On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the “ARRA”),1 popularly known as the “stimulus bill.” The ARRA will inject approximately $787 billion in new federal spending and tax incentives into the U.S. economy, most of it over the next two to three years, in an attempt to counter the current economic downturn. A principal goal of the ARRA is to:
Revive the renewable energy industry and provide the capital over the next three years to eventually double domestic renewable energy capacity.2
According to the Obama administration’s figures, the ARRA dedicates $43 billion in spending and $22 billion in tax relief to “Energy.”3 Not all of this funding is for renewables, but billions of dollars will soon be deployed to support wind, solar, geothermal and other renewable energy projects. The ARRA also seeks to encourage the development of new “Smart Grid” technologies and new transmission lines, all in the hope of better integrating renewables into transmission networks and electricity markets.
The ARRA’s stimulus provisions for renewable energy are well timed. The economic downturn has thinned the ranks of potential investors in wind, solar and other projects. It has also greatly reduced the value of previous investment incentives to those that remain. Wind developers in particular have been suspending projects and have joined turbine manufacturers in laying off employees.
Whether the ARRA will be sufficient to achieve the administration’s goal is not yet known. It seems likely, however, that the successful implementation of the ARRA is a necessary step towards a renewable energy “revival.” As the chairman of the Federal Energy Regulatory Commission (“FERC”) has suggested, the ARRA will provide “seed money”4 for the even larger private investments that will be required to double domestic renewable capacity and build the transmission to “unlock” it.
At the same time, the ARRA is only the first step in the administration’s larger plans for transformative “green” changes to the economy. Legislation is likely to be introduced in the coming months that would regulate greenhouse gas emissions, mandate that renewables be a larger part of the nation’s electricity supply mix and require greater energy efficiency. If these policy changes come to pass, their impact on renewables could be even greater than the ARRA’s.
ARRA Energy Appropriations
The Temporary DOE Loan Guarantee Program
The Energy Policy Act of 2005 (“EPAct”) authorized the establishment of a new “Innovative Technology Loan Guarantee Program.”5 It was intended to support clean energy technologies that were not yet commercially available and which were thought unlikely to receive adequate private investment support. In principle, the program could fund up to 80% of a qualified project’s costs for up to the greater of 90% of its useful life or 30 years.
The ARRA creates a new “Temporary Program for Rapid Deployment of Renewable Energy and Electric Power Transmission Projects,”6 which provides up to $6 billion in loan guarantees that are expected to support up to $60 billion in new loans. Unlike the original EPAct program, investments in commercially available renewable energy technologies, including existing wind and solar technologies and incremental hydropower systems, are eligible for guarantees under the new rules. Manufacturers of components of such renewable energy systems are likewise eligible for guarantees for the first time.
Unlike the original program, the emphasis of the temporary program is clearly on creating an immediate economic impact. DOE’s funding authority under the temporary program expires on September 30, 2011, and only projects that commence construction by that date will be eligible for loan guarantees.
It remains to be seen whether DOE will be able to rapidly identify eligible projects and disburse loan guarantees within the ARRA’s aggressive schedule. DOE is a huge and sprawling organization with a diverse array of responsibilities. Fairly or not, it is often accused of moving slowly and inefficiently. Many have expressed concern that its traditional focus on nuclear weapons programs will prevent it from focusing on loan guarantees and other new ARRA responsibilities related to renewables.9 These concerns are heightened by what is widely seen as a failure to effectively implement the EPAct loan guarantee program. In the three and a half years since EPAct was enacted, DOE has issued four solicitations but finalized no guarantees.
DOE’s new secretary, Dr. Steven Chu, has acknowledged the agency’s track record and committed to making the implementation of both the EPAct and ARRA loan guarantee programs a top priority. He has proposed sweeping reforms, both to existing DOE loan guarantee programs and the new program under ARRA, aimed at expediting action and easing participation by non-traditional applicants. These include processing applications on a rolling basis, simplifying and streamlining filing requirements, amortizing application fees (which can be significant and have arguably discouraged smaller applicants in the past) and adopting greater transparency. 10 Again these matters will presumably be addressed in new rules governing the DOE loan guarantee programs, which are expected to be issued within the next few months.
Secretary Chu has also announced that he intends for DOE to offer guarantees under EPAct by the end of May and under the ARRA by the end of the summer, and intends for 70% of ARRA funding to have been deployed by the end of 2010.11 Even more recently, Secretary Chu announced that DOE would issue the first loan guarantees under the EPAct program by the end of March.12
It is possible that an unintended consequence of these aggressive plans will be to confer an advantage on wind projects, which can be developed relatively quickly, and a disadvantage on solar and, to an even greater extent, transmission projects, which tend to develop more slowly because of siting and other challenges. In any event, clearly there will be intense competition for guarantees under the temporary program. Potential applicants must therefore be prepared to respond quickly and effectively when DOE issues rules and solicits applications.
