Congressional debate in recent weeks has focused on the Waxman-Markey American Clean Energy and Security Act and the significant cleantech provisions contained within it (covered on ClimateIntel here). The release of the President’s FY2010 budget shows that the Obama Administration is also focused on commercializing promising cleantech and renewable technologies. Spearheading this effort is the Department of Energy, which released its 2010 budget request on May 7^th. The $26.4 billion request, combined with the $38.7 billion the Department received in the American Recovery and Reinvestment Act (the stimulus bill), gives the DOE a considerable amount of money—and therefore considerable influence—on the future of cleantech research. What is notable about the 2010 budget is not the size of the budget—the 2010 request is actually over 20% lower than the 2009 appropriation—but how the budget restructures and refocuses programs within the agency to create new R&D priorities.

Focusing on Renewable Energy, Energy Efficiency

DOE also makes significant changes to the funding of renewable energy projects, increasing the funds available to solar, wind and geothermal research by 83%, 36% and 14%, respectively. These funds will go toward developing “less expensive, more efficient and highly reliable” solar photovoltaic systems, developing concentrated solar technologies “that can compete on the baseload power market,” “accelerat[ing] the market penetration of wind energy,” and advancing the development of geothermal power “as a major contributor to baseload electricity generation.” In the vehicle and building technologies programs, extra funds are targeted toward “facilitating cost effective PHEVs [Plug-In Electric Hybrid Vehicles]” and “enab[ling] production of Net-Zero Energy Homes and Buildings.” (See pages 24-26 of the summary budget document for more.)

Another program, the Office of Electricity Delivery and Energy Reliability, receives significant funding increases—an increase of 52% over 2009—to support smart grid investment, as does the building and vehicle technologies programs.

Cleaner Traditional Fuels
Programs designed to promote cleaner use of traditional fuels also see a boost in the 2010 budget. The fossil fuel and nuclear programs are cut, while funding for both carbon capture and storage and advanced nuclear fuel cycles is increased. (The fossil energy program’s budget begins on page 57 of the summary document; nuclear energy on page 54.)

In contrast to the renewable programs, which have stated goals of improving the market penetration of mature, or nearly mature, technologies, the fossil and nuclear programs shift their focus toward long-term research. The budget even “zeroes out” a program, known as Nuclear Power 2010, which helped the nuclear industry with siting and licensing of new plants.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

The Australian Government announced yesterday a AUD$4.5 billion Clean Energy Initiative as part of its commitment to ensure 20% of Australia’s electricity comes from renewable sources by 2020.  (All dollars figures referenced in this post are Australian Dollars.)  Under the plan (which includes $1 billion in existing funds), the Government is proposing to spend:

1. $465 million to establish Renewables Australia to support leading-edge technology research and capacity building;
2. $2.4 billion in low emissions coal technologies, including new funding of $2 billion in industrial-scale Carbon Capture and Storage (CCS) projects under the CCS Flagships program.  This program will support the demonstration of industrial-scale projects in Australia, potentially including a carbon dioxide storage hub;
3. $1.6 million in solar technologies, including $1.365 billion in a Solar Flagships Program to help position Australia as a world leader in this technology.  This program will aim to create an additional 1,000 MW of solar generation capacity, which is triple the size of the largest project of its kind currently operating anywhere in the world; and
4. $14.9 million over three years, added to the Government’s Clean Energy Trade and Investment Strategy, to attract productive investment into Australia’s clean energy sector and assist Australian clean energy companies to access international markets through export and investment.

The Government’s announcement follows upon the “Carbon Capture and Storage Initiatives in Australia” event at the Australian Embassy in Washington, DC.  Speakers James McGregor, Energy Systems Manager, CSIRO; Mark Taylor, Senior Associate, New Energy Finance and a representative from the newly-created Global Carbon Capture and Storage Institute (GCCSI), an Australian organization developed to accelerate the deployment of CCS technology globally, discussed CCS projects both in Australia and worldwide.

