The legislature of the State of Colorado has been very active on renewable energy issues over the last few weeks.  Three bills have been making steady progress through the House and Senate in Denver, each of which could have a noticeable effect on the renewable industries in the state.

I.   Coal-Mine Methane as a Renewable Energy Source

House Bill 1160 seeks to amend Colorado’s renewable energy standard to include electricity generated by burning captured coal-mine methane.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  The bill faces strong opposition by many environmental and renewable energy advocacy groups, including Western Resource Advocates (“WRA”), based in Boulder, Colorado.  In a March 23, 2012 guest commentary in the Denver Post, John Nielsen, the Energy Program Director at WRA stated as follows:

By allowing coal-mine methane to qualify as “renewable energy,” something it is not, HB 1160 would diminish further investments in Colorado’s wind and solar resources. Those resources are sustainable, emission-free, use little or no water, provide important health and economic development benefits, and reduce greenhouse gases.

II.   Prohibition on Severance of Wind Rights

House Bill 12-1105 seeks to establish a non-severable wind energy right in real property.  Essentially, under this proposal a landowner would not be able to sell fee simple title to the wind rights on his or her property, but must instead execute a lease, license, easement or other agreement to develop or participate in the income from or the development of a wind project on the property.  The legislation has passed in the House, and is now being considered by the Senate Local Government Committee.  This proposal law is in-line with a national trend against severance of wind and solar rights, and effectively prohibits a landowner from selling the wind or solar rights to a project developer while retaining the ownership of the underlying property.  Interestingly, however, this legislation seems to expressly contemplate and allow for the transfer of the rights to receive the income from the wind project to a third-party, which could potentially lead to many of the same down-stream ownership concerns that commonly give rise to severance restrictions in the first place.  K.K. DuVivier, professor of law at the University of Denver Sturm College of Law and author of the excellent resource “The Renewable Energy Reader,” was recently interviewed by Colorado Public Radio about this legislation.

III.   Ending PUC’s Authority Over Transmission Siting Issues

House Bill 12-1312 seeks to modify the Colorado Public Utilities Commission’s approval process for transmission line certificates of convenience and necessity, so that the PUC no longer has jurisdiction over the land use rights or siting issues related to the location or alignment of the proposed transmission lines.  Instead, those issues would be left to the discretion of the county and local governments.  Ms. Becky Quintana, a representative of the PUC, recently testified before the House Committee on Transportation about this legislation and stated that the PUC neither supported nor opposed the legislation.  From the PUC’s perspective, the legislation does not restrict the authority of the PUC, but rather more clearly defines the jurisdiction of the PUC and local governments, though she noted that, under the proposal, any transmission project that spanned multiple counties would require inter-governmental agreements as each county’s jurisdiction would end at the county line.

Do you have any questions or comments about any of these bills or about developing renewable energy projects inColorado?  If so, leave a comment below or contact me directly at lhagedorn@polsinelli.com.

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.

Despite the doom and gloom that seems to be dominating the renewable energy headlines of late, I’ve noticed an interesting trend that should bode very well for the continued development of renewable energy in the United States.  While the Federal Government’s lack of action on the 1603 grant has cast serious uncertainty about the future of federal tax incentives for renewables, many state governments have quietly introduced legislation to increase their Renewable Energy Standards (“RESs”) or Renewable Energy Portfolios (“REPs”).

I’ve provided an overview of these very important policies before, but as a quick refresher RES programs are essentially state legislative initiatives that require a certain threshold percentage of a utility’s total energy portfolio be generated from renewable sources (such as wind, solar, biomass, geothermal or other sources) by a certain date in the future.

For states that are trying to incentivize their public utilities to invest in renewable technologies, RES programs provide a relatively straight-forward way to achieve their goals.  However, RES programs are only effective for as long as it takes the utilities to build enough renewable generation or purchase enough Renewable Energy Credits (“RECs”) to meet the thresholds.  Encouragingly, many states that have set RES thresholds have seen their utilities quickly obtain sufficient renewable generation to satisfy the RES for years into the future.  However, once those projects have been developed, the utilities then have no further incentive to continue investing, so development of renewable projects unsurprisingly begins to languish.

