FERC & DOE Incentives for Renewables


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  • see recent FERC MOUs with Washington and Oregon
  • According to NOAA, more than half of the population lives within 50 miles of US coastline
  • BLM is siting Concentrated Solar Power. Bottom line: there is a huge backlog at BLM due to lack the resources/experience with rapid siting and is challenged by their obligations under the endangered species act. Because CSP uses large amounts of water to cool the equipment, and there is limited water in the best solar areas, it endangers plants and animals. WSJ article re Devil Hole pupfish.
  • Source: Geothermal Energy Association; US Geological Survey Geothermal Fact Sheet 2008
  • Source: Energy Information Administration - Renewables & Alternative Fuels Although dispatchable and readily available, biomass fuels create emissions and the low energy density means it is generally not cost effective to transport except very short distances. Several states discount or exclude biomass from RPS.
  • Climate bills propose federal standard of 20% by 2020 for House and 15% by 2021 for Senate. Can comply with payment - $25/MWh in House $21/MWh in Senate bill. Senate has broader FM provisions for retail suppliers. Refer back to low participation rates on slide 7.
  • Note: the original DOE loan program was started in 2005. The first loan was actually disbursed in February 2009 to Solyndra, a solar manufacturer. The old DOE program used solicitations. Secretary Chu has stated that this ARRA loan program will use a rolling application process in lieu of the solicitation process.
  • In Piedmont, FERC authority only when state is unable to act, fails to act timely, or imposes “project-killing” conditions. On June 12, Chairman Wellinghoff testified before Congress that even jurisdiction over tx siting for renewables would be helpful, after states have had an opportunity to address. No project has sought FERC tx siting approval under this law - SCE request for Devers-Palo Verde 2 tx line withdrawn.
  • Glebe Mountain (VT), GenPower biomass (NH), Black Nubble (ME) dead
  • (i) an analysis of potential sources of renewable energy that are unable to access markets because of a lack of adequate transmission capacity, (ii) an analysis of the reasons for failure to develop adequate transmission capacity, (iii) recommendations for achieving adequate transmission capacity, and (iv) analysis of the effect of legal challenges on delaying construction necessary to access renewables references: ARRA 409 (Renewable Electricity Transmission Study) $3.25 billion in borrowing authority for Bonneville Power Administration to finance the construction, acquisition, and replacement of BPA’s transmission system $3.25 billion in borrowing authority for the Western Area Power Administration for (i) constructing, planning, operating, and maintaining new or upgraded transmission lines with at least one terminus in WAPA’s service area and (ii) delivery or to facilitate delivery of power from new renewables. Loan guarantees ARRA 406 Section
  • Order 679 issued July 2006. Codified at 18 C.F.R. § 35.35. Green Power Express (ER09-14-002) April 16, 2009. Expected to move up to 12,000MW. PSE&G Suquehanna Line: The PPL Electric Utilities Corporation and Public Service Electric and Gas Company project, designated the Susquehanna Line, will span 130 miles across northeastern Pennsylvania to northern New Jersey. The PJM Interconnection LLC, the regional transmission operator for the Mid-Atlantic region, called this project a "baseline project" in its 2007 Regional Transmission Expansion Plan. FERC approved a 1.25 percent ROE adder, a reduction from the 1.50 percent that was requested; a one-half percent adder to each utility's base ROE for continued membership in PJM; a 100 percent recovery of prudently incurred expenses for CWIP to be included in rate base; abandonment incentives; and authority to transfer certain incentives to as-yet unidentified affiliates. Includes: a) 1.25 % adder for the utility’s base return on equity. b) ◦ A one-half % adder to each utility’s base return on equity for continued membership in PJM Interconnection. (FERC: EL08-23-000. April 17, 2008) PacifiCorp - Energy Gateway Transmission Expansion Project (involves eight segments covering portions of Nevada, Idaho, Oregon, Utah, Washington and Wyoming and is planned to go on-line between 2010 and 2014). FERC: Approved 2% ROE adder (sponsor requested 2.5%) for all segments except Washington, due to failure to provide sufficient evidence to meet statutory requirements for that one segment. Base ROE to be determined, as stated in order, in future 205 rate filing. (FERC: EL08-75-000 , October 16, 2008) FERC CAISO Order: (Docket: EL07-33-000 ) "Under the LCRI policy, each location-constrained generator pays for its share of transmission facilities on a simple per-MW basis. The cost of transmission capacity not initially subscribed by generators is recovered in general transmission rates until additional new generators come online and pay for that capacity. In order for a transmission project to be eligible for LCRI treatment, FERC-approved thresholds of generator commitment must be demonstrated. The CPUC actively participated in the process that developed this policy, and fully supported the CAISO’s proposal at the FERC."