The Australian experience with CCS research and development is particularly pertinent to the United States because both countries depend heavily on coal-fired generation of electricity. Eighty percent of Australia’s energy comes from coal-fired power stations, accounting for one-third of Australia’s GHG emissions.  While there are 238 CCS projects, excluding lab-scale initiatives, at various stages in twenty-seven countries, both Australia and the United States are likely to require successful CCS technologies to attain the GHG emissions reduction targets contemplated.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

As regular readers of ClimateIntel are aware, the Waxman-Markey draft bill—the American Clean Energy and Security Act of 2009 (ACESA)—contains sweeping provisions to reshape the domestic energy landscape.  ACESA would establish an economy-wide greenhouse gas (GHG) cap-and-trade program to reduce GHG emissions 20 percent from 2005 levels by 2020 and 83 percent by 2050. The bill contains a host of other provisions, such as a low-carbon fuel standard, funding for carbon capture and sequestration technologies and a federal renewable electricity standard (RES). While the bill is expected to change in form in the coming months as it goes through the markup process, there is a growing consensus that certain energy provisions, including the RES, could well become law in this Congress.

That an RES is contained in ACESA highlights the central role renewable energy will play in a low-carbon future. Currently, half of U.S. states mandate that utilities and retail electricity providers procure annually increasing percentages of renewable energy. State programs vary substantially with respect to the percentage of renewable energy required, the definition of eligible renewable energy resources and the ability to use out-of-state resources, or credits, to fulfill compliance obligations.

The RES proposed in ACESA would require renewable electricity in amounts exceeding most state requirements, beginning at 6 percent in 2012 and incrementally increasing to 25 percent by 2025. Retail electricity suppliers with annual sales in excess of 1 million megawatt hours (MWh) would be subject to the federal requirements. Eligible renewable energy resources exclude certain resources qualifying under state programs; specifically, low-carbon fossil fuels and nuclear energy are ineligible. For states disadvantaged in meeting the RES, a governor of any state is allowed to meet one-fifth of the renewable goal through energy efficiency measures. All eligible renewable resources, new or existing, are eligible to meet the utility’s compliance obligation.

To track and verify compliance, the Waxman-Markey legislation would create a federal tradeable renewable electricity certificate (REC) program. Utilities would be required to submit RECs for each MWh of their renewable energy obligation. If covered utilities do not meet their compliance obligation, alternative compliance payments are required. These payments are capped at $50/MWh, effectively serving as a ceiling on the price of RECs. Civil penalties equivalent to double the federal alternative compliance payment apply to entities failing to comply with the RES for each deficient MWh.

While most renewable energy projects would receive 1 REC per MWh of production, the Waxman-Markey legislation incentivizes small distributed renewable energy projects under 2 MW through triple bonus RECs. The bill would also allocate RECs between a renewable energy generator and retail supplier, where renewable energy generator receives financial support from a retail electric supplier pursuant to a state renewable electricity program. Unlike the Senate Energy and Commerce majority draft RES legislation, the House version proposes no bonus RECs for renewable generation from facilities on Indian land.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

Earlier today Tom Vilsack, Secretary of Agriculture; Steven Chu, Secretary of Energy; and Lisa Jackson, Administrator of the Environmental Protection Agency (EPA) held a conference call to discuss the Obama Administration’s commitment to biofuels. Highlights of the call were EPA’s issuance of the Renewable Fuel Standard Program (RFS2) Notice of Proposed Rulemaking and the Department of Energy’s (DOE) announcement of $786.5 million in Recovery Act funds to accelerate biofuels research and commercialization.

Secretary Chu indicated that of the $786.5 million in Recovery Act funds, $480 million will go to soliciting integrated pilot- and demonstration-scale biorefineries; $176.5 million to commercial-scale biorefinery projects; $110 million to fundamental research in key program areas; and $20 million to ethanol research. Secretary Chu addressed questions about ethanol’s impact on food prices in the U.S., stating that our agricultural resources can provide food, both domestically and internationally, and much-needed energy.

Administrator Jackson focused on EPA’s commitment to the Energy Independence and Security Act (EISA) and stated that the proposed rulemaking implements EISA and grandfathers in 15 billion gallons of ethanol. She expressed the need for home-grown energy - specifically mentioning corn-based ethanol and cellulosic ethanol - to lower our dependence on foreign oil and our vulnerability to price spikes; reduce GHG emissions; create green jobs, especially in rural America; and meet the RFS of 36 billion gallons of ethanol by 2022. Administrator Jackson renewed her commitment to utilizing the best available science and indicated there would be a 60-day comment period on the proposal.