“Smart Grid” Investments
(For a more extensive discussion of “Smart Grid” issues, see “Smart Grid Investment Challenges” in this issue of the Hunton & Williams Renewable Energy Quarterly.)
The Energy Independence and Security Act of 2007 (“EISA”) declared that it was the policy of the United States to support the development of “smart” transmission and distribution grids that would make better use of digital information technology, advanced meters and sensors, interactive communications, and power flow optimization techniques. The expected benefits would include greater reliability, efficiency and flexibility, and a reduced need to build new lines. They would also include better support for renewables, demandside resources, energy storage and plug-in hybrid electric vehicles (“PHEVs”), which are generally expected to be smaller in size and more geographically dispersed, and thus more challenging to accommodate than traditional, large central generating stations.
The EISA directed DOE, FERC and other stakeholders to research power grid digital technology as well as interconnection protocols for PHEVs. It also directed DOE to establish a Smart Grid regional demonstration initiative (“RDI”) that would cover up to 50% of the costs of up to five utility demonstration projects.13 The EISA gave the National Institute of Standards and Technology (“NIST”) primary responsibility for coordinating the development of an “interoperability framework” that would standardize for Smart Grid development and authorized FERC to adopt the completed standards as rules.14 Finally, it established a federal matching fund to reimburse up to 20% of qualifying Smart Grid investments, with a preference for innovative, not yet commercially available technology.15
Progress under the EISA has been slow to date. The ARRA has attempted to reinvigorate the EISA programs by appropriating an additional $4.5 billion to DOE’s Office of Electricity Delivery and Energy Reliability (“OEDER”). The money is to be used for “electricity delivery and energy reliability activities to modernize the electric grid,” including the implementation of EISA Smart Grid programs.16 Of that amount, $10 million has been specifically appropriated for the NIST’s work on an interoperability framework and money has now been expressly appropriated for the RDI for the first time. In addition, the ARRA has expanded the scope of both the RDI, which is no longer limited to utility projects or to a maximum of five grants, and the federal matching fund. The latter will now support up to 50% of the cost of a qualifying investment and will do so in the form of an up-front grant (rather than reimbursement over the life of a project), and will no longer favor non-commercial technologies. In addition, investments will now be eligible for matching funds even if they are eligible for, but are not utilizing, other specific tax credits or deductions. (The EISA disqualified investments that were merely eligible for them.)
As with the temporary loan guarantee program, the ARRA gives the DOE broad discretion to decide how to spend the $4.5 billion appropriation, but it does require DOE to move quickly. It also allows just 60 days from the enactment of the ARRA to establish rules under which applicants can obtain federal matching grants. The agency is authorized to use the $4.5 billion in OEDER funding only until September 30, 2010. DOE has already responded by releasing a “Notice of Intent to Issue Funding Opportunity Announcement” that includes a Smart Grid RDI element. The actual announcement of funding opportunity is expected to come later in March.17 Secretary Chu has also urged the NIST to quickly complete work on the interoperability framework. Clearly, entities that are interested in participating in DOE’s programs must also be prepared to move quickly and to face intense competition.
Resource Assessments and Transmission Studies
The ARRA prescribes that $80 million of the $4.5 billion appropriation to OEDER be used to “conduct a resource assessment and an analysis of future demand and transmission requirements” in consultation with FERC. OEDER is also directed, again in coordination with FERC, to “provide technical assistance” to the North American Electric Reliability Corporation, the states and other stakeholders for “the formation of interconnection-based transmission plans for the Eastern and Western Interconnection and for ERCOT.” Finally, OEDER has been directed to consider renewable energy issues as part of its next study (due this year) regarding the establishment of National Interest Electric Transmission Corridors pursuant to the provisions of the EPAct.
All these mandates reflect a concern that new interconnection- wide planning efforts may be needed to facilitate the development of major new transmission infrastructure to connect geographically remote renewable energy resources to major load centers. These issues are already receiving considerable attention at FERC and may be the subject of additional legislation in the near future.
(For additional information on FERC’s evolving renewable energy and transmission policies, see “FERC to Promote Renewables Under Chairman Wellinghoff” in this issue of the Hunton & Williams Renewable Energy Quarterly.)