  • As noted in Commr. Kelly’s Mar. 3, 2009 testimony to Congress, FERC has limited authority to enforce smart grid standards. Mainly over public utility rates and reliability. Can provide rate incentives and cost recovery. Stranded costs minimized by open operability standards and upgradeable technology.
  • Study has various assumptions from “business as usual” (currently 37 GW, mainly large C&I) to “full participation” (188 GW) which assumes advanced metering infrastructure (AMI) installed everywhere. Study shows large participation in CT, mainly thru ISO-NE FCM market. Regional differences for DR potential in cost-effectiveness b/c of A/C saturation, amount of residential and large C&I load, regional price elasticity (Western US more responsive to price).
  • FERC & DOE Incentives for Renewables

    1. 1. DOE and FERC Renewable Initiatives Renewable Energy in New England Law Seminars International June 25, 2009 Elaine M. Walsh Kirkland & Ellis LLP 655 15th Street, NW Washington, DC 20005 +1 (202) 879-5044 [email_address]
    2. 2. Renewable Generation <ul><li>Intermittent Sources </li></ul><ul><ul><li>Wind </li></ul></ul><ul><ul><li>Solar </li></ul></ul><ul><li>Non-Intermittent Sources </li></ul><ul><ul><li>Geothermal </li></ul></ul><ul><ul><li>Biomass </li></ul></ul><ul><ul><li>Hydrokinetic </li></ul></ul>Source: Queen Mary, University of London
    3. 3. Wind <ul><li>25,369 MW of U.S. installed capacity as of 2008 </li></ul><ul><li>1,087,791 MW of total (all sources) U.S. generation in 2007 </li></ul><ul><li>42% of all new installed capacity in 2008 </li></ul><ul><li>5,000 MW expected in 2009 </li></ul>
    4. 5. Source: AWEA
    5. 6. Offshore Wind <ul><li>Currently no U.S. offshore projects operating commercially </li></ul><ul><ul><li>Cape Wind (Mass.) and Bluewater (Del.) are closest </li></ul></ul><ul><li>National Renewable Energy Laboratory estimates capability 1,000 GW Atlantic and 900 GW Pacific </li></ul><ul><ul><li>Department of Energy expects to have 54 GW of offshore wind power by 2030 </li></ul></ul><ul><li>Under EPAct of 2005, MMS has authority for leasing offshore acreage for wind farms </li></ul>
    6. 7. Wind Installed Capacity (MW) by ISO-NE State Source: AWEA, as of 3/2009
    7. 8. ISO-NE: Renewable Generation Year-to-Date through February 2009. (Thousand Megawatt-Hours) Source: EIA - Electric Power Monthly released May 15, 2009.
