DOE Releases 2014-2015 Offshore Wind Technologies Market Report

On September 29, 2015 the Department of Energy released the 2014-2015 Offshore Wind Technologies Market Report, assessing the nation’s offshore wind potential and planned projects through June 30, 2015. The report summarizes domestic and global market developments, technology trends, and economic data with the purpose of aiding U.S. offshore wind industry stakeholders. The Report builds upon previous market reports conducted by the Navigant Consortium between 2012 and 2014, which would track U.S. wind projects that had reached an “advanced stage” of development. The 2015 Market Report not only assesses the progress of offshore wind projects in various stages but it also analyzes projects in a range of countries. To learn more about where the U.S. offshore wind industry stands in comparison to other countries as well as about domestic and global ongoing projects and expected trends, read on!

New Method for Tracking Offshore Wind Projects

The National Renewable Energy Laboratory (NREL) re-developed its system for classifying and tracking the progress of projects within the development pipeline. The purpose of this new method is to increase connectivity across markets and regulatory regimes as well as to objectively assess the status of projects.

Global Offshore Wind Market on Target to Set Annual Deployment Record in 2015

The increase in offshore wind projects in the pipeline is leading to an upsurge in operational capacity spread out across the world. While 1,069 megawatts (MW) of new wind capacity was installed in 2014, it is expected that 2015 will provide approximately 3,996 MW of wind capacity, making 2015 a record year for offshore wind deployment. The total global installed capacity is now 8,990 MW. At this rate, the global cumulative capacity could exceed 47,000 MW by 2020. Projects are also beginning to spread out beyond Europe. While currently 63% of the projects are located in Europe, 23% are located in Asia, 9% in North America, and 5% spread across the rest of the world.

15,650 MW of U.S. Projects are in Various Stages of Development

There are 21 U.S. offshore wind projects in the development pipeline, which equates to 15,650 MW of potential installed capacity. 13 of these projects have achieved site control or a more advanced phase of development. While most of the offshore wind projects are located in the North Atlantic region, there seem to be feasible offshore resources in the South Atlantic, Great Lakes, Gulf of Mexico, and Pacific regions of the U.S.

Deepwater Wind Begins Installation of First U.S. Offshore Wind Project

The Block Island Wind Farm (BIWF) began offshore construction in 2015. Led by Deepwater Wind, clients of ML Strategies, BIWF is expected to be the nation’s first offshore commercial wind project, it also has the potential to lower electricity prices for the residents of Block Island, provide substantial clean energy to the mainland townships of southern Rhode Island as well as produce approximately 300 jobs during its construction phase.

Cost Trends and Learning from Europe

Offshore wind projects are capital-intensive, where utility scale projects (>200 MW) generally require investments of over $1 billion. With projects expected to be built in locations that are located in deeper water, further away from shore, and larger in size, operating costs becomes an even greater concern. The industry is focused on introducing a variety of technological innovations to drive down the cost. The DOE’s Report suggests the U.S. will likely enact a cost structure similar to that of Europe. Part of the reason Europe’s offshore wind industry is so widespread is due to its ability to subsidize projects via investors and its action on the part of policymakers. For instance, policymakers in the UK have set goals to reduce the Levelized Cost of Electricity (LCOE) and are implementing programs designed to lower costs, reduce risk to developers, and minimize the prices required to make projects financially viable as evidenced by their initiation of competitive auctions for subsidies, their classification of zones that emphasize size affordability (choosing projects closer to shore), and their sponsoring early-stage development activities to reduce uncertainty about site conditions. Recent state and federal policy developments including President Obama’s issuance of the Clean Power Plan regulation and the initiation of the BIWF project provide hope for the U.S.’ offshore wind industry.

Overall, even though the EU continues to lead projects in the wind industry, the industry is becoming more geographically dispersed with projects now underway in the U.S. and Asian markets. While the biggest challenge the U.S. offshore industry faces is the current high cost of offshore wind generation, the industry is focused on cutting such costs through leveraging European technology and experience.  It is also the hope that cost reductions of projects in the EU caused by its target to reduce the LCOE for offshore wind projects, the Cost Reduction Monitoring Framework set up by the UK government, and additional actions by policymakers, will translate to the U.S., further strengthening the wind industry in the U.S.

©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

IRS Releases Favorable Guidance for Individual Investors in Community Solar to Claim Section 25D Tax Credit

The IRS recently issued a Private Letter Ruling (PLR) clarifying that an individual investor in a net-meted community solar project may claim the federal residential Investment Tax Credit (ITC) under Section 25D of the Internal Revenue Code. (A copy of the PLR is available here.) The PLR is also significant because it appears to eliminate a number of contractual requirements that the utility and taxpayer needed to agree to regarding the tracking and ownership of the power produced by the solar project to be eligible for the credit.

