Recently, Alan Anderson and I were thrilled to be invited to present to a class at the Washburn University Law School.  For those of you that don’t know, Washburn has developed a truly exceptional energy and oil & gas law program (something that I dearly wish I could have had in law school), thanks in large part to the efforts of Prof. David Pierce.  When Prof. Pierce’s invites us to do just about anything, we usually jump at the chance.

For this presentation, our goal was to provide a high-level but fairly comprehensive overview of the types of legal issues that arise during the main stages of a wind project’s design, construction and operation phases.  Interestingly, after we sat down to plan out the basic categories of information that we wanted to cover, we realized the rough outline of our presentation could be converted into an interesting one-page resource.  With a little coaxing, we were able to distill our notes down into the following chart:

Polsinelli - Wind Project Chart

When it came to preparing the presentation itself, however, we obviously had to provide quite a bit more detail on each of the three main phases of project development.  Our environmental law colleague, Adam Troutwine, proved to be invaluable (as he so often does) by providing an overview of the various state and federal permits that are required for a wind project.  A copy of our PowerPoint is available here:

Powerpoint

I know that I speak for Alan in once again thanking Washburn, Prof. Pierce, and the students for inviting us to speak., and we are very much looking forward to the opportunity to do it again soon.

As always, if you have any questions about any of the materials that we’ve linked to above, or any of the issues discussed therein, please don’t hesitate to reach out to me at lhagedorn@polsinelli.com or give me a call at (816)572-4756.

 

After several months of anxious anticipation, yesterday the IRS released guidance on its interpretation of certain provisions relating to Congress’ extension of the federal Production Tax Credit (“PTC”).

Specifically, the provisions in question relate to how far along in development a project will need to be in order to qualify for the PTC before the credit expires on January 1, 2014.  In January of 2013, Congress passed the American Taxpayer Relief Act of 2012.  Among the many provisions in that legislation, Congress agreed to extend the then-expired PTC so that it would include projects that have begun construction before January 1, 2014.  This represented a welcome departure from prior versions of the PTC statute, which required projects to be “placed in service” by the deadline, as opposed to having to “begin construction.”

Though this modification was excellent news for the wind industry, replacing the “placed in service” requirement with a “begin construction” requirement created some ambiguities in how the statute would be interpreted and applied by the IRS.  What does it mean to “begin construction” in this context?  How much money will need to be spent?  What kinds of activities will qualify?  While there was some previous precedent for a similar “begin construction” requirement with the Section 1603 Grant program, there was no guarantee that the IRS would apply a similar rationale to the PTC extension.  Though it is impossible to measure the exact impact of this ambiguity, there is little doubt that the uncertainty about what it means to “begin construction” created some degree of a chilling effect on wind developments in the first quarter of 2013.

In an effort to resolve this issue, IRS has released Notice 2013-29, entitled “Beginning of Construction for Purposes of the Renewable Electricity Production Tax Credit and Energy Investment Tax Credit.”  Using the Section 1603 standards as a guide, IRS states that there are two methods for satisfying the “begin construction” requirement:

1.)    Starting physical work of a significant nature; or

2.)    Meeting a safe harbor threshold by paying or incurring 5% of more of the total cost of the facility and thereafter making continuous efforts to advance towards completion.

Physical Work of a Significant Nature

The first alternative is to begin construction before January 1, 2014.  The IRS Notice makes clear that “[c]onstruction of a qualified facility begins when physical work of a significant nature begins,” whether performed by the taxpayer or by other persons for the taxpayer under a binding written contract. 

Ultimately, the determination of whether activities qualify as “physical work of a significant nature” is a judgment call by the IRS based upon the relevant facts and circumstances of a particular project.  However, IRS does provide the following guidelines:

  • Both on-site work (excavation of the faoundation, setting of anchor bolts, pouring of concrete pads) and off-site work (manufacturing of components if performed pursuant to a binding contract and not held in manufacturer’s inventory) may be taken into account;
  • Production of property that is held or normally held in inventory by a vendor does not qualify; and
  • Preliminary activities do not qualify, including the following:

Safe Harbor

The second alternative is to qualify for the PTC safe harbor by paying or incurring 5% or more of the total cost of the facility before January 1, 2014, and thereafter making continuous efforts to advance towards completion of the facility.

