Renewable Energy

Executory Forward SREC Contracts - What Exactly Does This Mean?

March 3, 2014 23:25
by J. Wylie Donald

What happens to the payment for a solar renewable energy credit (SREC) when the payor closes its doors?  Maryland citizens are finding out the hard way.  The promises made to some of them are turning up empty.

Here are the details.  Greenspring Energy was a promising solar installation company.  As it describes itself:  "Greenspring Energy offers a unique combination of high-quality solar energy systems and the best energy saving products and services in the marketplace today. Created to help people effectively and permanently reduce their utility bills, Greenspring Energy’s products and services will allow you to: Reduce your utility bills with innovative energy saving products, Produce your own energy with solar systems, Take advantage of federal, state, and local incentives to go solar, Increase the value of your property, Reduce your carbon footprint.”  It was a good business model. Following its founding in 2007, Inc. reports it had revenues of $10.5 million in 2010 and 40 employees the next year. Its website boasts 2011 Inc. 500

Then something happened.   Jamie Smith Hopkins of the Baltimore Sun reports that Greenspring Energy closed its doors at the end of January this year.  Its employees received rubber checks.  And its customers, promised recurring payments for the SRECs associated with the electricity generated from their solar equipment, were likewise burned.  This is not a particularly unexpected outcome.  Entities regularly enter bankruptcy and their creditors take a beating.  The solar industry is no different.  In fact, one website compiled a list of dozens of “Deceased Solar Companies” through early 2013.  

But what is not getting a lot of play (or even any) is the effect of a bankruptcy of the SREC provider.  It is probably safe to say that most SREC transfers are the subject of executory contracts, long-term contracts where the provider agrees to transfer the SRECs accompanying its future electricity generation for some future consideration.  In bankruptcy, such contracts may be assumed, or not, at the discretion of the bankruptcy trustee.  11 U.S.C. § 365.   Except, however, where such contracts are forward contracts.  E.g., Master Solar REC Agreement  (NJ BPU 2014) (“Buyer and Seller each acknowledge that it is a “forward contract merchant” and that all transactions pursuant to this Master Agreement constitute “forward contracts” within the meaning of the United States Bankruptcy Code.”).  In that case, the trustee’s right to reject or assume the executory contract does not exist.  11 U.S.C. § 556

So there is some complexity here.  And it gets worse.  The SREC does not exist but for the generation of 1 MWh of electricity, even if the SREC is sold separately from that electricity.  It is not difficult to conceive of a situation where the value of the contract for the sale of electricity is going in the opposite direction of the value of the SREC contract.  Suppose the bankruptcy trustee has the right to suspend electricity generation, even if it does not have the right to walk away from the SREC contract.  Does an SREC contract have any value if there is no generation?

To our knowledge, SRECs (and RECs as well) have not been tested in the furnace of bankruptcy.  We will be interested in seeing how that turns out. 

Renewable Energy | Solar Energy | Utilities

Act II at the Obama EPA: Gina McCarthy (is predicted) To Take the Helm

March 1, 2013 00:43
by J. Wylie Donald


The President gave an indication of his environmental focus in his inaugural address, and then again in his state of the union speech. The focus would be on climate change. 

Central to that focus would be the EPA Adminstrator, but that would not be Lisa Jackson who tendered her resignation at the end of 2012.  If Washington gossip is any guide, Ms. Jackson's replacement will be Gina McCarthy, the current head of EPA's Office of Air and Radiation.

We went looking to see if we could draw a bead on where Ms. McCarthy might lead EPA.  We found a recent speech and it was directly on point. On February 21, Ms. McCarthy addressed an audience at the Georgetown Law Center at a conference on Climate Change and Energy Policy. (The conference was videotaped. Ms. McCarthy has the podium from about 4:50 to 5:30 if you are interested.)  

Ms. McCarthy has a reputation of being something of a pragmatist. Her talk was consistent with that. A brief summary might be:  Climate change is here and we have to deal with it, but in addressing carbon dioxide there can be great benefits from doing so in the form of reducing pollution, increasing efficiency and empowering communities.

Pollution reductions will come in at least three forms. First, if more renewable energy sources are developed, there will be less emissions. Second, if production and use is made more efficient there will be less emissions. Third, if production is focused on fossil fuels that emit less pollutants when burned (that is, not coal), there will be less emissions.  We note that this strategy is already at work.  The growth of wind and solar power has been meteoric.  Ms. McCarthy promoted electric cars, which are far more efficient than gasoline-powered ones (although she ignored compressed natural gas vehicles, which are low emission and have some compelling advantages over electric cars).  And we have covered before  the catastrophe for coal signaled by the proposed Standards of Performance for Greenhouse Gas Emissions for New Stationary Sources: Electric Utility Generating Units, which forecasts not a single new coal plant through 2030.

