This article was originally published on January 22, 2018, by Portfolio Media Inc. as a Law360 Expert Analysis, and is available here (subscription required).
When it came to renewable energy, 2017 ended much as it began: with much uncertainty, and movement by the Trump administration to repeal, or at least significantly modify, the Clean Power Plan.
But 2017 also had its bright spots for renewables. Several states advanced key renewable energy objectives and, despite earlier threats, Congress did not repeal the production tax credit for wind energy or the investment tax credit that is highly valuable to solar developers. Here’s a breakdown of some of the big headlines from 2017.
Clean Power Plan Repeal Marches On
Since its very early days, the Trump administration has promised to repeal the federal Clean Power Plan (CPP), which would have limited greenhouse gas (GHG) emissions from existing power plants. On March 28, 2017, President Trump signed an “Executive Order on Energy Independence” (E.O. 13783), calling for a review of the CPP, and the U.S. Environmental Protection Agency began to make good on that promise during 2017.
First, the EPA withdrew a rule proposed by the Obama administration in 2015 that would have established model trading rules and other guidelines for implementation of the CPP. Next, in October 2017, the EPA proposed repealing the CPP outright. However, both critics and proponents of the CPP raised concern with that proposal and the regulatory vacuum it would create.
As a result, on Dec. 21, 2017, the EPA issued an Advance Notice of Proposed Rulemaking (ANPR) to solicit information for a potential future CPP replacement rule. Notably, the EPA frames the ANPR as “soliciting information on the proper and respective roles of the state and federal governments” in setting emissions new GHG limits for power plants.
As a backdrop for the EPA’s regulatory efforts, during 2017 the D.C. Circuit repeatedly stayed litigation in a legal challenge to the CPP brought by West Virginia and other states, while directing the EPA to file status reports every 30 days. In the status report filed on Dec. 11, 2017, the EPA indicated that it is still “considering the scope of any potential new rule under section 111(d) of the Clean Air Act.”
With public comments due on the ANPR in February, and the proposed repeal of the CPP still pending, it is likely that the EPA will take further action in 2018 to repeal — and potentially replace — the CPP.
Paris Agreement Withdrawal Still Up in the Air
On June 2, 2017, President Trump announced his intention to initiate a formal withdrawal of the United States from the Paris Agreement, a global agreement to reduce GHG emissions. The president indicated that the United States would move forward with the pullout while and possibly attempting to renegotiate the agreement in order to obtain “terms that are fair to the United States.”
But many observers and Paris Agreement signatories have noted that, by its terms, the Paris Agreement does not allow withdrawal until late 2020 (after the next presidential election). In the meantime, it appears that the Trump administration will continue to send delegates to Paris Agreement summits, and did just that in November 2017.
At the Bonn summit that began on Nov. 6, 2017, U.S. officials indicated that while the U.S. may still withdraw from the Paris Agreement “at the earliest opportunity,” it remains open to rejoining or renegotiating the Paris Agreement under revised terms. As a result, it seems likely that the Trump administration may continue sending delegates to Paris Agreement summits, while keeping an eye on a potential exit.
FERC Rejects New Coal and Nuclear Power Incentives
In September 2017, Energy Secretary Rick Perry submitted a proposal to the Federal Energy Regulatory Commission that would have created new incentives for coal and nuclear power by creating new tariff systems for eligible “reliability and resilience resource[s]” (i.e., coal and nuclear plants) and providing cost recovery and “a return on equity” for those resources.
At bottom, the proposed rule would have bolstered the economics of coal-fired and nuclear power plants that provide baseload power in certain parts of the county, with the stated goal of adding resilience to the grid. While supported by the coal and nuclear industries, the idea was opposed by other energy producers, including oil and natural gas producers and the wind and solar energy industries.
FERC rejected the proposal on Jan. 8, 2018. In doing so, FERC noted that it has already “taken steps with regard to reliability and other matters that have helped to address the resilience of the bulk power system.” At the same time, FERC noted that it “must remain vigilant with respect to resilience challenges” and instituted a new proceeding (FERC Docket No. AD18-7-000) to explore grid resiliency issues and evaluate whether further action is warranted.
How that process unfolds — and how it impacts renewable energy — will become more clear in the coming months as FERC collects information from the RTO/ISO regions.
Renewable Energy Tax Credits Survive Tax Reform
Most of us were on the edge of our seats during congressional efforts at tax reform, which culminated in an eleventh-hour overhaul of the U.S. tax code. At different points in the process two vital renewable energy incentives were at stake: the wind energy production tax credit (PTC), and the solar investment tax credit (ITC).