Section 25D Tax Credit and Prior IRS Guidance

Just like the Section 48 ITC, the Section 25D ITC permits an owner of solar and other renewable energy property installed before January 1, 2017 to receive a 30% tax credit against federal income taxes. However, in order to claim the credit the property must “generate electricity for use in a dwelling … used as a residence by the taxpayer.” Some tax practitioners interpreted that to meant the credit was limited to solar projects on or adjacent to the taxpayer’s residence. A few years ago, the IRS provided some guidance in Notice 2013-70 (at Q&A Nos. 26 and 27) that taxpayers could in fact claim the credit for off-site solar projects. However, the fact pattern in the Notice described an off-site net-metered project that was owned by the taxpayer, so questions remained whether taxpayers could claim the credit for investments in co-owned community solar projects. Further, the IRS limited the Notice so that it only applied to net-metering arrangements whereby the taxpayer specifically contracts with its local utility to track “the amount of electricity produced by the taxpayer’s solar panels and transmitted to the grid and the amount of electricity used by the taxpayer’s residence and drawn from the grid” as well as stipulate in the contract that the taxpayer holds title to the energy until it is delivered to the taxpayer’s residence. These requirements were problematic because they were often at odds with utility tariffs and state net-metering laws.

The PLR

The PLR is partially redacted but it was provided to a Vermont taxpayer requesting clarification as to whether his investment to purchase 10 solar panels in a 640-panel community solar farm along with a partial ownership in related racking, inverters and wiring is eligible for the Section 25D ITC. (A brief write-up about the project and taxpayer in the local press is available here.) The PLR explains that the project’s entire solar energy output is provided to the taxpayer’s local utility which then calculates a net-metering credit pursuant to its tariff and applies a portion of that credit against the taxpayer’s monthly electric bills. The PLR also explains that the taxpayer’s solar panels are not expected to generate electricity in excess of what the taxpayer will consume at his residence and that the taxpayer along with the other owners of the community solar project are members of an entity that coordinates with the utility the information needed to calculate each person’s allocable share of energy produced by the entire project. Based on these facts, the IRS determined that the taxpayer is entitled to the Section 25D credit. The PLR makes clear the fact that other individuals own solar panels in the project’s solar array does not disqualify the taxpayer from claiming the Section 25D ITC. The PLR did away with the requirement the utility specifically track the exact amount of electricity produced by the taxpayer’s portion of the community solar project and can instead determine the taxpayer’s allocable share of the entire project. The PLR also did away with the requirement the utility contractually agree that the taxpayer retains ownership of the electricity until delivered at his residence. Thus, to recap, under the PLR a taxpayer investing in a community solar project is generally entitled to the Section 25D ITC so long as: (1) the community solar project provides power to the taxpayer’s local utility, (2) the utility provides a credit for the taxpayer’s allocated energy production of the entire project, and (3) the taxpayer’s allocable share is not in excess of its residential needs.

Impact

It is important to note PLRs only apply to the individual taxpayer requesting the ruling and may not be cited or relied upon as precedent by other taxpayers. That said, PLRs provide valuable insight to the IRS’s views on a particular matter, and we expect that this PLR should incentivize investment in community solar and lead to even further expansion in the market. Until now, the market has been primarily driven by tax equity investors claiming the Section 48 ITC and depreciation, however, this PLR opens up opportunities for homeowners who cannot install solar systems for various reasons to invest in community solar.

Federal District Court sets aside 30-Year Eagle Take Permit

On August 11, 2015, a United States District Court judge halted a years-long effort by the United States Fish & Wildlife Service (“FWS”) to smooth the federal permitting path for wind energy. Shearwater et al. v. Ashe, No. 14-CV-02830-LHK (N. D. Cal.)(August 11, 2015). Specifically, the judge set aside a rule allowing for activities such as wind energy projects to kill bald eagles and golden eagles for up to 30 years.

FWS’s efforts began back in the current administration’s first year with the first ever authorization for either individual or programmatic take permits of bald or golden eagles under the Bald and Golden Eagle Protection Act (“BGEPA”) of 1940. (Decision at p. 6) The FWS explained at the time that “the rule limits permit tenure to five years or less because factors may change over a longer period of time such that a take authorized much earlier would later be incompatible with the preservation of the bald eagle or the golden eagle.” (Decision at p. 7, citing 74 Fed. Reg. at 46,856). As explained in the court’s decision, the FWS downplayed anticipated use of the new permits for wind energy projects, stating that “the wind power facility could obtain a programmatic permit only ‘[i]f [advanced conservation practices] can be developed to significantly reduce the take’ resulting from ‘the operation of turbines.’” (Decision at p. 8, citing 74 Fed. Reg. 46,842)(emphasis supplied).