Significantly, or perhaps not, she did not mention fracking and the phenomenal recent growth in natural gas production.  That was surprising.  A recent Harvard Magazine article  summarized the pollution and greenhouse gas effects of the natural gas bonanza: 

The shift from coal to gas in the electricity sector has also yielded an environmental bonus—a significant reduction in emissions of CO2, because CO2 emissions per unit of electricity generated using coal are more than double those produced using gas. … [T]he U.S. Energy Information Administration (EIA) reported that domestic emissions of CO2 during the first quarter of 2012 fell to the lowest level recorded since 1992. An ancillary benefit of the coal-to-gas switch has been a significant reduction in emissions of sulfur dioxide, the cause of acid rain, because many of the older coal-burning plants selectively idled by the price-induced fuel switch were not equipped to remove this pollutant from their stack gases.


Efficiency pervaded her remarks. A striking number is the $1.7 trillion she stated automobile fuel efficiency standards had saved consumers at the pump. But that is just the tip of the iceberg. EPA will help Americans make buildings, processes and communities more efficient.  According to Ms. McCarthy the EPA Climate Showcase Communities saved $19 million per year based in large part on efficiency.

We are somewhat troubled by the “eye of the beholder” syndrome exhibited here.  Certainly consumers saved money at the pump.  But they spent more at the car dealer.  How did they fare overall?  The answer depends on how long they owned their car and the price of gas.  According to research in 2012 by TrueCar.com for the New York Times, at $4/gallon “[e]xcept for two hybrids, the Prius and Lincoln MKZ, and the diesel-powered Volkswagen Jetta TDI, the added cost of the fuel-efficient technologies is so high that it would take the average driver many years — in some cases more than a decade — to save money over comparable new models with conventional internal-combustion engines.”  

Ms. McCarthy’s vision of empowerment is through information.  If building owners get the knowledge of how to make their buildings more efficient, they will  because it makes sense to do so.  If communities are provided the relevant information, they will make enabling smart choices.  Indeed, she closed on the importance of information, referencing three sources.  First, EPA has now been collecting information on greenhouse gas emissions for two years.  That information is publicly available.  People should look at this because it identifies the sources of the climate change problem.  Electric utilities are far and away the biggest emitters of greenhouse gases (which is to say, all of us are because, with rare exceptions, all of us use electricity generated with fossil fuels).  

Second,  she touted the EPA’s 2012 report, Climate Change Indicators in the United States (18MB).  This is a valuable resource. Twenty-six “indicators” are assessed as to what they show about a world beset by climate change.  All are familiar with reduced ice sheets, reduced snowpack and higher average temperatures.  Less familiar is the documented increase in ragweed pollen season and retained ocean heat.  And the report is honest about what is not known.  Although 7000 Americans were reported to have died of heat-related illnesses in the last 30 years, trends have not been determined.  Although one might think that a hotter world would lead to more hurricanes, the data have not proven that yet.

Last, Ms. McCarthy praised government research into adaptation and the various reports issued and to be issued.

Some view agency heads in Washington as essentially valueless; talking heads, here today and gone tomorrow.  The bureaucracy was there when the new head arrived and will be there when the now old head leaves.  What this view misses is that the agency head can muster the agency’s resources in support of one initiative, argue for it on Capitol Hill, at the White House and in the press, and give the extra boost when the going gets rough.  Gina McCarthy was instrumental in building the northeast’s cap-and-trade program (the Regional Greenhouse Gas Initiative) in her native Connecticut.  Certainly, that idea on a national basis is percolating again.

Carbon Emissions | Climate Change | Regulation | Renewable Energy | Solar Energy

Wind Projects: Bald Eagles Don't Surf

February 5, 2013 23:57
by J. Wylie Donald

One would think that preliminary estimates of bird fatalities at a proposed 78 MW wind farm in southeastern Minnesota were hardly news.  After all, there are over 60,000 MW of wind energy installed in the United States.  But last Friday the Wall Street Journal published an op-ed piece by Robert Bryce, Senior Fellow at the Manhattan Instittue, which used that preliminary estimate to rip into the project, New Era Wind, and wind energy in general, accusing the Fish & Wildlife Service of using a “double standard ... when it comes to renewable energy.” 

The topic ostensibly ruffling Mr. Bryce's feathers is the “incidental take” of bald eagles.  The Journal doesn’t mince words; here is the leader:  “The federal government plans to allow wind turbines to kill bald eagles for 30 years.”  The permit that was being applied for was an “eagle take permit.”  Mr. Bryce refers to it as “an eagle-kill permit.”  One needn’t read any further.  Killing the national symbol simply must stop.  Wind energy is irrevocably bad.  According to the piece, “For years, the wind industry has had de facto permission to violate both the Migratory Bird Treaty Act (which protects 1,000 species) and the Bald and Golden Eagle Protection Act. Federal authorities have never brought a case under either law—despite the Fish and Wildlife Service's estimate that domestic turbines kill some 440,000 birds per year.”

This vitriol prompted us to dig into this a little.  First, a little information on bald eagles.  The Fish and Wildlife Service estimates that there are nearly 10,000 nesting pairs of bald eagles in the contiguous United States.  When not nesting, bald eagles like to surf thermals, riding easy until unwary prey ventures forth.  The population is up from “barely 400” in 1963, when there were grave concerns that the national symbol might not make it into the twenty-first century.  Fortunately the bald eagle has made it, and in 2007 it was de-listed from the Federal List of Endangered and Threatened Wildlife and Plants maintained pursuant to the Endangered Species Act. 