Both were targets of various repeal efforts, but both survived after furious lobbying by trade associations, renewable energy developers and other groups. While the PTC is set to phase out over time (and disappear entirely starting in 2020), its impending demise may create a short-term incentive for wind energy developers to get steel in the ground sooner rather than later.
At the same time, the tax reform process injected uncertainty into both the wind and solar marketplaces that may have the effect of dampening investment during the first part of 2018. In addition, new base erosion anti-abuse tax (BEAT) provisions, which limit how corporations can make payments to overseas subsidiaries, may limit the ability of some companies to use wind and solar tax credits to cut their tax bills, which will be lower in any event given the reduction in in the corporate tax rate.
In turn, these factors could discourage banks from financing certain renewable projects. How BEAT will ultimately impact solar and wind development remains to be seen, but it adds a layer of uncertainty into the renewable energy finance markets.
Offshore Wind Advances
In late 2016, the 5-turbine Block Island Wind Farm began operation, marking a milestone as the first commercial offshore wind facility in the United States. During 2017, offshore wind advanced in several other important ways.
In early 2017, utilities in Massachusetts issued an RFP for the procurement of up to 800 MW in offshore wind capacity, and three offshore wind developers responded with proposals. One or more of those proposals will be selected during 2018, paving the way for the first large-scale offshore wind development in the U.S. Ultimately, Massachusetts is looking to acquire 1,600 MW in offshore wind by 2030.
Not to be outdone, New York announced a solicitation for bids to develop at least 800 megawatts of offshore wind power, with those bids expected during 2018. Ultimately, New York hopes to develop 2,400 MW of offshore wind by 2030.
Maryland and Connecticut are also moving forward with plans to develop offshore wind, and Democratic gubernatorial election victories in New Jersey (Phil Murphy) and Virginia (Ralph Northam) may lay the groundwork in those states as well.
Meanwhile, the federal Bureau of Ocean Energy Management (BOEM) has been in the news lately as the result of the Trump administration’s plan to greatly expand offshore oil and gas exploration on both coasts. But BOEM also is actively defending a lawsuit brought by the Fisheries Survival Fund and other fishing interests that challenges the leasing process established and used by BOEM to issue offshore leases for wind energy.
While the lawsuit, Fisheries Survival Fund et al. v. Sally Jewell et al., challenges a specific lease issued to Statoil off the coast of New York, it raised important questions that could impact other existing and future offshore wind leases. Summary judgment briefing is underway and expected to conclude in January 2018.
BOEM is also engaged in several studies related to offshore wind development. In partnership with Deepwater Wind, the U.S. Fish and Wildlife Service, the University of Rhode Island and the University of Massachusetts Amherst, BOEM is funding a study that will aid conservation efforts for key bird and bat species. And working with the United States Geological Survey and the National Oceanic and Atmospheric Administration, BOEM has launched a 4.5-year study to better understand little-known natural resources of the deep ocean.
The study, known as the Deep Sea Exploration and Research of Coral/Canyon/Seep Habitats (or DEEP SEARCH), will explore geological and biological aspects in deep water locations between 30 and 130 miles off the mid-Atlantic and Southeast coasts (from Virginia to Georgia). These studies, along with others, will likely shape future offshore wind development and related conservation efforts.
What’s Ahead in 2018?
Solar and storage are key areas to watch this year. Numerous states are ramping up efforts in the energy storage space, which could change the game with respect to the role of renewables in bolstering grid resiliency and providing reliable baseload power.
Each of the offshore wind proposals in Massachusetts would integrate storage components, two through batteries and one using pumped storage. In New York, Governor Cuomo recently announced a state energy storage target of 1,500 MW by 2025, and states like Washington and Florida may also prove fruitful grounds for new energy storage initiatives or markets.
The private sector is also ramping up, with AES and Siemens recently announcing a new energy storage startup — Fluence Energy — that is designed to compete with Tesla and deliver large-scale battery storage capacity.
On the solar side, the net-metering debate is sure to continue in 2018, with more states looking to rationally price distributed solar power in a way that is fair to grid operators and solar owners alike. At the same time, the Trump administration continues to weigh new tariffs on imported solar panels that could significantly raise solar panel prices and hurt solar installation growth across the country. The potential tariffs are a response to a ruling by the International Trade Commission (ITC), in October 2017, in favor of two U.S. solar manufacturers, Suniva and SolarWorld.
In its ruling, the ITC found evidence of injury to US solar manufacturers as a result of completion from China and recommended a range of tariffs on imported solar panels and cells. The administration has until January 26 to act, and all indicators are pointing to some form of tariff. The market has responded, and solar developers and importers are stocking up on panels in anticipation of higher prices going forward.