On the issue of indirect land use, which ClimateIntel previously examined, Administrator Jackson stated EPA is gathering peer reviews on satellite data, land conversion and other factors affecting GHG emissions. She added that EPA’s data shows that corn-based has 16% lower emissions than fossil fuel. She also stressed the need for development of new product technology for non-grandfathered, corn-based ethanol plants and new pathways for biodiesel to meet the 50% reduction required to comply with the EISA.

Secretary Vilsack discussed that USDA will work to create new biorefinery resources and convert existing refineries to biofuels. He indicated that the three agencies have drafted a memorandum that reflects Obama’s commitment to rural US, creates clean jobs and new opportunities, and creates additional income for farmers.

Today’s inter-agency commitment, backed by President Obama, to both corn-based and advanced biofuels is yet another boost to the ailing biofuels industry. In recent weeks, ClimateIntel reported on the Congressional Budgets Office’s report entitled “The Impact of Ethanol Use on Food Prices and Greenhouse-Gas Emissions,” and the E 15 waiver request. So far, at least, it appears that federal policy remains fully supportive of ethanol-based biofuels and reconciliation with the direction of the California-led effort to move away from such fuels remains for another day.

For further information about this topic, please contact Akin Gump.

The American Clean Energy and Security Act of 2009 (ACES) Carbon Capture and Sequestration (CCS) provisions appear at first blush like a wish list for the coal industry and other CCS proponents.  Between directing the Environmental Protection Agency (EPA) to create an improved regulatory framework for CCS, authorizing billions in new ratepayer-generated funds to support early commercial CCS projects, and authorizing EPA to make direct payments to companies that sequester CO₂, the bill, as developed by Congressmen Henry Waxman and Ed Markey, appears intent on removing regulatory and economic barriers to commercializing CCS technology.  Those incentives come with a lofty condition, however, as the final section in the CCS subtitle lays out the expectation that CCS will reach commercial viability by the middle of the next decade - and become a necessary element of any new coal-fired power plant. Should ACES become law, the expectations for CCS commercialization will high, but the stakes for the coal industry will be even higher.

A Regulatory Framework for CCS

ClimateIntel has reported previously on the legal and regulatory barriers investors and project developers face in moving forward with large-scale CCS projects under the current (or even EPA’s proposed) regulatory framework.  ACES would amend both the Clean Air Act (CAA) and the Safe Drinking Water Act (SDWA) to address some of these key barriers: First, ACES would give EPA’s air program new authority under the CAA to regulate the siting and permitting of these CCS facilities to help prevent atmospheric releases of sequestered CO₂.  Also, EPA’s drinking water regulatory program would gain additional authority necessary to impose financial assurance requirements on owners and operators of CCS facilities, building on EPA’s existing authority to regulate those facilities to protect water resources.

In contrast, on some issues ACES reverts to traditional fact-finding and reporting in lieu of charging forward with rulemaking.  The bill would establish a multidiscliplinary task force to study and report on various legal issues associated with CCS regulation, including options for management of long-term liability at CCS facilities-another issue previously examined on ClimateIntel.  The Bill would also direct the Department of Energy (DOE) and the Federal Energy Regulatory Commission to prepare a Report to Congress on barriers to constructing and operating the extensive web of pipelines that would be needed to transport CO₂ to suitable sequestration or enhanced oil recovery sites.

 A Dedicated Funding Stream for Early Movers

In addition to regulatory certainty, the CCS industry has struggled to generate the capital needed to take CCS from a promising demonstration technology to a proven commercial-scale application.  ACES would establish a quasigovernmental corporation, the Carbon Storage Research Corporation (CSRC), to subsidize early CCS commercial projects using an assessment fee passed through to rate-payers.  The CSRC would operate as a division of the nonprofit Electric Power Research Institute (EPRI), under the direction of a Board of Directors composed of representatives from industry, municipal governments, and nongovernmental organizations.  Absent opposition from 40 percent of state regulators, the CSRC would collect a small assessment fee on each kilowatt-hour of fuel-based electricity delivered directly to retail consumers, tailored to each utility based on their energy mix, providing up to $1 billion per year in funding for CCS projects for the next ten years.