For the purposes of calculating the 5% threshold, all costs properly included in the depreciable basis of the facility are to be taken into account, not including the cost of land or any property not integral to the facility.

Additional Issues

Construction of Individual Portions of Larger Projects

Answering a question that has been posed by many industry insiders over the past few months, the IRS Notice specifies that, for the purposes of determining whether construction of a facility has begun, work on individual turbines that are part of a larger project can qualify as work on the entire project.  For example, a wind developer may commence work on some but not all of the planned turbines for a wind project and qualify as having begun construction for the entire project.  It is not necessary to have begun construction of each individual turbine within that larger project.  Whether a single facility will be deemed to be part of a larger project will be a question left to the discretion of the IRS, but the major factors considered are as follows: 

Integral Versus Non-Integral Property

Construction of a wind project involves numerous small tasks, some of which are integral to the production of electricity and some are not.  For the purposes of determining whether construction of a facility has begun, only tasks that are integral to the production of electricity will be counted. 

Continuous Construction & Continuous Efforts

Finally, in order to qualify the “physical work of a significant nature” standard, the taxpayer must engage in a continuous program of construction.  As with many of the other requirements discussed above, this is determined through a facts and circumstances analysis by the IRS. 

In regards to the “continuous efforts” standard for the 5% safe harbor, the IRS Notice provides the following list of factors which may be considered in determining whether there have been continuous efforts:

However, for both the Physical Work and theSafeHarboralternatives, the IRS does allow certain disruptions in construction that are beyond the taxpayer’s control, such as:

 

 

 

 

 

 

 

 

Cost Overruns

The IRS Notice briefly touches on one final point relating to situations where the costs of a single facility that is part of a larger project (i.e., a single wind turbine) ends up costing more than anticipated, and causes the total project cost to rise by the placed-in-service date such that the safe harbored funds no longer satisfy the 5% threshold.  In that event, the Notice state that IRS will allow the PTC to be claimed with regards to some, but not all, of the individual turbines, but the total aggregate cost of the individual facilities for which the PTC will apply cannot be more than twenty times the amount of safe harbor funds that the taxpayer claimed prior to January 1, 2014.

If you have any questions about the IRS Notice or the requirements discussed therein, please feel free to leave a comment below or contact the Polsinelli Energy Group at (913)234-7416 or lhagedorn@polsinelli.com.

Energy policy issues are notoriously complex.  Seemingly small changes in a state’s energy policy can lead to wide-ranging and often unintended political, economic, and environmental consequences.  In an effort to facilitate thoughtful policy discussions about these issues in the state of Kansas, several attorneys from the Polsinelli Shughart energy practice group, Alan Claus Anderson, Britton Gibson and myself, have partnered with Dr. Scott W. White of the Kansas Energy Information Network to draft a report that relies on empirical evidence gathered from the nineteen wind farms currently in operation or under construction in the state of Kansas to estimate the true economic impact of these projects.  The text below is part of a larger report, which is also available at http://www.polsinelli.com//files//upload/StudyKansasWind.pdf.  We have already discussed the history of Kansas’ unique wind resource in Part 1, and provided a brief history of Kansas wind generation in Part 2.

Today, we will cover the significant potential for future project development in the state, due in large part to the expansion of Kansas’ transmission grid and exciting advancements in wind generation technology.

________________________________________________________

Future Project Development

Despite the significant growth the Kansas wind industry has experienced over the past few years, the vast majority of the state’s wind resource remains untapped. This growth potential is attributable to many factors, including the fact that the wind resource in Kansas is still significantly underutilized, with a large number of potential projects sites ready to be developed.  While some of these sites simply await a buyer, some of them merely require access to sufficient transmission to move the electricity, while others require incremental improvements in wind generation technology.

1.         Expansion of the Transmission Grid

Wind energy projects are viable only if they have access to a transmission grid that can transport the power to customers.  Historically, this has been an important factor for wind project developers looking for suitable project locations in Kansas, because the bulk of the state’s best wind resource is located in areas with limited access to transmission lines.  This issue is currently being addressed by a number of public and private entities.