This leads us to the good news.  Presented with undeniable evidence that RES programs do in fact lead to increased development of renewable projects, many states are now seeking to either implement RES programs for the first time, or increase the amount of renewable energy that is required.  Below are a few examples…

  • Kentucky: Legislation introduced by State Rep. Mary Lou Marzian, D-District 34, calls for the establishment of a RES which would require utilities to obtain 12.5% of their electricity from renewable energy by 2022.  (Source: NA Windpower)
  • MissouriRenew Missouri, a group formed several years ago to support the state’s first RES, is introducing a new ballot initiative to close existing loopholes that have delayed implementation and increase the thresholds to 25% by 2025.  Jeffrey Tomich of the St. Louis Post Dispatch recently wrote an excellent article summarizing the issue.
  • Illinois: A ballot initiative is being considered which would increase the state’s current 10% by 2015 mandate to 25% by 2025.
  • New Jersey: Though ultimately struck down by Gov. Christie, legislation sponsored by State Sen. Bob Smith and Assembly Member Upendra J. Chivukula sought to more than double the solar output from utilities by 2014.  Jessica Lillian of Solar Industry Magazine provides this overview.
  • Vermont:  Legislation proposed in Vermont seeks to adopt very aggressive RES thresholds, amounting to 40% from existing renewable resources, plus 10% more from new resources by 2013, and adding an additional 40% from new renewable resources by 2025.

I would be remiss if I didn’t also mention a wonderful defense of Renewable Energy Standards written by Peter Fox Penner, Principal and Chairman of the Brattle Group, on Think Progress.  The article is packed full of great information, but among my favorite facts is the following:

In the midst of the worst economy since the great depression, the worldwide market for renewable energy continues to provide jobs and investment. And states are recognizing these economic benefits when setting energy and environmental policies.  The nonpartisan Brookings Institution recently studied employment trends in the clean energy sector and found that, “though modest in size, the clean economy [in the U.S., which according to the study includes many sectors other than renewable energy] employs more workers than the fossil fuel industry and bulks larger than bioscience.” The study also found that the renewable energy sectors “added jobs at a torrid pace.”

A few weeks back I discussed the importance of robust Renewable Energy Standards for the future of renewable energy development in the United States.  It seems that the the state of California agrees, as yesterday the state legislature passed legislation which will give California the most ambitious renewable energy standard in the nation.  This legislation, which was introduced by State Senator Joe Simitian, will require private and public utilities to utilize renewable energy for 33% of their total energy portfolios by the year 2020.

Previously, under legislation that was also introduced by State Sen. Simitian, state utilities were required to generate 20% of their total portfolios from renewable sources by 2010.  A study performed by the California Public Utilities Commission found that the state utilities have met this goal.  Specifically, they had achieved 18% renewable energy as of the end of 2010, and are expected to be at 20% by the end of this year.

Interestingly, the previous law included a rate cap which the new legislation would remove.  I’ve discussed the significant impact of rate cap provisions in a previous post, but suffice it to say that this move should help spur renewable production even further.

The legislation has now passed both houses, and all the remains for it to become effective is the signature of Gov. Jerry Brown.  Congratulations to State Senator Simitian for once again helping to raise the bar on renewable energy policy in the United States.

The full text of the bill is available on the California Legislature’s Bill Information Site, here, and an excellent “Fact Sheet” prepared by a member of Senator Simitian’s staff can be found here.

*Update:  Gov. Brown officially signed this legislation into law on April 12, 2011.  Angela Binewal wrote an excellent article for North American Windpower about the signing, and provides great insights into the industry’s response to the new standard.

Oklahoma has undergone a significant legislative overhaul over the course of the last year to help advance its agenda of encouraging the development of renewable energy projects within the state.  A few of the most important legislative measures for project developers are as follows:

  • Oklahoma has established a voluntary Renewable Energy Standard (17 Okla. Stat. 801.1 et seq.), which calls for 15% of the total installed generation capacity in Oklahoma to be derived from renewable sources, including wind, by 2015.  Energy efficiency may be used to meet up to 25% of the goal.   For a primer on RES standards in the United States, see my post on the issue.
  • Oklahoma has passed SB 1787, codified as 60 Okla. Stat. 820.1 et seq., which states that access to the airspace is tied to the ownership of the land.  Thus, any wind or solar leasing arrangements associated with the airspace must be made with the landowner that owns the land below the air.
  • Oklahoma also recently passed HB 2973, codified as 17 Okla. Stat. 160.11 et seq., known as The Oklahoma Wind Energy Development Act.  This act specifies that, rather than utilizing a system of Renewable Energy Credits to track compliance with the state RES, each utility in Oklahoma must file a report with the OCC each year by March 1 which documents the total installed capacity and the energy source for each generation facilities, as well as the number of kilowatt-hours (kWh) generated by those facilities during the prior year.