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

As reported earlier, the Department of the Interior (DOI) and Federal Energy Regulatory Commission (FERC) have been negotiating an agreement to outline and clarify the agencies’ respective jurisdiction and responsibilities for renewable energy projects in offshore waters on the Outer Continental Shelf (OCS).  On April 9, Secretary of the Interior Ken Salazar and FERC Chairman Jon Wellinghoff finally signed a Memorandum of Understanding (MOU) to facilitate development of a “cohesive, streamlined process” to accelerate wind, solar, and hydrokinetic (wave, tidal, and ocean current) energy projects on the OCS, ending a long dispute between the agencies.

In short, the MOU preserves the authority of DOI’s Minerals Management Service (MMS) over offshore wind and solar projects and gives MMS authority to issue leases, easements, and rights-of-way for OCS hydrokinetic projects, for which projects FERC will then have exclusive jurisdiction to issue construction and operating licenses or exemptions.  MMS had previously asserted jurisdiction over all energy projects on the OCS, including hydrokinetic projects, and even sought to block preliminary permits issued by FERC.  Specifically, the agencies agree that:

• MMS will retain exclusive jurisdiction over the production, transportation, and transmission of energy from non-hydrokinetic OCS projects;
• MMS will: (1) have exclusive jurisdiction to issue leases, easements, and rights-of-way for hydrokinetic OCS projects; and (2) conduct any necessary environmental reviews for those actions, including reviews under the National Environmental Policy Act (NEPA), while FERC has discretion to act as a cooperating agency in those reviews;
• FERC will not issue preliminary permits for hydrokinetic OCS projects, but will: (1) have exclusive jurisdiction to issue licenses and exemptions for those projects, with active involvement of federal land and resource agencies, including DOI; and (2) conduct any necessary environmental reviews for those actions, including under NEPA, while MMS has discretion to act as a cooperating agency in those reviews;
• The agencies will coordinate to ensure that: (1) hydrokinetic OCS projects meet the public interest, including adequate protection, mitigation, and enhancement of fish, wildlife, and marine resources and other beneficial public uses; and (2) any FERC license or exemption or FERC-regulated operations under an MMS lease, easement, or right-of-way are consistent with the Outer Continental Shelf Lands Act, the Federal Power Act, and other applicable laws;
• MMS may condition leases, easements, and rights-of-way for hydrokinetic OCS projects and FERC will include in any license or exemption for those projects a requirement to comply with the MMS conditions;
• FERC will not issue a license or exemption for any hydrokinetic OCS project until the applicant has obtained an MMS lease, easement, or right-of-way;
• MMS will provide in all leases, easements, and rights-of-way for hydrokinetic OCS projects that construction or operation cannot begin without a FERC license or exemption, unless FERC notifies MMS that no license or exemption is required;
• FERC may inspect hydrokinetic OCS projects to ensure compliance with licenses or exemptions and MMS may inspect those projects to ensure compliance with any applicable lease, easement, or right-of-way; the agencies will work to coordinate inspections through development of joint policies or regulations, as appropriate;
• Each agency will use its own appropriations to fulfill its respective responsibilities;
• The agencies will work together, to the extent practicable, to develop policies and regulations for hydrokinetic OCS projects, including processes to address “hybrid” (wind/hydrokinetic) projects or projects that straddle state waters and the OCS; and
• The MOU is “strictly for internal management purposes,” does not expand or alter the scope of either agency’s authority, and shall not be construed to create any legal obligation on either agency or any private right or cause of action.

The MOU is effective as of April 9, 2009, may be modified only upon further written agreement of the agencies, and can be terminated 120 days after written notice to the other agency.

In a joint press release, Secretary Salazar noted that the MOU “will spur the development of clean, renewable energy,” while Chairman Wellinghoff noted the MOU, “[b]y removing all the regulatory barriers to the development of hydrokinetic energy” on the OCS, “will advance the development of a promising renewable resource” that will benefit consumers.

As noted earlier, however, others have questioned whether the agencies’ agreement will be effective.  For example, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman has expressed doubt that the agreement will actually streamline the development process and both Chairman Bingaman and Ranking Member Senator Lisa Murkowski have suggested that a more definite legislative solution could be included in a forthcoming energy bill.