Additional Transmission Appropriations
Beyond the $4.5 billion appropriated to OEDER, the ARRA also authorizes the Bonneville Power Administration (“BPA”) to borrow an additional $3.25 billion from the Treasury to “assist in financing the construction, acquisition, and replacement” of its transmission system. BPA now has approximately $7.8 billion in borrowing authority for such purposes (of which approximately $5.5 billion is currently available). BPA has already announced that it has used a portion of its new borrowing authority to fund the construction of the 500 KV McNary-John Day transmission line, which is expected to support up to 700 MW of wind generation.
Similarly, the ARRA gives the Western Area Power Administration (“WAPA”) authority for the first time to borrow up to $3.25 billion from the Treasury to construct, finance, maintain, plan or study new and upgraded transmission facilities for the purpose of “delivering or facilitating the delivery of power generated by renewable energy resources constructed or reasonably expected to be constructed” in the future.18
Appropriations to the Office of Energy Efficiency and Renewable Energy
The largest single portion of renewable energy spending under the ARRA, approximately $16.8 billion, is appropriated to DOE’s office of Energy Efficiency and Renewable Energy (“EERE”) for a variety of initiatives. These include:
- $3.5 billion for renewable energy and efficiency “applied research demonstration and deployment programs.” Of this amount, $800 million is set aside for projects related to biomass and $400 million for geothermal. Hydrokinetic, wind and solar projects are also eligible for this funding.
- $2 billion for DOE loans and grants to support the manufacturing of advanced vehicle batteries and related systems.
- $5 billion for DOE’s existing Weatherization Assistance Program, which is intended to help make homes and businesses more energy efficient.
- $3.2 billion for the Energy Efficiency and Conservation Block Grant program, which was created by the EISA and supports efforts by state and local governments (and Indian tribes) to reduce their fossil fuel emissions and increase energy efficiency.
- $3.1 billion for the existing State Energy Program, which provides grants to states and directs funding to their energy offices from EERE technology programs. This part of the ARRA has become controversial because it conditions EERE’s ability to allocate a share of the money to a given state on that state’s governor making a number of written commitments. Most problematical for many states is the so-called “decoupling” provision, which would require state utility regulators to ensure that regulated utilities are compensated for increasing energy efficiency instead of simply for selling a greater quantity of energy. Some states have argued that they cannot reasonably be expected to make such a commitment because their utility regulatory commissions are independent, quasi-judicial bodies, that make policy decisions based on record evidence rather than executive mandates.19
As with the ARRA loan guarantee and Smart Grid funding initiatives, applicants that are interested in taking advantage of any of the above programs that are open to private-sector participation should monitor DOE closely, anticipate nearterm DOE actions and be prepared to respond to them.
Other Green Appropriations
Finally, the ARRA provides additional money to other energy initiatives that are “green” (at least in part) but that do not necessarily involve renewable energy. These include:
- $3.4 billion for DOE’s Office of Fossil Energy, including $1 billion for fossil energy research and development programs, $800 million for the Clean Coal Power Initiative and $1.5 billion for industrial carbon capture and energy-efficiency improvement projects.
- $400 million for high-risk advanced energy research projects conducted by the Advanced Research Projects Agency-Energy, an entity within DOE that is modeled on the famous Defense Advanced Research Projects Agency.
- $4.5 billion to improve the energy efficiency of federal buildings.
ARRA Renewable Energy Tax Provisions
The ARRA’s tax title is often referred to as the American Recovery and Reinvestment Tax Act of 2009 (“ARRTA”). This article follows that naming convention and will use “ARRTA” when referring to the tax provisions in the stimulus bill. In addition, unless otherwise specified, all statutory references in this article’s discussion of the ARRTA are to the provisions of the Internal Revenue Code.
In recent years, the production tax credit (“PTC”) for electricity produced from certain renewable resources under Section 45 of the Internal Revenue Code played a central part in the financing of many renewable energy projects. The ARRTA provides for a three-year extension of the date by which many renewable energy projects must be “placed in service” to be eligible for the Section 45 PTC. Post-ARRTA the relevant deadlines are:20
Last year’s financial and credit crisis diminished the effectiveness of the Section 45 PTC for wind financing. The tax credits were heavily used by financial institutions, a number of which no longer exist. Furthermore, many potential investors that previously would have found Section 45 PTCs attractive have suffered losses that greatly reduce their appetite for tax credits. The result has been a sharp drop in tax equity financing of renewable energy projects. In part as a response to these problems, the ARRTA includes tax credit alternatives, such as grants, and other significant tax law revisions, which are described below. The ways in which renewable energy projects will be financed in the future can be expected to evolve in response to these changes.