    8. 9. Solar <ul><li>Utility-Scale Solar </li></ul><ul><ul><li>Concentrated Solar Power (“CSP”) </li></ul></ul><ul><ul><li>Photovoltaic (“PV”) </li></ul></ul><ul><li>454 MW of installed CSP and PV capacity as of 2008 </li></ul><ul><li>As of Sept. 2008, roughly 5,000 MW in planned CSP in the U.S. </li></ul>Source: InnovationFactory.nl
    9. 11. Solar Installed Capacity (MW) by State Source: SEIA
    10. 12. Geothermal <ul><li>3,040 MW installed geothermal capacity in the U.S. as of March 2009 </li></ul><ul><li>9,057 MW existing geothermal capacity across 13 states </li></ul><ul><li>Potential of 517,800 MW geothermal creation </li></ul>Source: Department of Energy Source: Department of Energy
    11. 13. Source: U.S. Geological Survey Source: U.S. Geological Survey
    12. 14. Geothermal Installed Capacity (MW) by State Source: Geothermal Energy Association
    13. 15. Biomass <ul><li>Includes landfill gas/MSW; ag byproducts; wood products </li></ul><ul><li>12,344 MW installed capacity in U.S. as of 2007 </li></ul><ul><li>39 billion kWh from biomass in 2007 (0.9% of total U.S. electricity production) </li></ul>Source: University of Florida Source: woodtofuelllc.com
    14. 17. Renewable Portfolio Standards <ul><li>Maine </li></ul><ul><ul><li>30% by 2000. 10% increase with new renewables by 2017. </li></ul></ul><ul><li>Vermont </li></ul><ul><ul><li>&quot;Goal&quot; to meet load growth with renewables from 2005-2012, which becomes mandatory if not met. Goal of 25% by 2025. </li></ul></ul><ul><li>Connecticut </li></ul><ul><ul><li>27% by 2020. </li></ul></ul><ul><li>Massachusetts </li></ul><ul><ul><li>15% by 2020 with 1% increase per year thereafter. </li></ul></ul><ul><li>Rhode Island </li></ul><ul><ul><li>16% by 2020. </li></ul></ul><ul><li>New Hampshire </li></ul><ul><ul><li>25% by 2025. </li></ul></ul>
    15. 18. DOE Renewable Incentives <ul><li>American Recovery and Reinvestment Act </li></ul><ul><ul><li>$45 MM wind turbine drivetrain R&D </li></ul></ul><ul><ul><li>$14 MM for advance tech for turbine and components </li></ul></ul><ul><ul><li>$10 MM for National Wind Technology Center </li></ul></ul><ul><ul><li>$68 MM research for energy efficient office buildings </li></ul></ul><ul><ul><li>$19.2 MM renewable site infrastructure </li></ul></ul><ul><ul><li>$13.5 MM biorefinery research upgrades </li></ul></ul>
    16. 19. DOE Innovative Energy Loan Guarantee Program <ul><li>ARRA expanded existing DOE loan guarantee program by authorizing up to $60 B </li></ul><ul><li>Qualifying facilities include: </li></ul><ul><ul><li>renewable energy systems that generate electricity or thermal energy </li></ul></ul><ul><ul><li>facilities that manufacture related components </li></ul></ul><ul><ul><li>electric power transmission systems </li></ul></ul><ul><li>Must commence construction before September 30, 2011 </li></ul><ul><li>DOE intends to distribute 70% of funds by end of 2010 </li></ul>
    17. 20. Other Federal Financial Incentives <ul><li>Treasury Grants </li></ul><ul><ul><li>ARRA created a “refundable” grant of 30% of basis </li></ul></ul><ul><ul><li>Qualified Facilities must be placed in service: </li></ul></ul><ul><ul><ul><li>(a) during 2009-10 or </li></ul></ul></ul><ul><ul><ul><li>(b) prior to 2012 for wind, 2016 for solar, and 2013 for others, provided construction begins in 2009-10 </li></ul></ul></ul><ul><ul><li>Cannot be combined with PTCs or ITCs </li></ul></ul>