But delisting did not mean the bald eagle had to make its way in the world alone.  It had the Bald and Golden Eagle Protection Act (16 USC §§ 668-668d), which prohibited the “taking” of such eagles without a permit (where taking included killing, and disturbing).  Permitted takings were established under federal regulations; pertinent here is 50 CFR  § 22.26, which “authorizes take of bald eagles and golden eagles where the take is compatible with the preservation of the bald eagle and the golden eagle; necessary to protect an interest in a particular locality; associated with but not the purpose of the activity; and … (2) For programmatic take: the take is unavoidable even though advanced conservation practices are being implemented.”  Further, the FWS issued guidance, the Land-Based Wind Energy Guidelines, and a draft guidance specifically focused on eagles, wind turbines and permits. While it is true that New Era’s take permit will be the first for bald eagles, it is not the first take permit ever issued and the wind industry has hardly had the opportunity ever to get a permit, as the FWS did not issue its regulations until 2009.  From what we have read, New Era Wind is moving forward in accordance with the statute, the regulations and the guidance, and the FWS is responding similarly.

Turning now to the editorial, it is useful to go back to the source.  Mr. Bryce has been a burr under the wind industry's saddle for the last few years with several opinion pieces in the Journal on birds and the wind industry.  The industry has responded directly to his claims.  A press release in 2011, Rhetoric v. Reality:  Wind Energy and Birds, offers these numbers based on a 2007 U.S. Forest Service report:  "Wind power causes far fewer losses of birds (approximately 108,000 a year) than buildings (550 million), power lines (130 million), cars (80 million), poisoning by pesticides (67 million), domestic cats (at least 10 million), and radio and cell towers (4.5 million)."

It is also interesting to follow the media journey of the FWS preliminary estimate.  It came out on January 15.  Industrial Wind Action reported the story the next day.  Industrial Wind Action, according to its website, “was formed to counteract the misleading information promulgated by the wind energy industry and various environmental groups.”  The story made it into the mainstream on January 17, when it was reported by Minnesota Public Radio.  Two weeks later it was a national news story in the Journal.

We started here considering an editorial about a preliminary estimate, which the FWS  acknowledges is a conservative "worst case" and the FWS's permission for New Era to move forward with its application "does not indicate that New Era will automatically be granted an eagle take permit."  In other contexts a preliminary estimate, without more, would hardly be worthy of comment; it simply isn't ripe.  Not so here, where there is an axe to be ground (or a turbine blade to fail), not only does reasonable rhetoric retreat leaving us with "kill permits," but a small installation out in the woods makes it into the national press. 

Renewable energy developers should take note.  Notwithstanding strong support for green energy, it may get very dirty in the trenches, and everyone will know about it.   

 

Renewable Energy | Wind Energy

Sunrise, Sunset - The Parable of the Two Solar Companies

November 7, 2012 22:27
by J. Wylie Donald

"A Rare Solar Success Story" trumpets the American version of The Wall Street Journal today in an article about LDK Solar, a Chinese solar wafer manufacturer.  We agree with "Solar" and "Story" but the rest of the headline does not match reality.  (In fact, the Asian version is a little less over-the-top:  "Despite Troubles, China's LDK Solar to Keep Humming.")    

First, let's consider whether LDK Solar is rare.  As described in the article it has a $500 million government loan guarantee. That sounds like something we remember about Solyndra LLC. Second, it is embroiled in allegations about dumping and production overcapacity, which are attributes that beset all of the solar panel and component producers whether their subsidies are coming from Washington, Brussels or Beijing. Third, while it soared early, it is now struggling, as have many American and European solar  "darlings."

Which segues nicely into the question of success. According to the article LDK Solar had a $609 million loss last year (down from a net profit a year earlier of almost $300 million) and its depositary shares have dropped 77%. For those with a visual bent, Barron's does a nice graphical presentation.   To stay afloat LDK Solar is renewing its loans, selling real estate and other assets, and accepting investment from state-owned funds.  The article concludes, "Analysts said LDK could fall into the arms of a larger, healthier company."  These are certainly not the terms we would use to describe a successful company.

But every cloud has a silver lining, and the travails of LDK Solar and its brethren are a large part of the reason for the success of solar panel installers:  their raw materials, panels, are available at bargain basement prices. The current darling (number 10 on Fast Company's list of the 50 most innovative companies in the world) in this group is Solar City, which is imminently making its initial public offering to raise $200 million, although Superstorm Sandy has delayed that some. 

What does Solar City do?  First and foremost, its people think.  They have thought deeply about how to build a successful business and reached a few unsurprising conclusions.  Consumers want to be "green" but do not want to be bothered with having to contact building inspectors, general contractors, panel manufacturers, lenders, warranty companies, and state and federal tax authorities; they want their solar contractor to handle it all.  Leasing to stable and economically secure individuals (i.e., not subprime borrowers) will generate a steady stream of revenue over the long-haul (typically 20 years).  Long-term maintenance contracts can do the same, and can also provide opportunities for continued marketing and sales to the consumer.  Tax credits, state rebates and leasing and maintenance revenue streams can be bundled together to form the asset base supporting an investment fund, which large institutional investors will invest in.  The investment fund can then be used to finance growth. If this sounds like a successful business model, it is (so far).