The ARRTA revised Section 48 of the Internal Revenue Code to give taxpayers an election to claim a 30% investment tax credit (“ITC”) rather than PTCs for wind, closed-loop, open-loop, geothermal, landfill gas, trash, hydropower or marine/hydrokinetic facilities that are placed in service after December 31, 2008 and before the extended Section 45 PTC deadlines (above).21
The ARRTA clarifies that the “qualified property” for purposes of the ITC means property (a) that is tangible personal property or other tangible property (not including a building or its structural components), but only if such property is used as an integral part of the facility and (b) for which depreciation or amortization is allowable. Notably, transmission assets may not be “qualified property.”
To qualify, the taxpayer (1) must not have claimed Section 45 tax credits for such facility and (2) must make an irrevocable election to claim ITCs rather than PTCs. If the taxpayer makes such an election, production tax credits will not be allowed for such facility in any taxable year, and the facility will be treated as “energy property” for purposes of Section 48. Accordingly, the rules applicable to other investment tax credit property (e.g., recapture rules, tax-exempt use property rules, sale-leaseback rules, qualified progress expenditure rules, etc.) apply. Note that since geothermal currently is eligible for only a 10% ITC under Section 48, this election allows a taxpayer to receive a 30% ITC for geothermal property since geothermal facilities also are included in Section 45(d)(4).
The ARRTA also repeals Section 48(c)(4)(B)’s $4,000 limitation on the amount of investment tax credits that a taxpayer may claim in any taxable year for wind turbines with a nameplate capacity of 100 KW or less placed in service during such year.
Finally, Section 48(a)(4) previously provided that the basis of energy property would be reduced to the extent that was financed with “subsidized energy financing” or the proceeds of private activity bonds. The ARRTA permanently repeals this limitation effective for periods after December 31, 2008, applying certain specified transition rules. This limitation was also removed for purposes of the tax credits provided by Sections 25C (nonbusiness energy property), 25D (residential energy-efficient property), 48A (IGCC and other advanced coal-based generation projects) and 48B (gasification projects), effective for taxable years beginning after December 31, 2008. Note that the ARRTA did not change the subsidized financing rules for the Section 45 production tax credit, only for the investment tax credits mentioned 21 ARRTA Section 1102. above. However, if a taxpayer makes an election to claim investment tax credits in lieu of production tax credits, as described above, the repeal of this limitation should be applicable as well.
Grants in Lieu of Tax Credits
Section 1603 of ARRTA also allows taxpayers to elect to receive a grant in lieu of tax credits for certain energy property that is (a) placed in service in 2009 or 2010, or (b) placed in service after 2010 but before the placed-in-service deadline for such facility, but only if the construction of such property began during 2009 or 2010. The ARRTA does not indicate what constitutes the “beginning of construction.”
The secretary of the Treasury will administer the program. The secretary must provide grants within 60 days of the later of either the date of the grant application or the date the property is placed in service. Grant applications must be received before October 1, 2011.
The ARRTA sets no limitation on the amount of grants that the secretary of the Treasury can make and does not appear to give the secretary any discretion in providing grants beyond the procedural requirements for the application. Rather, the grants function in the same manner as the tax credits and appear to be “off-the-shelf” in nature.
The grant is 30% of the basis of such property in the case of: wind, closed-loop, open-loop, geothermal, landfill gas, trash, hydropower and marine/hydrokinetic facilities, as described in Section 45(d). The ARRTA clarifies that the “qualified property” for purposes of determining the amount of the grant is the same property that is eligible for the ITC election described above.
The grant is also 30% of the basis in the case of (1) qualified fuel cell property (defined in Section 48(c)(1), but subject to the $1,500 per 0.5 KW limitation), (2) solar property (described in Section 48(a)(3)(A)(i) or (ii)) or (3) any qualified small wind-energy property (defined in Section 48(c)(4)). The grant is 10% of the basis of such property in the case of (1) geothermal property (described in Section 48(a)(3)(A) (iii)), (2) qualified microturbine property (defined in Section 48(c)(2), but subject to the $200 per KW limitation), (3) combined heat and power systems (defined in Section 48(c)(3), but subject to the capacity limitations in Section 48(c)(3)(B)) or (4) geothermal heat pump property (described in Section 48(a)(3)(A)). Note that since electric generating geothermal facilities currently are eligible for only a 10% investment tax credit under Section 48, this grant allows a taxpayer to receive a grant equal to 30% of the basis of such geothermal property since geothermal facilities also are included in Section 45(d)(4), provided that the project is placed in service before January 1, 2014, the applicable Section 45 placed-in-service deadline.