Even if not fully effective to minimize delays and inefficiencies in developing renewable energy projects in OCS waters, the MOU does end the confusion over the respective jurisdiction of the two agencies.  Still, as suggested by other recent commentary, the MOU does not resolve how MMS will address criticisms lodged against its proposed regulations for alternative energy projects in OCS waters or when either agency will issue further proposed or final rules for their respective processes.  Secretary Salazar has suggested that MMS regulations could be ready in as little as a few months, while the timeline for new FERC rules, if any, remains to be seen.  Both issues will need to be resolved before either agency can begin siting projects.

For further information about this topic, please contact Akin Gump.

Last week, Secretary of the Interior Ken Salazar and then-Acting Chairman (now Chairman) of the Federal Energy Regulatory Commission (FERC) Jon Wellinghoff announced an agreement between the Department of the Interior (DOI) and FERC to work together to facilitate development of renewable energy projects in offshore waters on the Outer Continental Shelf (OCS).

The agreement signals the end of a long jurisdictional conflict between DOI and FERC regarding oversight of offshore renewable resource development, and has the potential to streamline the regulatory process for development of such resources.  Under the Federal Power Act, FERC regulates hydropower projects in the navigable waters of the United States.  The Energy Policy Act of 2005, however, amended the Outer Continental Shelf Lands Act to expand DOI’s OCS energy resource development power and give DOI parallel permitting authority for the production, transportation, or transmission of non-fossil energy resources on the OCS, including renewable projects.  Since the change, DOI’s Minerals Management Service and FERC disagreed on which agency has primary jurisdiction over offshore hydropower projects, preventing progress in rulemaking and resulting in an absence of federal rules governing renewable energy project development on the OCS.

Under the agreement, Interior will cede primary responsibility to FERC to manage licensing of offshore hydropower projects (e.g., wave and ocean current) using procedures developed for hydropower projects under the Federal Power Act and with the involvement of federal land and resources agencies, including DOI.  DOI will retain jurisdiction over wind projects.  The joint announcement notes that DOI and FERC are preparing a Memorandum of Understanding that will outline the principles of the agreement and the new permitting and licensing process for offshore renewable energy projects.

While Salazar and Wellinghoff, along with various renewable energy groups, praised the agreement for its promise to provide greater regulatory certainty for offshore energy developers and speed project development, others are skeptical that the agreement will be effective.  For example, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman has expressed doubt that the agreement will actually streamline the development process and Bingaman and Ranking Member Senator Lisa Murkowski both have suggested that a more definite legislative solution might be included in a forthcoming energy bill.

For further information about this topic, please contact Akin Gump.

ClimateIntel has been chronicling the advantages of developing a quasi-governmental agency, the Renewable Energy Private Investment Corporation (REPIC), to assist the financing and growth of renewable energy industries.  In the short term, REPIC can provide market-based lending and loan guarantees to help unfreeze and lower the cost of capital during these difficult market conditions.  In our view, REPIC can provide services beyond lending and loan guarantees to benefit private capital investments, such as technology and project insurance, and private equity support to small scale and emerging technologies.  In the long term, REPIC can mobilize private investment capital, promote social and environmental goals, and ultimately lower the cost of capital to renewable energy industry.  In this post, we explore the administrative advantages of REPIC.

As discussed in prior posts, REPIC can be structured similarly to the Overseas Private Investment Corporation.  We envision an advisory council and staff that are specialists in environmental/energy policy, renewable technologies, and finance.  These experts can provide a streamlined and single source review process for REPIC programs, while depoliticizing the selection of projects to be funded or insured.  Like any other commercial lender, REPIC would evaluate project and transactional risks to ensure that financing is commercially, technically, and financially sound.  Interest rates and fees for financial products would be based on the cost of U.S. government issued securities, plus a premium based upon the project’s perceived commercial, managerial, and technical risks.   One major advantage to REPIC, as compared to the DOE Loan Guarantee program, is that commercialization specialists within REPIC would  work with applicants during the early stages of the application process, giving companies an early indication in the event a particular project does not fit within REPIC’s project selection criteria .  Under the DOE Loan Guarantee program, applicants must complete a costly and expensive application before a project is even considered. There is no early warning that a project will not qualify.

