energy Standards at length on this blog, but action taken at the federal level would provide much needed regulatory uniformity and a more robust and consistent REC market, both of which would make it quite a bit easier for projects to get financing from risk-averse lending institutions.

Targeted tax incentives: The President briefly called upon Congress during the State of the Union to “[p]ass clean energy tax credits.  Create these jobs.  We can also spur energy innovation with new incentives.”  The most obvious example of a program that needs a life-line from Congress is the Production Tax Credit originally set forth by Section 1603 of the American Recovery and Reinvestment Act of 2009.    These credits have been a major driver of project financing for the last few years, and the uncertainty surrounding their extension has put a major damper on the number of projects in the pipeline past 2012.

Opening public lands:  Community-level opposition has long been an obstacle that many renewable projects have faced.  President Obama’s energy plan seeks to assuage some of this resistance by opening up sizable tracts of public lands to renewable developers.  To this end, the President has directed the Department of the Interior to commit to issuing permits that will enable the generation of 10 gigawatts of renewable generation capacity.  Of course, projects that are developed on these lands will also introduce additional regulatory burdens, including compliance with the National Environmental Policy Act (“NEPA”).

Powering the U.S. military with renewable energy: During the State of the Union, President Obama announced that the Department of the Navy will make a 1 gigawatt renewable energy purchase.  As the largest consumer of goods and services in the world, the Federal Government consumes an enormous amount of energy.  Additionally, the government often asserts requirements upon its agencies and departments to take into consideration societal benefits rather than pure price points when making its purchasing decisions, as is seen through the “Buy American” mandates and small and disadvantaged business requirements in federal procurement.  Ultimately, as far as the renewable industries are concerned, the more heavily-invested the various departments and agencies become in renewable energy, the better.

Ultimately, the President’s energy plan will not guarantee a bright future for renewable energy, but such guarantees are exceptionally rare in the business world (if you know of any, my contact information is below).  The key question that must be answered is whether or not this plan will incentivize the development of renewable projects.  To answer that question, we have to take a step back and look at the plan’s impact on the most significant risks that all renewable projects face, such as:

1.) Finding land for the project, and overcoming any community-level resistance.  The President’s plan reduces this risk by opening up public lands for development.

2.) Finding buyers.  The plan would increase the number of buyers by implementing a federal renewable energy standard and allowing the federal government to be a major consumer of renewable energy.

3.) Making a profit.  If tax incentives are increased, projects make more money.  Additionally, introducing a federal RES and opening up a federal REC market could potentially increase profits.

4.) Acquiring financing.  Lenders don’t like to lend money to risky ventures.*  However, by decreasing the risks discussed above, the President’s plan should increase the level of financing available to new projects.

* stunningly insightful analysis, I know, but you get what you pay for.

Taken as a whole, this plan appears to address a number of key areas of risk that renewable developers face over the life of their projects and this should help the various industries as they continue to grow.

Now, if only we could convince the federal legislature . . .

If you have any questions or comments about the information discussed above or about renewable project development generally, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com.