Second, Solar City executes.  The foregoing ideas are the basis for its rocketing success in the last few years.  As stated in its S-1, It has raised almost $300 million dollars from private equity. Its revenues have grown year on year.  It has come to dominate the residential solar market.  It has just entered the commercial utility space with a 12 MW installation in Hawaii.  To sum it up, it is seeking "world domination."  

Our point? Take heed of these two darlings, one now struggling, the other feasting on the struggler and its fellows.  Together they form a parable, not just for the solar market, but for the entire renewable energy space. We counsel our clients where government money is  ubiquitous, innovative technology rampant, competition cut-throat, and winners and losers can change overnight. The sun may rise and shine for our clients, but it also sets.  Our counsel should reflect that.

Renewable Energy | Solar Energy | Utilities

A Wind Farm in Oregon Threatens National Security and President Obama Acts

September 30, 2012 23:41
by J. Wylie Donald

This past Friday, President Obama stopped a national security threat in its tracks:  We quote:

There is credible evidence that leads me [the President] to believe that Ralls Corporation (Ralls), ..., and its subsidiaries, and the Sany Group (which includes Sany Electric and Sany Heavy Industries), a Chinese company affiliated with Ralls (together, the Companies); and, Mr. Dawei Duan (Mr. Duan) and Mr. Jialing Wu (Mr. Wu), citizens of the People's Republic of China and senior executives of the Sany Group, who together own Ralls; through exercising control of Lower Ridge Windfarm, LLC, High Plateau Windfarm, LLC, Mule Hollow Windfarm, LLC, and Pine City Windfarm, LLC (collectively, the Project Companies), ..., might take action that threatens to impair the national security of the United States; …

Accordingly, under section 721 of the Defense Production Act, the President ordered Ralls to divest itself of all interest in the project and to remove all construction – including any foundations.

We knew climate change and national security were tightly connected.  After all, the Department of Defense issued Trends and Implications of Climate Change for National and International Security in October of last year. There we learned that destabilization of less affluent countries as a result of the effects of climate change was a primary risk and a threat to national security.  We did not learn anything about the threat posed by domestic windfarms.  Then Defense Secretary Panetta accepted an award in May 2012 from the Environmental Defense Fund on behalf of the Department of Defense.  He noted: “The area of climate change has a dramatic impact on national security; rising sea levels, severe droughts, the melting of the polar caps, the more frequent and devastating natural disasters all raise demand for humanitarian assistance and disaster relief”.  His domestic focus was cybersecurity, not wind turbines on the Oregon plateau.

So it was something of a surprise that the Obama Administration engaged on climate change and national security by tangling with China on a small wind farm project in northeastern Oregon.  But then again, who knew Naval Weapons Systems Training Facility Boardman was just a few miles down the road testing drones and the electronics on airplanes such as the EA-18G Growler? Who knew?  The folks at the Committee on Foreign Investments in the United States (CFIUS) knew.

CFIUS is a little known government entity.  A useful and prescient summary of the role of CFIUS in windfarm projects was published by our colleague at Steptoe & Johnson, Richard Reinis, back in 2009.  In a nutshell,  “The CFIUS statute authorizes the President to investigate the impact on US national security of mergers, acquisitions, and takeovers by foreign persons. If a transaction would result in an impairment of national security that could not be mitigated by agreement with the parties, the President may block the transaction or order divestiture of an already completed deal.”  Mr. Reinis then demonstrates his forecasting skills and describes where CFIUS approval might be necessary: “a wind farm within observation distance of a sensitive, national security installation, or in proximity of any other significant national security site.”  Fast forward three years and he could have been writing the President's order.

To return to Naval Weapons Systems Training Facility Boardman, drones and the Growler, when CFIUS knows something, it can shut things down.  And it did.  Back in July CFIUS issued a cease and desist order to Ralls.  Ralls responded with a lawsuit challenging CFIUS authority under the Constitution and the Administrative Procedure Act.  Following an agreement with the government to permit some limited preliminary construction, Ralls withdrew its suit.  Then came last Friday’s order.  Sany Group, Ralls’ Chinese affiliate, immediately vowed to sue.

Sany Group’s and Ralls’s fight is certain to be an uphill battle;  the implementing legislation states that the President’s decisions are not subject to judicial review.  See 50 U.S. C. App. 2170(e).  Some have suggested that the path to success lies in a suit against CFIUS, not the President, under the holdng in the Supreme Court's recent decision in Sackett v. EPA, where final agency action entitles one to judicial review.  If that is the case, we expect a further obstacle.  Litigating national security is notoriously difficult.  The government refuses to disclose the details of the national security question and the courts are handcuffed.  We are intrigued here by the order's twice-repeated requirement to remove any foundations.  Are super-sensitive detectors suspected among the rebar and concrete?  We recall the multi-million dollar fiasco of the U.S. embassy in Moscow, where bugs were embedded throughout.  We do not expect ever to find out the details of the national security threat posed by Ralls, in contrast (we hope) to the threats posed by other facets of climate change. 