Shortly after adopting its new 5-year rule, however, there was a significant increase in wind energy projects. Decision at p. 9. In response, the FWS developed its Eagle Conservation Plan Guidance, a voluntary guidance, which introduced advanced conservation practices or ACPs for the wind energy sector, including experimental ACPs (i.e., scientifically unproven). Id.

The wind energy industry, although undoubtedly pleased to have secured a programmatic take permit for the accidental or incidental killing of bald and golden eagles, commented on the 5-year permit program, complaining that a 5-year permit was unworkable in that projects were developed for a useful life of twenty to thirty years, and the shorter permit term made financing difficult. As a result of its concern that wind energy projects were not able to get permits as a result of the uncertainty of potential future regulatory changes regarding the killing of eagles, FWS proceeded with efforts to move to a 30-year permit “as soon as possible.” Decision at p. 10. The court notes that “[a]t bottom, FWS issued the Proposed 30-Year Rule ‘[b]ecause the industry has indicated that it desires a longer permit.’” Id.(emphasis supplied).

Internal debate ensued at the FWS regarding the proposed 30-year permit rule. Despite concerns and staff opinions that an EIS would be needed to support the rule, FWS Director Dan Ashe instructed his staff not to conduct further NEPA work, that an NGO lawsuit was unlikely, and to proceed. Id. at p. 13-16. The rule was finalized and effective as of January 8, 2014. A lawsuit followed five months later.

The FWS’s efforts to accommodate wind energy development and facilitate additional permitting through its 5-year and 30-year eagle take permits appear to pre-date the recent Clean Power Plan, which notably incentivizes the development of wind and other non-emitting energy sources. The effort, though, certainly is consistent with the Clean Power Plan and this administration’s encouragement of renewable energy sources.

In its August 11th ruling, the court concluded that FWS failed to comply with NEPA, set aside the 30-year rule and remanded the rule for further consideration by FWS. During the remand of the rule, the 5-year permit should still be available as an option for applicants.

© Steptoe & Johnson PLLC. All Rights Reserved.

New Report on Renewable Energy as an Airport Revenue Source

The Airport Cooperative Research Program (ACRP) has recently published a guidebook on Renewable Energy as an Airport Revenue Source. The link to the guidebook on the ACRP website is here. David Bannard is a co-author of the guidebook, for which the lead authors were Stephen Barrett and Philip DeVita of HMMH.

solar energy, sustainable, clean power, renewable, source, sun

Airports are exploring non-traditional revenue sources and cost-saving measures. Airports also present a unique and often accommodating environment for siting renewable energy facilities, from solar photovoltaics (PV) to thermal, geothermal, wind, biomass and other sources of renewable energy. Although the guidebook focuses on the financial benefits of renewable energy to airports, it also notes other business and public policy benefits that can accrue from use of renewable energy at airports.

The guidebook includes case summaries of 21 different renewable energy projects at airports across the United States and in Canada and the U.K. Projects summarized include solar PV, wind, solar thermal, biomass, and geothermal technologies. In addition the guidebook examines factors to be considered when evaluating airport renewable energy projects, conducting financial assessments of airport renewable energy and issues relating to implementing airport renewable energy projects. Airports present unique challenges and opportunities for development of renewable energy facilities. The ACRP’s recent publication helps both airport operators and renewable energy providers and financiers understand and address many of these complex issues presented in the airport environment.

© 2015 Foley & Lardner LLP

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

In the first two parts of this series, we considered how the RO operates, possible plans to close the RO in 2016, and the potential impact of those plans upon the onshore wind industry. In this final post, we outline two possible legal avenues for challenge and redress by those who may be affected by the early closure of the RO: through the national courts and under international investment treaties.

windmill vertical

The first possibility is to challenge the Government’s actions through the national courts. This route recently has been used by the solar industry, with mixed results. In 2012, the Supreme Court refused the Government’s appeal to cut solar feed-in-tariffs before the completion of a consultation on the matter. However, in November 2014, the High Court refused an application for judicial review against the Government’s decision to close the RO to ground and building mounted solar photovoltaic capacity above 5 megawatts in 2015 rather than 2017.

Affected investors could also consider commencing international arbitration proceedings under an investment treaty. If successful, an investor could obtain compensation for the loss of their investment as a result of measures introduced by the Government. However, this option would only be available to foreign investors from member States that have an investment treaty in place with the UK, and who have made a qualifying investment in the UK, as defined by the applicable treaty.

A number of European states, including Spain, are currently being sued by foreign investors under the Energy Charter Treaty as a result of changes to national solar subsidies. Marcus Trinick QC, representing Renewables UK, has warned Energy Minister Amber Rudd to “be aware of the dangers of state aid discrimination and look at what is happening in international energy arbitration across Europe. In such a position we could not afford not to fight, especially if action is taken to interfere retrospectively.