    18. 21. Other Federal Incentives <ul><li>Green Bank </li></ul><ul><ul><li>In March 2009, House introduced Green Bank Act </li></ul></ul><ul><ul><li>Green Bank — a tax-exempt entity providing financing for clean energy projects </li></ul></ul><ul><ul><li>In May 2009, Green Bank amendment added to Waxman-Markey Bill </li></ul></ul><ul><ul><li>Green Bank would be administered by DOE </li></ul></ul>
    19. 22. Grid Stability <ul><li>Higher levels of intermittent renewables can strain grid </li></ul><ul><li>New build must be responsive to intermittency of wind and solar </li></ul><ul><li>Inability to handle intermittency could lead to grid failure </li></ul>Renewables as a percentage of total generation: Minnesota - 7.48% Iowa - 7.12% Colorado - 5.01% North Dakota - 4.86% Texas - 3.62% Source: AWEA
    20. 23. The Transmission Issue <ul><li>Moving Power from Resources to Load </li></ul>Source: Center for American Progress, citing AWEA and SEIA
    21. 26. Transmission Siting <ul><li>FERC’s jurisdiction over interstate transmission siting </li></ul><ul><ul><li>EPAct 2005 – FERC jurisdiction over “national interest electric transmission corridors” when state withholds approval </li></ul></ul><ul><ul><li>4th Circuit in Piedmont Env. Council v. FERC limited FERC’s authority </li></ul></ul><ul><ul><li>Current legislation grants FERC siting authority over high priority projects </li></ul></ul>
    22. 27. Siting Issues <ul><li>Locationally Constrained </li></ul><ul><li>State Approvals </li></ul><ul><li>NIMBY </li></ul><ul><ul><li>Challenge permitting at agency level </li></ul></ul><ul><ul><li>Challenge state agency determinations in court </li></ul></ul><ul><ul><li>Environmental groups challenging EIS </li></ul></ul><ul><ul><li>Legislative actions to prevent development </li></ul></ul>
    23. 28. ARRA and Transmission Infrastructure <ul><li>ARRA requires DOE to include in its 2009 triennial transmission congestion study: </li></ul><ul><ul><li>analysis of adequate transmission capacity for renewables </li></ul></ul><ul><ul><li>$6 billion in “rapid deployment” loan guarantees for both renewable generation and transmission projects that begin construction no later than Sept. 30, 2011 </li></ul></ul>
    24. 29. FERC Incentive Rates For Transmission Order No. 679 <ul><li>EPAct 2005 added Sec. 219 to FPA to promote transmission investment </li></ul><ul><li>Ensure reliability or reduce cost by reducing congestion </li></ul><ul><li>Order No. 679 rebuttable presumption </li></ul><ul><ul><li>Fair and open regional planning process that evaluates reliability/congestion </li></ul></ul><ul><ul><li>Approved by state </li></ul></ul>
    25. 30. FERC Criteria for Incentive Rates <ul><li>Nexus between investment and incentive sought (risk/reward balance) </li></ul><ul><li>Not “routine” </li></ul><ul><ul><li>scope of project </li></ul></ul><ul><ul><li>effect of project </li></ul></ul><ul><ul><li>risks of project </li></ul></ul>
    26. 31. FERC Incentive Rates For Transmission Order No. 679 <ul><li>The potential incentives include: </li></ul><ul><ul><ul><li>incentive ROE for new investment, RTO membership </li></ul></ul></ul><ul><ul><ul><li>recovery of prudent construction, pre-commercial operating costs </li></ul></ul></ul><ul><ul><ul><li>use of hypothetical capital structures </li></ul></ul></ul><ul><ul><ul><li>accumulated deferred income taxes </li></ul></ul></ul><ul><ul><ul><li>adjustments to book value for Transco sales/purchases </li></ul></ul></ul><ul><ul><ul><li>accelerated depreciation </li></ul></ul></ul><ul><ul><ul><li>deferred cost recovery for utilities with retail rate-freezes </li></ul></ul></ul>