Climate Change | Renewable Energy | Wind Energy | Supreme Court

Rio+20 Disappoints But Does Renewable Energy Need an International Treaty to Move Forward?

June 23, 2012 17:34
by J. Wylie Donald

Rio+20 wrapped up yesterday.  The moniker derives from the twentieth anniversary of the Earth Summit, the 1992 United Nations Conference on Sustainable Development, which was held in Rio de Janeiro.  This reprise was billed as “an historic opportunity to define pathways to a safer, more equitable, cleaner, greener and more prosperous world for all.”  The conferees focused on two themes:  “How to build a green economy to achieve sustainable development and lift people out of poverty, ... and how to improve international coordination for sustainable development." The agenda was dense, ranging from jobs to  energy, sustainable cities to food security and sustainable agriculture, and water and oceans to disaster readiness.  Some criticized this “all things to all people” approach.  We take a more pragmatic view:  “whatever works.”

Unfortunately, it does not appear that much is working.  All that was agreed was that there would be more discussion in the future.  Criticism of the conference was uniform.  NPR panned it as “one of the biggest duds.”  The New York Times captured the disappointment of CARE (a political charade), Greenpeace (a failure of epic proportions) and the Pew Environment Group (a far cry from success). Even Sha Zukang, Secretary-General of the conference, could muster little positive to say:  "This is an outcome that makes nobody happy. My job was to make everyone equally unhappy,"

If the goal was another international agreement filled with platitudes that would accomplish nothing, that was not achieved.  But we would like to suggest that something positive may be coming.  We would like to focus on just one of the initiatives, Sustainable Energy for All (SE4ALL).  Conducted under the auspices of the United Nations, SE4ALL has three objectives:

1. Universal access to electricity
2. Increased use of renewable energy
3. Increased energy efficiency

Over 1.3 billion people in the world do not have access to electricity for their homes and work. Electricity is enabling.  Whether for studying after dark, pumping irrigation water, eliminating wood/charcoal/dung stoves, or refrigerating medicine, the benefits of electricity are immediate and life-changing.  The program calls for innovation and investment, and policy choices that enhance innovation and investment.

Renewable energy is part of the program for many of the reasons raised in this country:  job creation, reduction of greenhouse gas and pollutant emissions, insulation from price volatility, and increased energy security.  A justification not common to the domestic debate about renewable energy is also put forth.  Renewable energy can cut balance-of-payment imbalances, The program’s goal is to double the share of renewable energy in the world energy use portfolio by 2030.

“Of the three objectives of Sustainable Energy for All, improving energy efficiency has the clearest impact on saving money, improving business results, and delivering more services for consumers.”  Thus efficiency improvements are the easiest point of entry for lifting more people out of energy deprivation for less money.  The program’s goal is to double the current rate of efficiency improvement by 2030.

Is this all pie in the sky?

Two vantage points suggest it is not.  First, the investment community very much supports the renewable energy sector.  Michael Liebriech, the CEO of Bloomberg New Energy Finance gave an interview at Rio+20 and made the point that he’s seen $1 trillion pour into the sector globally since 2004.  “My clients really don’t necessarily care about what’s happening in the negotiations. They’re concerned about what’s right in front of them. What would you rather trust, a decades-long process that hasn’t resulted in a whole lot of progress, or a trillion dollars in investment?”  Diplomats and governments should listen.

Second, UN Secretary-General Ban Ki-Moon, who grew up without electricity, has explained why SE4ALL is a program worth putting forward:  "Widespread energy poverty condemns billions of people to darkness, to ill health and to missed opportunities ....”  

One can imagine him continuing:  “I had seen first-hand the grim drudgery and grind, which had been the common lot of … generations of … farm women. I had seen the tallow candle in my own home, followed by the coal-oil lamp. I knew what it was to take care of the farm chores by the flickering, undependable light of the lantern in the mud and cold rains of the fall and the snow and icy winds of winter. … I could close my eyes and recall the innumerable scenes of the harvest and the unending punishing tasks performed by hundreds of thousands of women, growing old prematurely, dying before their time, conscious of the great gap between their lives and the lives of those whom the accident of birth or choice placed in the towns and cities.”  

Except that is not the Secretary General, it is Senator Frank Norris, the champion of the Rural Electrification Act of 1936, which literally turned the lights on across much of rural America.  Rural electrification was a good idea then, as millions can attest.  And it is a good idea now.  The trick today is how to wed the developing renewable energy sector, with the billions of dollars of investment being made, to an electrification program for 1.3 billion people.  A distinction here that will make electrification easier than it was in the 1930s, is that many renewable energy sources (solar, wind, tidal) by their nature can be utilized without investment in large power distribution networks.  If SE4ALL is about innovation and investment, it seems eminently achievable.

Climate Change | Legislation | Renewable Energy | Solar Energy | Sustainability

Blow the Man Down. US Offshore Wind Farm Leasing Takes a Big Step Forward

February 3, 2012 10:47
by J. Wylie Donald

Yesterday was a banner day for offshore wind farms in the mid-Atlantic.  Promoters and advocates received a favorable environmental assessment, a new form and two calls for nominations. 

