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.

I’m proud to announce that Dave Strieker, a partner in Polsinelli Shughart’s Energy Group, and I recently published a paper for the annual meeting of the American Bar Association’s Section of Environment, Energy and Resources. 

The paper, entitled “Greenhouse Gas Permitting Advantages for Biomass Projects,” explores the EPA’s “Tailoring Rule,” which places significant regulatory burdens on certain emission sources of greenhouse gases.  Importantly for biomass project developers, the Tailoring Rule specifically exempts biomass projects for a period of three years, thus giving biomass an important advantage over traditional energy sources.  The abstract for the paper is as follows:

Ground breaking greenhouse gas regulation, know as the Tailoring Rule, has recently been implemented at the federal level. The Tailoring Rule will have far reaching impacts on industries that produce significant amounts of carbon dioxide emissions. While this may prove to be a heavy burden to established industries using fossil fuels, the Tailoring Rule contains a three year exclusion for projects utilizing a qualifying biomass feedstock. Accordingly, the Tailoring Rule’s biomass exclusion may provide a window of opportunity for the biomass industry to compete on a more level playing field with fossil fuel based projects. This paper will provide background regarding the Tailoring Rule and explore its specific implications on the biomass industry.

The paper can be downloaded here.  If you have an interest in biomass projects, or if you know anyone that does, feel free to download this paper and pass it along as you see fit.  If you have any questions or comments, feel free to contact either myself (lhagedorn@polsinelli.com) or Dave Streiker (dstreicker@polsinelli.com).

Like the rest of America, I have been closely following the numerous (and often unflattering) accounts of the debt-ceiling drama that has unfolded in the U.S. Congress and Senate.  The questions being debated have countless implications for industries all across the country, but very few have quite as much at stake as the renewable energy industry.   

As we all know, renewable resources will only become the new standard when the cost of generating energy from wind and solar resources is equal to or less than the cost of generating energy from natural gas.   As the market stands right now, both traditional and renewable energy sources receive a number of tax breaks and economic incentives from the federal government.  The legislature can tip the scales one way or another and make those incentives favor renewable resources or traditional resources, and which way they go is a huge factor in determining how quickly cost parity can be reached.

Last week, Congress and President Barack Obama agreed on a deal that increased the U.S. debt limit by at least $2.1 trillion, and implemented additional discretionary spending caps for a period of 10 years.  Perhaps most importantly for renewable energy developers, the legislation also created a bipartisan committee of Congressman and the Senators to take a hard look at the U.S. federal budget and propose $1.5 trillion in cuts.  The Committee’s recommendation will then go to Congress for approval, but if Congress fails to approve the Committee’s recommendations by December 23, 2011, automatic spending reductions will be made beginning in 2013, split evenly between domestic and defence spending.

In essence, the true impact of these budget cuts will depend entirely on the Congressman and Senators that are appointed to the “Super-Committee.”  As I have described previously, energy policy has always seemed to defy traditional party lines, and you can’t always predict whether a politician will favor traditional resources, nuclear energy, or renewable resources based solely upon their party affiliations.  Nonetheless, whether the federal energy incentive scale gets tipped towards coal and natural gas, nuclear or renewable energy will largely depend on how many representatives on the Committee are willing to take a stand for each of these camps.

In short, it is clear that energy policy will be one of the issues that the “Super-Committee” closely examines, but without knowing more about the specific political motivations of the decision-makers, we cannot know which programs are likely to be cut.  Bloomberg writers Jim Efstathiou Jr. and Christopher Martin wrote an excellent summary of the energy programs that might be at risk over the coming months.  In an effort to shed some positive light on the potential ramifications of this process on renewable energy, they close the article with the following quote from Denise Bode, the chief executive officer of the American Wind Energy Association (AWEA):

Current wind ‘projects are safe, and prospects for extension of the program beyond 2012 are as good as ever,’ Bode said in an e-mail. ‘I had a front-row seat to tax reform in the mid-1980s, and I feel confident that wind incentives will survive this process.’

As an optimist-at-heart and a supporter of the various renewable energy industries, I certainly hope that this is the case.  However, as someone who has had a front-row seat to the political process, I am also positive that we won’t be able to predict the true impacts of this deal until we know which Congressman and Senators will be appointed to the “Super-Committee.”  There is no question that quite a bit is at stake.