The Kansas“V-Plan,” the northern portion of the Southwest Power Pool’s (“SPP”) “Y-Plan,” is particularly noteworthy.  The “V-Plan” consists of high-voltage transmission that connects eastern and western Kansas with the dual purpose of improving electric reliability and carrying more electricity from various sources, including wind, and thus further establishing a competitive energy market in the state.  Two companies, ITC Great Plains and Prairie Wind Transmission, LLC, a joint venture between Westar Energy and Electric Transmission America, are participating in the construction of this 180-mile transmission line which is expected to be completed in 2014.  The “Y-Plan” will help support the addition of 2,500 MW of new wind generation in Kansas, Oklahoma, and the Texas panhandle.[i]

In addition to the “V-Plan,” ITC is also developing a 210-mile high-voltage transmission line between Spearville, Kansas and Axtell, Nebraska.  Construction of this line, known as the “KETA Project” began in 2009 and is expected to be completed by the end of 2012.[ii] Once completed, the KETA Project, which was encouraged by the Kansas Electric Transmission Authority (“KETA”), will support renewable generation development by providing more potential interconnection locations and transmission capacity for renewable energy generators.[iii]

Finally, Clean Line Energy, a private company based in Houston, Texas, is in the process of developing a significant transmission project across the state known as the “Grain Belt Express Clean Line.”  Once constructed, this privately-owned project will provide a 700-mile, 600 kV extra high voltage direct current (“HVDC”) transmission line starting in Kansas and running east through Missouri, enabling Kansas wind to be exported to serve utility customers in Missouri, Illinois, Indiana, and points farther east.  Clean Line anticipates that this project will enable approximately $7 billion of new, renewable energy projects to be built.[iv]  Clean Line Energy has set 2018 as the goal for commercial operation of this new transmission line.[v]

As the Figure below illustrates, these new transmission lines are located in the heart of Kansas’ most productive wind areas and provide valuable paths to market for future wind projects in those areas.

Generally speaking, wind speeds increase as turbine heights (referred to as “hub heights”) increase. Since wind speed is the single most important factor in creating electricity out of the wind, tapping into high winds is key to a successful wind project. For this reason, the most noticeable wind turbine technology improvements have focused on taller hub heights and larger rotor diameters. The combination of these improvements have led to significant increases in efficiency, which have resulted in wind farms with higher capacity factors or similar capacity factors in areas with lesser winds or lower elevations.

Wind speeds have historically been measured at 50 meters for wind farm development. However, utility-scale wind turbine hub heights have been significantly higher than 50 meters for many years (as an example, the Gray County wind farm, built in 2001, has a hub height of 65 meters).

On average, Kansas possesses a robust wind resource at a height of 50 meters.  However, as the Figure below illustrates, at a height of 80 meters, roughly half the state experiences average wind speeds between 8 and 9 meters per second,[vi] which is well above the 7 to 8 meters per second commonly found at a height of 50 meters.

Given that wind speed increases with an increase in altitude, there has been a trend across the wind industry to erect turbines with taller hub heights.  As seen in the Figure below, over the last decade, hub heights across the country have steadily increased from an average of approximately 60 meters in 2001 to 81 meters in 2011.[vii]

As technology continues to improve, and construction costs for these towers decrease, it is probable that 100 meter hub heights will become common for wind projects in Kansas.  This trend towards taller hub heights is evidenced by the fact that, in 2011, 128 turbines were installed in the United States with hub heights of 100 meters, a sharp increase over the 17 turbines of that size installed in 2010.[viii]  The following Figure provides some context to the significant technological advances that have occurred over the last decade.[ix]

As the average hub heights for Kansas projects increase from the current average of 80 meters, access to high-quality wind resources will increase and more locations in Kansas will be economically viable.  As shown in Figure 8, the wind speeds available at 100 meters are predominantly in the range of 8.5 to 9.5 meters per second.

Ultimately, the combination of an expanding transmission infrastructure and technological advancements will significantly expand the areas of the state that can support viable wind development.

If you have any questions or comments about the Kansas wind industry, please feel free to leave a comment below or contact me directly at lhagedorn@polsinelli.com or (913)234-7416.