    27. 32. Transmission Projects <ul><li>Green Power Express </li></ul><ul><ul><li>Owned by ITC Holdings </li></ul></ul><ul><ul><li>FERC approved April 2009 </li></ul></ul><ul><ul><li>12.38% ROE, including 1.6% ROE incentive adder </li></ul></ul><ul><ul><li>765-kV, 3000-mile line across 7 states from Dakotas to WI and IL </li></ul></ul><ul><ul><li>Cost $10-12 B </li></ul></ul><ul><ul><li>Deliver over 62 GW of wind capacity in MISO </li></ul></ul>
    28. 33. Transmission Projects <ul><li>Chinook and Zephyr </li></ul><ul><ul><li>Owned indirectly by TransCanada </li></ul></ul><ul><ul><li>1,000 mile projects from Montana and Wyoming to Las Vegas </li></ul></ul><ul><ul><li>Proposed in-service 2014 </li></ul></ul><ul><ul><li>Uses anchor customer model </li></ul></ul><ul><ul><li>50% presubscription before open season </li></ul></ul>
    29. 34. Transmission Projects <ul><li>Prairie Wind </li></ul><ul><ul><li>AEP, MidAmerican, and Westar Energy </li></ul></ul><ul><ul><li>230 miles of 765 kV from Wichita to Tallgrass project at KS-OK border </li></ul></ul><ul><ul><li>Cost $600 B </li></ul></ul><ul><ul><li>Planned in-service by 2013 </li></ul></ul><ul><ul><li>Awaiting state and federal approvals </li></ul></ul>
    30. 35. Transmission Projects <ul><li>Tallgrass Transmission </li></ul><ul><ul><li>AEP, MidAmerican, and OG&E </li></ul></ul><ul><ul><li>170 miles of 765 kV transmission from KS-OK border to OG&E’s Woodward station and into OK panhandle </li></ul></ul><ul><ul><li>Cost $500 MM </li></ul></ul><ul><ul><li>Planned in-service by 2013 </li></ul></ul><ul><ul><li>FERC approved rate filing for OK. AEP seeking other federal and state approvals </li></ul></ul>
    31. 36. Smart Grid & Demand Response Initiatives <ul><li>Energy Independence and Security Act of 2007 (EISA) </li></ul><ul><ul><li>DOE </li></ul></ul><ul><ul><ul><li>Funding up to 50% </li></ul></ul></ul><ul><ul><ul><li>Matching funds </li></ul></ul></ul><ul><ul><li>FERC </li></ul></ul><ul><ul><ul><li>National Assessment of Demand Response and National Action Plan on Demand Response </li></ul></ul></ul><ul><ul><ul><li>Smart grid interoperability rules </li></ul></ul></ul><ul><ul><li>NIST to coordinate smart grid standards </li></ul></ul>
    32. 37. American Recovery and Reinvestment Act of 2009 (ARRA) <ul><li>Smart Grid Collaborative with NARUC and FERC Funding considerations </li></ul><ul><ul><li>Transmission, distribution and customer projects </li></ul></ul><ul><ul><li>Appropriate scale </li></ul></ul><ul><ul><li>Geographically diverse </li></ul></ul><ul><ul><li>Compatible with rate designs </li></ul></ul><ul><ul><li>Cyber-security </li></ul></ul><ul><ul><li>Measurable customer response </li></ul></ul>
    33. 38. FERC and Smart Grid Policies <ul><li>FERC’s Mar. 19, 2009 Proposed Policy Statement </li></ul><ul><ul><li>Single-issue rate filings to recover costs if: </li></ul></ul><ul><ul><ul><li>no adverse effect on reliability </li></ul></ul></ul><ul><ul><ul><li>minimize potential for stranded costs </li></ul></ul></ul><ul><ul><ul><li>share information with DOE Smart Grid Clearinghouse </li></ul></ul></ul><ul><ul><li>Possible rate recovery for non-DOE-funded portion </li></ul></ul><ul><ul><li>Accelerated depreciation </li></ul></ul><ul><ul><li>Abandonment authority </li></ul></ul>
    34. 39. FERC’s Proposed Policy Statement (cont’d) <ul><li>Key smart grid functionalities </li></ul><ul><ul><li>Wide-area situational awareness (real-time visual display) </li></ul></ul><ul><ul><li>Demand response </li></ul></ul><ul><ul><li>Electric storage </li></ul></ul><ul><ul><li>Electric transportation </li></ul></ul>
