Market framework

Definition of ‘renewable energy’

Is there any legal definition of what constitutes ‘renewable energy’ or ‘clean power’ (or their equivalents) in your jurisdiction?

Each jurisdiction’s renewable energy programme defines what types of technology and energy qualify for particular incentives. The same jurisdiction could also treat the same type of resource differently for different incentives. For instance, a state might define ‘renewable energy’ to include nuclear resources for its tradable clean energy standard, but exclude nuclear from state investment tax credit eligibility. In a clean energy standard or renewable portfolio standard (RPS), such definitions typically indicate with some precision what resources qualify to generate renewable energy certificates (RECs), which the state’s electric utilities are often required to procure to demonstrate compliance with their RPS obligations.

Framework

What is the legal and regulatory framework applicable to developing, financing, operating and selling power and ‘environmental attributes’ from renewable energy projects?

As a general matter, a developer of a renewable energy project will need to procure a siting permit or zoning authorisation, a construction permit, and necessary environmental permits in order to start construction of the project. During the construction phase of a renewable energy project, FERC has oversight over interconnection arrangements (in Texas, Hawaii or Alaska, oversight of interconnection will fall to the applicable state regulatory entity - the Public Utility Commission of Texas, the Hawaii Public Utilities Commission or the Regulatory Commission of Alaska). Typically, the interconnecting transmission provider will have a pro forma interconnection agreement on file at FERC, and that pro forma agreement will serve as the template for negotiations.

At the early stages of project development, financing arrangements are governed primarily through market practices and contractual arrangements. However, once construction is completed and the project is ready to produce power, financing arrangements involve more direct regulatory oversight. For projects located in areas of the United States outside of Texas, Hawaii and Alaska, FERC is the primary regulatory agency to exercise oversight over financing arrangements. Once the project generates test power or files a rate schedule with FERC, it becomes a ‘public utility’ under the Federal Power Act, and thus subject to FERC regulatory requirements.

The operation of a renewable energy project is governed by many of the same siting and environmental permits outlined above. Operation of a renewable energy project in the continental United States also is subject to mandatory reliability rules promulgated by North American Electric Reliability Corporation (NERC) and approved by FERC. The owner or developer of the project generally will be required to register with NERC, and to comply with a series of reliability rules applicable to generation of power from renewable projects.

The sale of energy and capacity from the project is generally overseen by the applicable regulatory agency. For wholesale sales of electricity and capacity in areas of the continental United States outside of Texas, the owner or developer must have on file at FERC a rate schedule to govern such sales. For most sellers, that rate schedule is a market-based rate (MBR) tariff, which allows the owner or developer to sell power on wholesale markets at prices set by the market and will be granted by FERC if the seller can demonstrate that it lacks horizontal or vertical market power in the relevant market. Sellers of electric energy and capacity under an MBR tariff are subject to the requirement to periodically report to FERC the transactions executed under the tariff, and to submit periodic market power updates if they own more than 500MW in the relevant market. For wholesale sales in Texas, Hawaii, and Alaska, and for retail sales of energy everywhere, the seller is subject to the requirements of the applicable state regulatory authority.

With respect to environmental attributes, while the federal government in theory could establish a national renewable energy attribute system, states have occupied the field of US renewable energy attribute programmes to date. The US Congress has considered several bills over the past decade to establish a federal RPS, and the US Environmental Protection Agency’s Clean Power Plan, promulgated in October 2015 but now likely to be repealed, possessed some features similar to an RPS.

Government incentives

Does the government offer incentives to promote the development of renewable energy projects? In addition, has the government established policies that also promote renewable energy?

At the federal level, the primary incentives are the investment tax credit (ITC) and the production tax credit (PTC).

Subject to certain federal income tax requirements, owners of solar projects (and other qualified projects) may claim an ITC based on the owner’s tax basis in eligible property. For projects that commence construction by the end of 2019, the credit is 30 per cent of the tax basis of the owner in eligible property. The amount of the credit steps down beginning with projects that commence construction in 2020. The ITC is subject to recapture if, within the first five years after the project is placed in service, the project is taken out of service or sold to a new owner.

Owners of wind projects (and other qualified projects) may claim a PTC over time equal to 2.4-cent per kilowatt-hour (kWh) for the first 10 years of a project’s operations. Projects that commenced construction by the end of 2016 may receive the full amount of the PTC. The PTC is phased out thereafter: projects that commence construction in 2017 may receive 80 per cent of the PTC, projects that commence construction in 2018 may receive 60 per cent of the PTC, and projects that commence construction in 2019 may receive 40 per cent of the PTC.

All but a handful of US states have established some type of financial incentive to encourage the development of renewable energy. Aside from RPS programmes, net metering is one of the primary state-level incentives for the solar market. Net metering allows a building owner to sell excess production generated by a rooftop solar system to the utility and receive a billing credit on the owner’s electricity bill. ‘Virtual net metering’ (also called ‘remote net metering’) means that a customer is entitled to this same type of credit when the project is not located on the customer’s property. Community solar is a further extension of virtual net metering, with multiple customers participating in a virtual net metering pool and receiving some of the benefits of an off-site solar project. Other state level incentives include state investment or property tax credits or deductions, sales tax credits, rebate programmes, performance-based incentives, favourable loan programmes, leasing programmes, feed-in tariffs, minimum purchase obligations and tradable REC programmes. State-based incentives can generally be used in addition to federal incentives like tax credits.

Are renewable energy policies and incentives generally established at the national level, or are they established by states or other political subdivisions?

Renewable energy incentives and policies can exist either at the federal or state level and take many forms. The primary incentives on the federal level are the ITC and the PTC. Depending on the state, renewable incentives may also be created by localities. In addition, some electric utilities have established incentive programmes to encourage retail customers to purchase or host renewable energy systems on their properties.

Legislative proposals

Describe any notable pending or anticipated legislative proposals regarding renewable energy in your jurisdiction.

The US Environmental Protection Agency promulgated the Clean Power Plan in October 2015. That regulation created a programme somewhat similar to an RPS in terms of mandating that existing fossil fuel-fired electric generating sources purchase zero-emission ‘emission rate credits’ to balance out their higher emission-intensity generation. The emission rate credits would be similar to RECs in that they would represent the equivalent of 1MWh of electricity generated by new, zero-emission solar, wind, geothermal or hydro energy. The new administration is in the midst of a rulemaking to replace the Clean Power Plan with a different type of rule to regulate carbon dioxide emissions from existing power plants. The Clean Power Plan never took effect due to the imposition of an unprecedented stay by the US Supreme Court during judicial review.

On 1 June 2017, President Trump announced that he plans to withdraw the United States from the Paris Agreement. At this time, the US Congress is not considering any notable legislation that would boost renewable energy.

Disputes framework

Describe the legal framework applicable to disputes between renewable power market participants, related to pricing or otherwise.

Relationships between renewable power market participants generally are governed by contracts that are overseen by either FERC or a state regulatory commission (depending on whether the contract is for the sale of wholesale or retail power, and the location of the seller). Most of these agreements require that the parties resort to informal mediation before seeking to have their disputes resolved in an adversarial proceeding. In circumstances where mediation fails to resolve a contractual dispute, and the parties seek resolution outside of arbitration, the available avenues for addressing the dispute are to file a complaint at the applicable regulatory agency, or to file a complaint in state or federal court (federal courts usually have to rely on diversity jurisdiction in order to be able to hear such disputes). The administrative law doctrine of primary jurisdiction gives the regulatory agency primacy in determining whether the dispute should be resolved at the agency, or whether it should be resolved in court.