[i] Edison Electric Institute, ITC Holdings, Corp. Company Overview, available at http://www.eei.org/ourissues/electricitytransmission/documents/transprojrenew_e-m.pdf.

[ii] ITC Great Plains Kansas Spearville-Axtell project profile, http://www.itc-holdings.com/images/itc-greatplains/projects/ITCGP_Profile_KETA_Gen_52311.pdf

[iii] Edison Electric Institute, ITC Holdings, Corp. Company Overview, available at http://www.eei.org/ourissues/electricitytransmission/documents/transprojrenew_e-m.pdf.

[iv] Clean Line Energy Partners Website, Grain Belt Express Clean Line Project Description, available at http://www.grainbeltexpresscleanline.com/site/page/project_description.

[v] Clean Line Energy Partners Website, Grain Belt Express Clean Line Schedule, available at http://www.grainbeltexpresscleanline.com/site/page/schedule.

[vi] Kansas Wind map at 80-m Height, Wind Powering America, U.S. Department of Energy, September 2008, available at http://www.windpoweringamerica.gov/pdfs/wind_maps/ks_80m.pdf.

[vii] U.S. Department of Energy, 2011 Wind Technologies Market Report, August 2012, available at http://www1.eere.energy.gov/wind/pdfs/2011_wind_technologies_market_report.pdf.

[viii] Id.

[ix] Lantz, E.; Wiser, R.; Hand, M. (2012). IEA Wind Task 26: The Past and Future Cost of Wind Energy, Work Package 2, available at http://www.nrel.gov/docs/fy12osti/53510.pdf.

 

You may have noticed that things are looking a little bit different on the site today.  Yesterday afternoon marked the completion of a major transition for the blog, and today I’m proud to announce that Renewable Energy Law Insider (formerly the Renewable Energy Law Blog) has officially joined the LexBlog network!   There are lots of upgrades and handy little perks that come with this transition, but here are a few of the most obvious changes that benefit you, my loyal readers:

1.) The LexBlog team has created an amazing new design and layout for Renewable Energy Law Insider.  I know it looks great, but try not to let it distract you from all the great content that I’ll be putting together for you!

2.) There is a new streamlined comment system that should make writing, editing and moderating your comments and questions a much easier process for you.  In fact, it would be a shame to see such a great system go to waste, so why don’t you give it a trial run by letting me know what you think of our new design?

3.) I’m happy to announce that Renewable Energy Law Insider is now part of the LexBlog network, a group of the best of the best legal blogs from around the country.  Check out some of links in the “More Blogs” section of the sidebar to get a sampling of the hugely valuable content that other great legal minds from around the country are creating on a daily basis.

I want to end by quickly thanking the LexBlog team that put in the time and effort to create such a great end product.  In particular, thanks to Joshua Lynch, Neil O’Shaughnessy, Kara Roberts and Kevin McKeown for making this process painless and patiently answering my many questions.  Also, thanks to the designers, editors and programmers that put in a ton of hard work to make this site look great and function smoothly. 

Now, back to our regularly scheduled programming…

Welcome to TheRenewableEnergyLawBlog.com!  My name is Luke Hagedorn, and I am an attorney based in Kansas City, MO that is primarily focused on renewable and traditional energy issues.

Over the course of my career, I have been struck by the fact that there is no one consistent body of law that renewable energy developers have to draw from in order to successfully launch a project.   Regardless of what type of technology your project utilizes (solar, wind, biomass, geothermal or whatever else is coming down the innovative technology pipeline), successfully turning the development plan into actual generated energy requires an understanding of a very wide swath of local, state, and federal laws and regulations.

While it may seem (and probably is) impossible to  truly understand all of these varied and complex legal issues, the goal of this blog is to present helpful descriptions of some of the most common legal obstacles that renewable projects are likely to face, provide updates about new or changing laws and regulations that might impact renewable projects, and occassionaly provide interviews with people in the industry that can speak to some of these issues.

With all that said, welcome!  I hope that this blog can provide some useful resources for anyone who is interested in continued innovation and success in this hugely important sector of the U.S. economy.