The Environmental Assessment.  Secretary Ken Salazar of the Department of the Interior gave wind developers a big boost when he announced the Department's decision to move forward with government leases of offshore areas for wind farms. This comes at a crucial time for wind turbine manufacturers; Danish turbine giant Vestas A/S announced last month that it would be closing one factory, laying off ten percent of its work force in light of the recession and increased competition from China, and considering additional layoffs in the United States. 

The Department's finding of "no significant impact" from activities related to site assessment such as geotechnical surveys or the installation of meteorological towers opens the door to the gathering of data without completion of a further environmental impact statement.  Completion of the environmental assessment is not a green light for all projects, but it is estimated that it will take two years off the planning and construction schedule.  Specific projects still will need to complete an environmental impact statement.  One issue, for example, may be birds. The red knot, an intercontinental migrating species of sandpiper, flies almost twenty thousand miles each year from Brazil to Canada and back, stopping off for saltwater taffy along the Delaware Bay. Birdkill is a substantial problem for wind farm operators. Efforts to put the red knot on the federal endangered species list will only make solving that problem harder.

New Jersey, Delaware, Maryland and Virginia are all excited about the potential opportunities. Governor McDonnell (a Virginia Republican) wants to make Virginia the Energy Capital of the East Coast.   Governor O'Malley (a Maryland Democrat) noted:  “We need the energy. We have the resources. We need the jobs, and we need a more renewable and cleaner, greener future for our kids.”  

The Lease Form.  To streamline the issuance of wind farm leases on the Outer Continental Shelf the Department's Bureau of Ocean Energy Management put together a "first-of-its-kind" lease form, BOEM Form 0008.  Comments were solicited last fall and they were limited.  One that was significant was that lessees should make available data they collect.  Certain wind data could be kept as proprietary and confidential.  The Form is silent on that subject.  Notwithstanding, the wind energy industry is enthusiastic about the Form.  Comments by The Offshore Wind Development Coalition felt that with 15 offshore wind projects on the blocks in the U.S., the Form "will provide an essential ingredient for continued progress."     

The Calls.  The Department of Interior also issued a "Call for Information and Nominations" for almost 80,000 acres approximately 10 miles off Ocean City, Maryland, and for a little more than 110,000 acres 23 miles off Virginia Beach, Virginia.   The Calls solicit any additional lease nominations and request public comments about "site conditions, resources and other existing uses of the identified area that would be relevant to BOEM’s potential leasing and development authorization process."  An earlier solicitation of interest for Maryland obtained nine "indications of interest" for commercial leases.  This interest is local, interstate and international.  The achievement of Maryland is the result of sustained effort to get to this point.  Since 2009, in a "state interagency marine spatial planning process" the Maryland Department of Natural Resources (DNR) worked  with "resource experts, user groups, The Nature Conservancy (TNC), Towson University and the Maryland Energy Administration (MEA) to compile data and information about habitats, human uses, and resources offshore Maryland."

Offshore wind farms are coming. "Blow the man down" is a 19th Century sea shanty chronicling the rough life of a mate aboard sailing packets plying the North Atlantic.  It may be time to update the reference.

Regulation | Renewable Energy | Wind Energy

2011: Notwithstanding Extreme Weather, US Climate Policy Does Not Move Forward

December 31, 2011 01:01
by J. Wylie Donald

NOAA reported that 2011 was one for the record books:  12 weather and climate-related disasters each causing over $1 billion in damage.  One might expect (or hope) that a national climate change policy would be coming into place to prevent repeating or setting a new record.  One would be disappointed.  U.S. climate policy is "uncertain," to quote Michael Morris, CEO of American Electric Power, "dysfunctional" is the word applied by Resources for the Future, "hamstrung" is how the chief UN climate change negotiator and Executive Secretary of the UNFCCC, Christiana Figueres, calls it.  

We don't disagree with these viewpoints; they are accurate.  But if a response to climate change is the goal, it is worse than these commenters are acknowledging because not only has Congress shown that it is incapable of getting anything done, other avenues are not delivering either.  As the year expires we thought it might be helpful to sift through the year's detritus and assess  the status of attempts to reduce carbon dioxide emissions, distinct from overt attempts like passing laws and adopting regulations.

1. Tax emissions - Some will remember our blog on the federal lawsuit brought by Mirant Corp. against Montgomery County challenging the County's tax on carbon emissions which fell only on Mirant. The County challenged the federal court's jurisdiction and won before the federal district court. In June, however, the Fourth Circuit reversed.  With that Montgomery County folded its tent and abandoned its carbon tax.

2. Favor renewable energy - The inexorable scrutiny of the markets has proved the undoing of several former high-flying renewable energy ventures. Most well-known is the debacle with Solyndra LLC, whose well-publicized collapse generated scrutiny by the FBI and Congress. Others that have failed with less limelight in 2011 include numerous solar companies (Solar Millennium, Stirling Energy Systems, Evergreen Solar, Spectrawatt), as well as ventures in wind (Skycon), energy storage (Beacon Power), and biofulels (Range Fuels).

