On November 4th, California voters rejected both of the proposed renewable energy measures.  Proposition 7, the Renewable Energy Generation Initiative, would have required government-owned utilities to generate 20% percent of their electricity from renewable energy by 2010, a renewable energy portfolio standard already applicable to private utility companies.  Proposition 7 also would have raised the requirement for all utilities to 40% by 2020 and 50% by 2025.  Many argued that, while well-meaning, the measure was poorly drafted, and would have created loopholes for compliance, resulted in higher electric rates and forced small renewable energy companies out of business.  Opposed by leading environmental groups, renewable power providers, taxpayers, business and labor, Proposition 7 was defeated 65% to 35%. 

Proposition 10, the Alternative Fuel Vehicles and Renewable Energy measure, would have authorized the state to sell $5 billion in general obligation bonds to finance various renewable energy and alternative fuel vehicle incentives, largely green car rebates.  It would have cost the state about $10 billion over 30 years to repay the bonds.  This proposition was heavily backed by Clean Energy Fuels Corp., a company founded by Texas billionaire T. Boone Pickens that operates natural gas filling stations throughout the U.S. and Canada.  Opponents, which included environmental groups and consumer watchdogs, criticized the measure as special interest legislation that would have provided large subsidies to compressed natural gas.  Voters rejected the measure 60% to 40%. 

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Last week, the California Public Utilities Commission (CPUC) issued a Proposed Decision authorizing the use of unbundled and tradable renewable energy credits (RECs) for compliance with California’s Renewable Portfolio Standard (RPS).  This Proposed Decision also sets forth the structure and rules for a tradable REC market and for the integration of RECs into the RPS flexible compliance system.          

Established in 2002 and accelerated in 2006, California’s RPS program requires electric corporations to increase procurement from eligible renewable energy resources by at least 1% of their retail sales annually, until they reach 20% by 2010.  Currently, California is considering raising the RPS to an even more ambitious 33% by 2020.

A REC generally represents the environmental and renewable attributes of renewable electricity as a separate commodity from the energy itself.  A REC can be sold either “bundled,” with the underlying energy, or “unbundled” into a separate REC trading market.  When traded in the voluntary market, a company may acquire non-renewable energy from its local energy provider and at the same time purchase an equivalent amount of RECs that have been “unbundled” from renewable energy produced elsewhere, and claim that it is powered by clean energy.  In an RPS compliance market, the RPS-obligated load serving entities can use unbundled RECs, rather than actual renewable energy, to comply with their RPS mandates.   

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Deutsche Bank has released a white paper entitled “Investing in Climate Change 2009: Necessity and Opportunity in Turbulent Times,” which asserts climate change investing can be suitable for all asset classes, including listed equities, private equity, venture capital, infrastructure and hedge funds.  Citing the $45 trillion of investment the IEA predicts will be needed in clean energy technologies by 2050 and the driving forces of government regulations, economic/market trends, and the development of new technologies, the white paper identifies four fast-growing markets likely to see increased returns and reduce expected risks in future years-

• Clean energy (power generation, cleantech infrastructure, power storage technology, and transport & sustainable biofuels);
• Environmental resource management (water, agriculture, and waste management);
• Energy and material efficiency (advanced materials, building efficiency, and power grid efficiency); and
• Environmental services (environmental protection and business services).

Investment-Side Analysis

The white paper identifies factors that should be considered in assessing the commercial breakeven point for various climate change technologies and investments, as well as considerations for assessing an industry’s or company’s adaptability in the face of updated or changed regulations.  The report suggests that investors can mitigate and hedge risk by diversifying the risk associated with the breakeven of a clean technology across carbon risk/return, energy price risk/return and regulatory risk/return.

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California’s 20% by 2010 Renewable Portfolio Standard (RPS) is one of the most ambitious in the United States.  In their 2008 Energy Action Plan Update, the California Public Utilities Commission (CPUC) and California Energy Commission (CEC) committed to evaluating an even more aggressive 33 % by 2020.  In order to reach this 33% target, some of the barriers that have been hindering RPS projects thus far must be addressed.

According to a July 2008 CPUC RPS Quarterly Status Report, since the RPG program was adopted in 2002, the CPUC has approved  95 contracts for 5,900 megawatts (MW) for new and existing RPS-eligible capacity.  Of these, 61 contracts (totaling 4,480 MW) are for new projects.  To date, only 14 contracts for approximately 400 MW have come online.  The CPUC identified the key barriers to renewable energy project development as the expiration of the federal Production and Investment Tax Credits, transmission, developer inexperience, financing, site control, permitting, among other factors.  Although responsible public agencies may not have control over all of these barriers, they can help by streamlining their permitting processes.

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On October 7, the Biomass Research and Development Board (Board) was charged with carrying out the National Biofuels Action Plan (NBAP).  The NBAP is the federal government’s first step toward achieving 36 billion gallons per year (BGY) of biofuel production by 2022-the congressionally mandated requirement in the Energy Independence and Security Act (EISA) of 2007. 

The NBAP is focused on research in seven key areas (Action Areas).  When combined, these Action Areas form a strategy for a biofuel industry supply-chain framework (2-6 below) and assurance that the strategy can succeed in a safe and effective manner (1&7 below). 