    35. 40. Demand Response Types <ul><li>Direct load control </li></ul><ul><li>Interruptible service </li></ul><ul><li>Dynamic Pricing </li></ul>
    36. 41. Demand Response (cont’d) <ul><li>Direct load control </li></ul><ul><ul><li>controlled by end-user </li></ul></ul><ul><ul><li>customer can override </li></ul></ul><ul><ul><li>customer payment or rebate </li></ul></ul>
    37. 42. Demand Response (cont’d) <ul><li>Interruptible service </li></ul><ul><ul><li>reduction when requested by utilities </li></ul></ul><ul><ul><li>generally only C&I customers </li></ul></ul><ul><ul><li>lower rate or payment to reduce load </li></ul></ul>
    38. 43. Demand Response (cont’d) <ul><li>Dynamic pricing </li></ul><ul><ul><li>prices vary with demand and system conditions </li></ul></ul><ul><ul><li>critical peak pricing, peak-time rebates, and real-time pricing </li></ul></ul><ul><ul><li>customer requires “smart meter” </li></ul></ul>
    39. 44. FERC and Demand Response <ul><li>FERC demand response study under EISA </li></ul><ul><ul><li>FERC completed demand response assessment Jun. 18 </li></ul></ul><ul><ul><li>Estimates reductions 9-20% peak demand by 2019 </li></ul></ul><ul><ul><li>Regional differences in cost-effectiveness </li></ul></ul><ul><ul><li>National Action Plan due to Congress Jun. 2010 </li></ul></ul>
    40. 45. Consumer-Side Smart Grid <ul><li>Miami Smart Grid </li></ul><ul><ul><li>“Energy Smart Miami” plan </li></ul></ul><ul><ul><ul><li>April 2009 </li></ul></ul></ul><ul><ul><ul><li>Installs 1 MM smart meters in homes and businesses </li></ul></ul></ul><ul><ul><li>FP&L with GE, CISCO and Silver Springs Networks providing smart meters and wireless equipment. </li></ul></ul>
    41. 46. Consumer-Side Smart Grid <ul><li>Google PowerMeter </li></ul><ul><ul><li>“PowerMeter” software, in partnership with 8 utilities, including SDG&E, WPS, and TXU </li></ul></ul><ul><ul><li>Allows customers access to usage history via Internet </li></ul></ul>
    42. 47. Consumer-Side Smart Grid <ul><li>Proposed Duke Energy Settlement </li></ul><ul><ul><li>Pending before Indiana Commission </li></ul></ul><ul><ul><li>800K advanced meters over 5-6 years </li></ul></ul><ul><ul><li>Cost recovery by rider with retail cost caps </li></ul></ul><ul><ul><li>Proposes new advisory groups to recommend customer DG, home area networks and plug-in hybrid programs </li></ul></ul>
    43. 48. Chicago Kirkland & Ellis LLP 200 East Randolph Drive Chicago, IL 60601-6636 +1 (312) 861-2000 +1 (312) 861-2200 fax London Kirkland & Ellis International LLP 30 St Mary Axe London EC3A 8AF +44 20 7469 2000 +44 20 7469 2001 fax Los Angeles Kirkland & Ellis LLP 777 South Figueroa Street Los Angeles, CA 90017-5800 +1 (213) 680-8400 +1 (213) 680-8500 fax San Francisco Kirkland & Ellis LLP 555 California Street San Francisco, CA 94104 +1 (415) 439-1400 +1 (415) 439-1500 fax Palo Alto Kirkland & Ellis LLP 950 Page Mill Road Palo Alto, CA 94304 +1 (650) 859-7000 +1 (650) 859-7500 fax Mailing Address: P.O. Box 51827 Palo Alto, CA 94303 Munich Kirkland & Ellis International LLP Maximilianstrasse 11 80539 Munich +49 89 2030 6000 +49 89 2030 6100 fax Washington, D.C. Kirkland & Ellis LLP 655 Fifteenth Street, N.W. Washington, D.C. 20005-5793 +1 (202) 879-5000 +1 (202) 879-5200 fax Hong Kong Kirkland & Ellis International LLP 26th Floor, Gloucester Tower The Landmark 15 Queen's Road Central Hong Kong +852 3761 3300 +852 3761 3301 fax New York Kirkland & Ellis LLP 601 Lexington Avenue New York, NY 10022 +1 (212) 446-4800 +1 (212) 446-4900 fax