3. Impose liability for emissions of carbon dioxide - The results here are mixed.  Everyone points to American Electric Power v Connecticut for the principle that for greenhouse gas liability claims the federal common law of nuisance has been displaced by federal regulation. They could equally point to Connecticut v AEP before the Second Circuit for the principle that the political question doctrine does not bar these types of claims or to the Fifth Circuit panel in Comer v Murphy Oil USA that held similarly.  However, even if the cases are permitted to move forward, they face daunting problems in proof of causation.

4. Force state action to regulate carbon dioxide - We blogged last May and just this month about the tidal wave of litigation unleashed by Our Children's Trust, an Oregon environmental group that had orchestrated a dozen suits asserting the defendant States had an obligation under the public trust doctrine to restrain carbon dioxide emissions, as well as regulatory petitions in about 40 jurisdictions. 

Time has not been good to OCT. First, its petitions have been denied by at least 23 agencies (Arkansas, Connecticut, Georgia. Hawaii, Idaho, Illinois, Iowa, Louisiana, Maine, Maryland, Michigan, Nevada, New Hampshire, North Dakota, Ohio, Oklahoma, Rhode Island, South Carolina, South Dakota, Tennessee, Texas, Utah, and Wyoming).  Where OCT filed lawsuits, three states (Arkansas, Minnesota and New Mexico) responded with motions to dismiss.  The lawsuit against Montana was dismissed. In the federal lawsuit, the plaintiffs lost a motion to transfer.

5. Reach regional agreements - With great fanfare the Regional Greenhouse Gas Initiative was launched in 2005. Despite a recent study that claims significant economic benefit to the states in RGGI, its future success is unclear. New Jersey pulled out, New Hampshire tried to leave but the governor vetoed the bill. In New York, there is a court challenge. 

6. Voluntarily trade carbon dioxide emissions credits - The only carbon exchange in North America came to an end in 2010 when the Chicago Climate Exchange closed its doors.  A shadow of its former self, the CCX now registers verified emission reductions based on a comprehensive set of established protocols.

7. Develop carbon capture and storage - The most prominent project in the US came to a halt in July when American Electric Power concluded not to build a full-scale CCS plant at its Mountaineer, West Virginia plant. As noted above, AEP explained its decision as based on the uncertainty of US climate policy.  The lack of direction in American climate change response hurts business. AEP walked away from a $300 million Department of Energy match.  It didn't help that the Virginia consumer advocate, in successfully arguing against including CCS costs in the rate base, asserted:  “Any potential benefit is speculative and outweighed by the enormous cost of the pilot project.”

Some may think no policy is the best policy.  We think otherwise.  Climate change is happening.  There will be a response.  All will benefit if that response is choreographed over time, rather than rushed into when political consensus ultimately concludes that something must be done NOW.  Maybe in 2012?  Happy New Year. 

Renewable Fuels Take Off - Algae Arrives and Certiorari Denied

November 8, 2011 11:41
by J. Wylie Donald

Yesterday was a good day for renewable fuels enthusiasts and not because someone figured out how to make ethanol cocktails from pond scum.  In Houston American renewable fuel use literally took off on its maiden flight and in Washington the Supreme Court denied certiorari in a suit brought by the oil industry challenging the USEPA's regulations promulgating a revised renewable fuels standard.

In National Petrochemical Refiners Association and the American Petroleum Institute v. EPA, the plaintiffs asserted the EPA's final rule, Regulation of Fuels and Fuel Additives: Changes to Renewable Fuel Standard Program, 75 Fed. Reg. 14,670 (Mar. 26, 2010), was invalid because it "violate[d] statutory requirements setting separate biomass-based diesel volume requirements for 2009 and 2010; [was] impermissibly retroactive; and it violate[d] statutory lead time and compliance provisions."  630 F.3d 145, 147 (D.C. Cir. 2010).  From those arguments, one might justifiably conclude that watching paint dry would be far more exciting than this opinion; we will leave it to others to explicate.  E.g., see the case comment in the Texas Journal of Oil, Gas and Energy Law Blog. In any event, the court of appeals denied all of petitioners' arguments and left EPA's rulemaking completely intact.  The Supreme Court saw no reason to step in. 

What does the standard mean in the real world?  It is huge.  Among other things, according to the EPA's website it raised the mandated volume of renewable components in motor vehicle fuel from 9 billion gallons in 2008 to 36 billion gallons by 2022.   And it "appl[ied] lifecycle greenhouse gas performance threshold standards to ensure that each category of renewable fuel emits fewer greenhouse gases than the petroleum fuel it replaces."  In other words, if one measures all the greenhouse gases emitted in the production of, for example, one gallon of corn-derived ethanol, fewer gases would be emitted than in the production of one gallon of gasoline.