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Small-scale renewable energy systems enjoy many incentives from the Energy Improvement and Extension Act signed into law this month as part of the “bailout bill” legislation.”  Many tax credits considered essential to the renewable energy industry were set to expire at the end of the year.  Provisions in the bill, combined with various state and local incentives, are set to make renewable technologies more accessible and affordable for homes and businesses.      

The Production Tax Credit (PTC), a cent per-kilowatt hour credit, has historically promoted wind energy in United States.  Because the PTC is structured to offset only passive income, such as investment income, the PTC is unavailable for many smaller-scale wind developments absent a partner to take advantage of the credits.   Under Section 104 of the bill, a 30 percent credit investment tax credit (ITC) is available to offset costs toward installing small wind energy properties, defined as turbines having a name plate capacity under 100 kilowatts, through December 31, 2016.  Because the credit is not linked to passive income like the PTC, more small-wind developers may benefit from the credit, which is capped at $4,000.  Similarly, Section 105 of the Act extends a 10 percent investment tax credit to geothermal heat pump systems using groundwater as a thermal energy source to heat a structure or a thermal energy sink to cool a structure through December 31, 2016.

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The California Air Resources Board today released its final scoping plan for reducing California greenhouse gas emissions to 1990 levels by 2020 as part of the Global Warming Solutions Act of 2006, or AB 32.  While other states are looking to reduce greenhouse gas emissions from certain sources via the Western Climate Initiative (WCI) and the Regional Greenhouse Gas Initiative (RGGI), CARB’s final scoping plan would impact almost all industries throughout California.  Despite the downturn in the economy, Governor Schwarzenegger applauds the scoping plan and believes it will strategically places California in a secure, competitive position for the future.

The plan calls for emission reductions through, among other things, vehicle emission standards, expanded energy efficiency programs, solar incentives, implementation of water efficiency and sustainable forest programs and increased utilization of renewable energy sources (by increasing the renewable portfolio standard to 33 percent by 2020).  The plan also calls for a cap-and-trade program linked to regional partner programs.  Industries, which feel the burden of the economic downturn, have expressed concerns that the proposed restrictions may place them at a disadvantage compared to their peers in states lacking climate change regulations.  CARB, however, projects that the plan will ultimately increase economic production by $33 billion and create more than 100,000 jobs.

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Much ink has been spilled regarding inadequacy of the high voltage transmission grid in the U.S. vis-à-vis various ambitious plans to increase domestic windpower production.  The New York Times and Wall Street Journal have covered this issue fairly recently and highlighted what has been known for some time — that without significant development of the backbone of the nation’s electric transmission grid, the significant windpower generation that is anticipated to come online will not be able to be delivered from the low population centers where the power most often is generated to the high population centers where it is most needed.  Often the expense of expanding the existing electric transmission grid has been cited as the largest obstacle to transmitting the power generated by renewable energy sources located in remote locations to load centers.  Another formidable obstacle to the development of the domestic transmission grid is the patchwork nature of the regulatory regimes governing the siting and construction of transmission facilities in the U.S.

The best sites for land-based windpower generation facilities generally are located in geographic areas that are located far from high demand load centers.  Currently, there is not a single statutory or regulatory framework for the siting of transmission facilities necessary to bring windpower to the population centers where the power is needed.  By contrast, the Natural Gas Act (NGA), which is administered by the Federal Energy Regulatory Commission (FERC), provides a single regulatory regime pursuant to which developers of interstate natural gas pipelines can site such facilities.  Importantly, pursuant to the NGA, interstate natural gas pipeline developers can take, through the right of eminent domain, land required to construct gas pipelines determined by the FERC to be in the public convenience and necessity. 

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The National Biofuels Action Plan (NBAP) released today by Department of Agriculture (USDA) Secretary Ed Schafer and Department of Energy (DOE) Samuel W. Bodman supports the accelerated growth of biofuels as clean and affordable energy to make the U.S. less dependent on foreign oil and create stronger rural communities.

Developed in response to President Bush’s 2007 State of the Union address, detailing the plan to change the way America fuels itself, the NBAP will be implemented by the Biomass Research and Development Board and co-chaired by USDA and DOE officials.

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Kazakhstan’s only significant renewable energy source at present is hydropower, accounting for 3 percent of total energy consumption in 2006.  At a June 2008 meeting of the Foreign Investors’ Council, Kazakh President Nursultan Nazarbayev called on the Kazakh Government to address the need for the development of renewable energy, taking into account the country’s wind and solar resources.  Initiatives proposed by the government have the potential to help certain localities address existing electricity deficits and could provide economic incentives for blending gasoline and diesel with more eco-friendly bio-fuels.  Renewable energy initiatives in Kazakhstan are very modest in scope, however, and the main focus of the country will continue to be on the development of hydrocarbons. 

Hydropower Initiatives

Kazakhstan’s five hydropower plants produce about 12 percent of the country’s electricity, while coal-fired plants account for over 80 percent of electricity generation. The government is planning to construct a number of large and small hydropower stations in the Almaty region.  A major ongoing project is the 300 MW Moinak hydropower station, which is estimated to cost about $300 million, including a $200 million credit from China’s Development Bank. 

Bio-fuel Initiatives

Kazakhstan’s bio-fuel sector is in its infancy, and new legislation in the works will for the first time outline the scope of state regulation of this sector.  The Kazakhstan Bio-Fuels Association was founded only in 2007.  The Ministry of Agriculture is expected to present technical standards in 2009 for gasoline and diesel blended with up to 7 percent bio-fuel.

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