Accordingly, REPIC would house four discrete divisions that would collaborate, but have their own areas of competence: private equity; structured finance; insurance; and policy.  Each division would have the discretion to meet with applicants, guide the application process and assist with the eventual loan or insurance negotiation.  Through this collective expertise, REPIC would have a greater understanding of the risks associated with emerging technologies than traditional lenders so the cost of lending would more closely reflect the risks involved in a particular project or technology.

By housing a multidisciplinary panel of experts within REPIC, inherent efficiencies and synergies will reduce transactional costs and time for project review in contrast to the high costs and administrative delays associated with traditional loan guarantee programs that hamper project development.  At the same time, REPIC can promote broader US policy and economic development goals by establishing lending criteria designed to advance certain environmental, social, and regulatory objectives.  REPIC’s lending criteria can prioritize funding for projects that will provide lasting benefits to the US economy, including those projects that:

• Promote sound environmental standards
• Encourage job creation, training, and economic development
• Contribute to reductions in greenhouse gas emissions
• Advance the competitiveness of U.S. technologies
• Meet federal renewable fuel standards and forthcoming renewable energy standards

Read the rest of this entry »

For further information about this topic, please contact Akin Gump.

Spurred by a variety of incentive programs, homeowners, businesses, and local governments installed 158 MW of grid-tied solar photovoltaic projects in the investor-owned utility (IOU) service areas of California in 2008, more than doubling the 78 MW installed in 2007.  Despite the economic downturn, the California Public Utilities Commission reported that the rate of installations is expected to remain strong in 2009.  According to the Commission, demand to participate in the largest incentive program, the California Solar Initiative (CSI), surged in the fourth quarter of 2008, breaking the previous records for most applications in a single quarter.

The CSI program, launched in 2007, provides upfront incentives for solar systems installed on existing residential homes, as well as existing and new commercial, industrial, government, non-profit and agricultural properties within the IOU service areas.  The program has a budget of $2.17 billion with the goal of reaching 1,940 MW of installed solar capacity by the end of 2016.  Combined with other statewide programs, $3.3 billion in incentives are available.

As a bright spot in the California economy, the CSI program has generated more than $5 billion worth of investment in solar projects in California.  According to the Commission, for every $1 in incentive committed by the CSI program, an additional $6 in private funds is invested in solar technology in California.  Considering the current demand to participate in the CSI program, and the availability of solar investment tax credits, this level of investment should continue in 2009.

For further information about this topic, please contact Akin Gump.

On Wednesday, January 28, the US House of Representatives passed the American Recovery and Reinvestment Act (H.R. 1), a high-profile economic stimulus package that has dominated the Presidential and Congressional agenda since the beginning of the year.  The House bill appropriates $2.4 billion for research, development, and demonstration projects addressing: 1) Fundamental science and engineering research related to carbon capture and storage (CCS); 2) Field validation testing activities (in a variety of candidate geologic settings, including operating and depleted oil and gas fields); and 3) Large-scale carbon dioxide sequestration testing. In addition, the House bill establishes an enhanced tax credit for research expenses related to carbon capture and sequestration.

With the House Bill approved, attention now shifts to the Senate where, on Tuesday, the Appropriations Committee reported out the funding portion of the Senate stimulus package, including $2 billion for one or more near-zero emissions fossil-fuel powerplants, $1 billion for the Department of Energy’s Clean Coal Power Initiative, and $1.6 billion for projects that demonstrate carbon capture from industrial sources.  The $2 billion for near-zero emissions fossil-fuel power plants is likely a nod to FutureGen, which has been a priority project for Illinois Senator and Appropriations Committee member  Dick Durbin.  That same day, the Senate Finance Committee reported out tax provisions for the Senate stimulus bill that included an “Enhanced Research Tax Credit” similar to that passed in the House and an additional “Advanced Energy Investment Credit,” establishing a new 30 percent investment tax credit for facilities engaged in the manufacture of CCS equipment and a number of other advanced energy technologies.

The dueling stimulus packages have a ways to go before CCS advocates can start counting on the new funding, but based on what we have seen from the House and Senate so far, 2009 could be a very productive year for CCS infrastructure development in the US.

For further information about this topic, please contact Akin Gump.