But the standard is not huge for airlines.  It only applies to motor vehicle fuel. 42 U.S.C. § 7545(o)(1)(C)(i).  Nevertheless, airlines are starting to line up for renewable fuels.  A case in point is the news story in yesterday's Houston Chronicle, Algae helps power flight to Chicago.  The gist of the story is that a United Airlines Boeing 737 lifted off from George Bush Intercontinental Airport for Chicago with a fuel tank filled with a blend derived from algae and conventional aviation fuel.  Passengers noted nothing different despite participating in history.  As stated by United:  "the first U.S. airline to fly passengers using a blend of sustainable, advanced biofuel and traditional petroleum-derived jet fuel."  More details are provided in the press releases from Solazyme (the biofuel manufacturer) and United. The blend was 40/60 algae to conventional fuels, complied with the ASTM D7566 specification for aviation fuel, and is a "drop-in replacement[] for petroleum-based fuel, requiring no modification to factory-standard engines or aircraft."  Tomorrow Alaska Airlines takes off with used cooking oil product in its tanks. The price for this "green" fuel?  One internet source puts it at between $17 and $26 per gallon. 

Is this cutting edge?  For the United States, yes, for Europe not at all. Lufthansa flies 8 flights daily to and from Hamburg and Frankfurt using 50% biofuel in one engine. The press release goes on to explain the single engine:  "next to reducing CO2 emissions, the main aim of this long-term operational trial, [is] to examine the effects of biofuel on the maintenance and lifespan of aircraft engines."  That is, the two engines will be torn down to the last o-ring at the next overhaul and compared, providing valuable data for future operations.

Both United and Lufthansa emphasize the role renewable fuel has in their sustainability initiatives.  Good public relations and potential competitive advantage may be reason enough to incorporate biofuels.  But besides green-ness can $17 per gallon be justified? It might be if it could reduce costs elsewhere, and faithful readers have already figured out where that might be. As we reported recently, the EU will start imposing carbon emission fees on flights originating or terminating in the European Union. Bio-fueled flights can get credits and reduce their fees.  With that, a little innovation, some economies of scale, and some luck, we might soon find ourselves enjoying a little pond scum at 30,000 feet.

Green Marketing | Greenhouse Gases | Regulation | Renewable Energy | Sustainability

Notwithstanding Solar Bankruptcies, Government Clean Technology Funding Has Not Stopped (For Electric Vehicles Anyway)

October 10, 2011 00:13
by J. Wylie Donald

Notwithstanding the bad press garnered recently by some clean technology business models that relied on government largesse (most notably the failure of Solyndra LLC and its accompanying half-billion dollar government guarantee), government funding of "green" is not going away.  Last Thursday, ECOtality announced the award of a five year $26.4 million contract with the Department of Energy to continue to test and evaluate advanced vehicles.  

As stated by ECOtality, "The primary goal of the Advanced Vehicle Testing and Evaluation project is to provide key data for technology modeling, and research and development programs, by benchmarking and validating the performance of light-, medium-, and heavy-duty vehicles."  So ECOtality is testing; is anyone buying?  The predictions are that quite a few will be. 

The Department of Energy and others have put together $230 million to promote the development of electric vehicle infrastructure in six states (Washington, Oregon, California, Arizona, Texas and Tennessee) and the District of Columbia.  The EV Project, as it is called, is a significant venture and one in which ECOtality is heavily involved.  This month marks the beginning of the third and final year of the project. 

How many drivers are we talking about?  Initially, the numbers are small, but the upside is not.  To quote ECOtality again:  "The ultimate goal of The EV Project is to take the lessons learned from the deployment of these first 8,300 EVs, and the charging infrastructure supporting them, to enable the streamlined deployment of the next 5,000,000 EVs."   As of the end of September the lead electric vehicles in this country are Nissan's LEAF, with sales of approximately 7,000 and General Motors' Volt, at a little more than half that.   So there is a ways to go.

But we are confident that we will get there.  Although justifications for shifting to electric vehicles include minimizing carbon emissions and energy independence, the reason the switch will happen is cost.  The advantage over the internal combustioin engine is immense.  According to General Motors:   "The Volt should cost less than 2 cents per mile to drive on electricity, compared with 12 cents a mile on gasoline at a price of $3.60 a gallon." 

Which leads to the most interesting part of the story:  the companies that are part of all this.  Besides electric utilities and state and local governments, partners in the EV Project include, among others, retailers (IKEA, Sears, Macy's, Best Buy), property managers (Jones Lang Lasalle), restaurants (Cracker Barrel), hotels (Loews), oil companies (BP), and supermarkets (FredMeyer).  The business model is simple.  With a high-speed charging connection, a customer's EV can be recharged to 80% in about 30 minutes.  Enough time for a quick lunch or a little shopping.  And if the customer will be there longer (like at work or overnight), then there is a further opportunity.  Practitioners should take note.  Even if EV's are not here yet, the leases and zoning approvals that one is negotiating now could be set up to ensure that the opportunity will be available, but only if one is thinking about it. 

Green Marketing | Renewable Energy


McCARTER & ENGLISH CLIMATE CHANGE AND RENEWABLE ENERGY PRACTICE GROUP

The business case for the development of renewable energy projects, from biodiesel and ethanol to wind, solar, and distributed generation, is more compelling than ever as tax and regulatory incentives combine to attract investments. Emerging issues in environmental law and increasingly recognized principles of corporate social responsibility are encouraging public companies to voluntarily reduce greenhouse gas emissions, install clean energy alternatives, and invest overseas in projects under the Kyoto Protocol to respond to climate change concerns.

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