Media reports suggest that, given the extent of industry opposition, DECC is delaying an announcement to allow for further refinement of the proposed measures and their impact, in order to reduce the scope for legal challenges. Marcus Trinick QC has emphasised the need for dialogue between the industry and the Government before action is taken, which could reduce the risk of legal challenges arising.

The message from industry representatives is clear: the early closure of the RO would be a major blow to the future of onshore wind in the UK, which could spark a legal battle with the UK Government. As Maf Smith, deputy chief executive of RenewableUK, has stated, “[t]he industry will fight against any attempts to bring in drastic and unfair changes utilising the full range of options open, including legal means if appropriate.

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

© 2015 Covington & Burling LLP

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

Part One of this series outlined the RO scheme and the expected announcement to close the RO earlier than anticipated. In this second post, we consider the potential impact of such measures upon the onshore wind industry.

Until the consultation with devolved authorities (Scotland and Northern Ireland) is completed, and detailed proposals are published, the timing and nature of the impact on the industry will be uncertain.

There are currently around 3,000 new turbines with a combined capacity of more than 7 gigawatts seeking planning permission, many of which would have been expecting to secure accreditation under the RO. Bloomberg Energy Finance has estimated that, if the RO closes to new generating capacity in 2016 and onshore wind was not eligible for public subsidy under the Contracts for Difference scheme, less than half the capacity of projects in advanced stages of planning would benefit from subsidies.

The majority of the planned projects are due to be located in Scotland. Given the apparent tension between the Scottish First Minister and Prime Minister over the future of onshore wind (referred to in our first post in this series), there is currently uncertainty as to whether or not the applicable RO in Scotland would close in 2016. This is an important consideration regarding the possible impact of any proposed measures.

It is unclear whether there would be a ‘grace period’ in relation to the changes, which could enable projects that already have planning permission to be included under the RO scheme, and closing the RO for those that do not. Ian Marchant, chairman of wind developer Infinis Energy, said: “The Government’s alleged plans to close down the Renewable Obligation-regime early for onshore wind beggar belief. . . . If the RO is terminated early without reasonable grace periods in place, not a single energy or large scale infrastructure project in the UK will be safe going forward.

The potential impact of such measures is giving rise to considerable uncertainty and concern over the future of the onshore wind industry. In our final post in this series, we will consider what action could be taken by industry participants who may be affected by the early closure of the RO.

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

© 2015 Covington & Burling LLP

China Proposes “RoHS 2” Framework for Comment

On May 15, 2015, China’s Ministry of Industry and Information Technology  (“MIIT”) released a latest Draft for Comments (“May 2015 Draft”) of the “Management Methods for the Restriction of the Use of Hazardous Substances in Electrical and  Electronic Products” (“Methods”) (Draft for Comments in Chinese). The new Methods is designed to replace the existing regime, promulgated in 2006 and commonly referred to as “China RoHS.” The May 2015 Draft is now open for public comments until June 17, 2015. It makes several important proposed changes to the existing China RoHS regulation.

Since 2010, the Chinese government has attempted to push forward an updated RoHS regulation, and MIIT has released several draft revisions, but none have been enacted. The May 2015 Draft generally retains the requirements on both materials restrictions and information disclosure, but makes several important changes:

  • It aligns its scope with the EU RoHS 2. The new open scope of covered “Electrical and Electronic Products” (“EEP”) is not limited to “electronic information products” but would now extend to all electrical and electronic equipment (“EEE”) that meets voltage specifications. The definition is almost identical to that of EEE in the EU RoHS 2 Directive, except that it excludes “devices involved in electrical power production, transmission and distribution.”;

  • The May 2015 Draft will remove the current “manufactured for export” scope exclusion;

  • The renamed “Compliance Management Catalogue” will likely, once issued in the future, include the hazardous-substance content limits (to date not yet imposed under China RoHS 1).

  • With respect to certification, the May 2015 Draft proposes a new, multi-agency, two-step system to replace the current program. Products on the “Compliance Management Catalogue” will first go through a “conformity assessment” process. After the conformity assessment, that assessment will be subject to a subsequent verification mechanism, which will be developed later by MIIT along with Finance and other ministries.

It remains unclear how the new conformity assessment and the following verification mechanism will operate in practice. The language implies that the MIIT may need to take further actions to specify the details of these programs;

  • The May 2015 Draft will remove the disclosure requirement for product packaging materials from the existing regulation.

It remains to be seen whether this May 2015 Draft will be finalized as the new China RoHS 2 regulation and whether the above changes will remain in the enacted rules.  Parties that are interested in submitting comments on this Draft may do so via either of the two approaches listed here (in Chinese).

Mr. LaMotte graciously acknowledges the assistance of Shengzhi Wang, a summer associate with the Firm, in the preparation of this Alert.