The Oklahoma Wind Energy Development Act also provides rules related to decommissioning, payments, and insurance for wind projects, went into effect on January 1, 2011.  A few of the most significant provisions are as follows:

  • Equipment from wind energy facilities must be removed and the land, excluding roads, must be returned to its condition prior to the facility construction within one year of abandonment of a project.
  • Wind facility owners must file an estimate of the decommissioning costs and proof of financial security covering such costs after 15 years of operation.
  • For any wind energy facility that makes payments to the landowner dependent upon the amount of electricity produced, facility owners are required, within  to provide a statement to the landowner within 10 business days of the payment which explains the payment calculation to the landowner, allow for landowners to confirm the accuracy of payments and inspect records, and make records available to the state of Oklahoma.
  • The developer shall report to the OCC on an annual basis by March 1 of each calendar year the power generated from the facility, the nameplate capacity of the turbines, and the location of the wind turbines.
  • Wind energy facilities must have commercial general liability insurance, which must name the landowner as an insured party. Proof of such insurance must be provided to the landowner before construction begins.

In last week’s overview of Renewable Energy Standards, I briefly described the concept of Renewable Energy Credits (“RECs”).  Generally speaking, RECs are one of the most common mechanisms that states use to ensure that utilities are complying with the state’s RES.  A REC is essentially a certificate that gives the holder credit for developing a certain amount of energy from a renewable source.

However, because we are dealing with legislation and regulations, you can safely assume that the clean and easy description doesn’t tell the whole story.  With that in mind, over the next few days I’ll outline some of the various nuances of REC laws that legislators use to either strengthen or weaken particular aspects of the state RES, and how those slight changes can have significant impacts on your particular renewable project.

Because this is a large topic, I thought it would be best to break it into the following pieces:

  • Part 1  gives an overview of why states modify their REC laws and describes the concepts of “bundling” and “geographic sourcing.”
  • Part 2 will discuss the concepts of “rate caps” and the “shelf-life” of RECs.

Overview of REC modifications:  It’s politics, folks

Before we get into the nuts and bolts that make up the REC laws, it might be useful to step back and consider for a moment why a state would want to strengthen or weaken its REC requirements.

As we all know, there are a number of significant advantages to renewable energy: (1) reduced dependence on foreign oil; (2) greatly reduced environmental impacts; (3) sustainable energy source for the future; (4) economic development and job growth, etc.   However, because public utilities often have to make significant capital investments to generate renewable energy, it is possible that the average electricity rates in the state will increase as a result.

Every state addresses this balance between incentivizing renewable projects and avoiding increased electricity bills differently.  In essence, in the war over  the impact of the RES on renewable energy development in the state, the concepts that we will be discussing over the next few days make up the battleground.

Bundled Energy vs. RECs

One of the most basic principles that a legislature has to address when drafting a RES is whether it will allow RECs to be separated from the underlying energy.  This can be a difficult concept to wrap your head around, so let’s spend a moment fleshing it out.

Imagine a wind farm develops 1MW of energy.  That MW of energy is valuable two reasons.  First, the actual energy itself can be sold to a utility.  Second, because the energy was generated from a renewable resource, it counts towards compliance with the state’s RES.

This dual-value can be addressed by legislators in one of two ways when drafting the RES and REC laws.  They can either “bundle” the electricity and the REC together, or they can allow the REC to be sold separately from the underlying energy (or “unbundle” the REC from the energy).

If they “bundle” the energy and the RECs, a utility can only comply with the RES if it has purchased the actual energy from the renewable developer, like so:

If the energy and RECs are “unbundled”, the developer can sell the energy to one utility (for our purposes “Utility A”) and the REC to another (“Utility B”), like so:

Now, you may be asking yourself why unbundling doesn’t effectively double a developer’s profits, as they can sell the energy to count towards Utility A’s RES requirement, and sell the REC to count towards Utility B’s RES requirement.  States typically address this “double counting” by prohibiting the REC and the underlying energy from both being counted towards compliance with the state RES.

The actual impact of the bundling vs. unbundling decision on developers depends upon a number of factors.  If the RECs and energy are bundled, utilities are largely limited to purchasing energy from the renewable projects that are geographically close to their service area.  Therefore, if you are a developer that only has projects within a single state, you might be in favor of bundling because it limits the number of competing projects that can sell power to the utilities.

However, if you are a developer with projects scattered across the United States, you might prefer that the energy and RECs be unbundled.  That would allow you to sell your energy to utilities that are close to your projects, and sell the RECs to utilities in other states.

Geographic Sourcing

An issue that is often linked to bundling is “geographic sourcing.”  When drafting the RES, legislators have to decide whether and to what extent they should limit the geographic area for renewable projects that can comply with their RES.

For example, a RES statute can require that, in order to count towards the RES threshold, utilities must purchase renewable energy or RECs from projects located within the state.  Legislators might include this type of provision if they are particularly interested in encouraging renewable development within the state.

Let’s use Kansas as an example, because I really enjoy coloring it blue…

If the geographic sourcing provision requires that the energy be generated in Kansas, then obviously only Kansas projects will be allowed to count towards a utility’s RES threshold.

However, the RES statute could also require that the energy or RECs be purchased from projects located within the state, or that deliver their energy to utilities within the state.  This effectively expands the footprint to include renewable projects from the surrounding states.

Similarly, the RES statute could allow the energy or RECs to be purchased from any project located within a particular RTO…

Legislators could settle on either one of these provisions as a compromise position between those that are primarily interested in encouraging renewable energy development in the state and those that are worried about the cost impacts on the utilities and the ratepayers.

Finally, the legislators could draft the geographic sourcing provision very broadly, so the energy or RECs could be purchased from anywhere in the United States…

This is the position that is likely to lead to the least amount of renewable development within the state. The utilities will almost certainly be able to find RECs from resource-rich states like North or South Dakota which would be cheaper than those sold by in-state projects, and as a result the guaranteed revenue stream for in-state projects would dry up.  As a result, renewable energy companies that want to encourage development of project’s within a particular state tend to oppose particularly broad geographic sourcing provisions.

This concludes Part 1 of our overview of REC provisions, but be sure to stay tuned because tomorrow we will discuss the concepts of “rate caps” and “shelf-life.”

As this is a new blog, I thought it would be a good idea to have the first few posts give a broad overview of some of the big concepts in renewable energy law before diving into the more nuanced issues that are dominating the current conversation.  With that in mind, it seemed appropriate to start with one of the biggest forces driving the current renewable energy boom in the United States, Renewable Energy Standards.

While it may seem that governmental renewable energy incentives have gained an increasing amount of momentum in our national discourse in recent years, it may surprise you to know that some states have been on the cutting-edge of renewable energy promotion for just shy of three decades.  In fact, in 1983 Iowa became the first state to implement a program known as Renewable Energy Standards (“RESs”) to encourage the development of alternative energy projects within its borders.

Though today RES programs come in many varieties, they are essentially state legislative initiatives that require a certain threshold percentage of a utility’s total energy portfolio be generated from renewable sources (such as wind, solar, biomass, geothermal or other sources) by a certain date in the future.  For example, the state of Kansas requires all public utilities within the state to derive 10 percent of their total energy from renewable sources by the year 2011, 15 percent by the year 2016 and 20 percent by the year 2020.

Though this is a reasonably simple concept on paper, under most state RES programs, each utility does not necessarily have to construct renewable projects to meet these threshold amounts.  To account for utilities that do not currently have sufficient access to a renewable resource, or that have not yet developed renewable energy projects to take advantage of the resources that are available, most RES programs allow an alternative path to compliance through Renewable Energy Credits (“RECs”).  It is perhaps easiest to think of a REC as a piece of paper which states that the holder has generated 1 MW of renewable energy that can be counted toward satisfying the state RES.  If Utility A cannot generate enough renewable energy to meet the RES, they may purchase RECs from Utility B who has generated more than enough renewable energy to meet its RES threshold.

If the laws and regulations are drafted carefully, creating a market for these RECs allows states to exert additional pressure on utilities to build their own renewable projects, as this will inevitably be cheaper than purchasing RECs on the open market.  There are numerous issues that can strengthen or weaken the total impact of a RES standard as it is being drafted (such as rate caps, geographic sourcing, etc.), and I am planning on getting into these issues in more detail in an upcoming post.

With that background, you may be wondering how common these Renewable Energy Standards have become in the United States.  Currently, 36 states plus the District of Columbia and Puerto Rico have enacted some form of RES.  Because these RESs were implemented independently of one another, they vary significantly from state-to-state, with goals ranging from Hawaii’s 40% by 2030 to Arizona’s 15% by 2025.  Similarly, the penalties for not meeting the standards range significantly, from mandatory fines (the most common result) to no fines at all (as in North Dakota).

The wide-spread adoption of RES by the states has not gone unnoticed by the lawmakers in Washington.  However, though there have been several bills introduced by this and the previous Congress which would enact a federal RPS that must be followed by each state, as of this writing, it does not appear that any action will be taken any time soon.