The ARRTA directs the secretary to apply rules similar to Section 50 when making grants. However, in the case of recapture, the secretary appears to have discretion to shorten, lengthen or otherwise modify the five-year recapture of grants under the ARRTA. In addition, the secretary is directed not to make grants to (1) government entities, (2) any tax-exempt 501(c) organization, (3) any cooperative that is owned by, or has outstanding loans to, 100 or more electric cooperatives and that was in existence on February 1, 2002, (4) a cooperative electric company described in Section 501(c)(12) or Section 1381(a)(2)(C), (5) a not-for-profit electric utility that has received a loan or loan guarantee under the Rural Electrification Act, (6) a possession of the United States, (7) the District of Columbia, (8) an Indian tribal government or (9) any partnership or other pass-through entity that has one of these entities as a partner or owner.
The ARRTA amends Section 48 to provide that if a project receives a grant from the secretary, no tax credits are allowed on such property under Section 45 or Section 48 for the taxable year or any subsequent taxable year. In addition, if a taxpayer claimed tax credits for qualified progress expenditures in any taxable year prior to the taxable year in which the grant was made, (1) the tax imposed on the taxpayer for the taxable year in which such grant was made will be increased by the amount of such tax credits allowed in prior years, (2) the tax credit carryforwards, if applicable, will be adjusted to recapture the amount of tax credits and (3) the amount of the grant will be determined without regard to prior reductions to the basis of the property due to credits.
The ARRTA also provides that grants are not includible in the gross income of a taxpayer, but the amount of the grant will be taken into account in determining the basis of the property, except that the basis of such property is reduced under Section 50(c) in the same manner as a credit allowed under Section 48(a). Accordingly, the depreciable basis of the property will be reduced by one-half of the grant amount.
The ARRTA establishes a 30% investment tax credit for certain property used in a “qualified advanced energy manufacturing project,” i.e., a project that re-equips, expands or establishes a manufacturing facility for the production of property designed to (1) produce energy from the sun, wind or geothermal deposits, or other renewable resources, (2) manufacture fuel cells, microturbines or energy storage systems for certain electric motor vehicles, (3) manufacture electric grids to support the transmission of intermittent renewable energy sources (including storage), (4) manufacture equipment for use for carbon dioxide capture and sequestration, (5) refine or blend renewable fuels or produce energy conservation technologies (including lighting and Smart Grid), (6) produce other advanced energy property designed to reduce greenhouse gas emissions as may be determined by the secretary or (7) produce new qualified plug-in electric-drive motor vehicles (defined in Section 30D) qualified plug-in electric vehicles (defined in Section 30(d)) or specifically designed components for such vehicles.
The credit is not subject to limitation if subsidized energy financing or private activity bonds are used to construct the facility. The ARRTA also (1) makes the qualified progress expenditures rules available for the credit and (2) provides a definition of the “eligible property” for purposes of the credit (essentially tangible personal property or other tangible property that is “necessary” for the production of the qualifying equipment).
This tax credit is subject to a certification and allocation process similar to the investment tax credit programs for certain advanced coal-based generation projects and certain gasification projects under Sections 48A and 48B. In determining which project to certify, the secretary shall (a) take into account only those projects for which there is a reasonable expectation of commercial viability and (b) take into consideration which projects (i) will provide the greatest domestic job creation (both direct and indirect) during the credit period, (ii) will provide the greatest net impact in avoiding or reducing air pollutants or anthropogenic emissions of greenhouse gases, (iii) have the greatest potential for technological innovation and commercial employment, (iv) have the lowest levelized cost of generated or stored energy, or of measured reduction in energy consumption or greenhouse gas emission (based on costs of the full supply chain) and (v) have the shortest project time from certification to completion. In addition, the program provides for (a) a review, redistribution and reallocation of credits if certifications for certain projects are revoked and (b) public disclosure of the successful applicants and the amount of credit received by the applicant.
The secretary of Treasury is authorized to allocate up to $2.3 billion in such tax credits and must establish the certification program within 180 days of enactment of the ARRTA.
The ARRTA modifies the Section 45Q tax credit for carbon dioxide sequestration to require that carbon dioxide used as a tertiary injectant be disposed of by the taxpayer in secure geological storage in order to qualify for the $10/metric ton tax credit. In addition, Section 45Q is amended to clarify that (a) secure geological storage also includes oil and gas reservoirs and (b) the secretary of Energy and secretary of the Interior also will be consulted in connection with regulations for determining adequate security measures for the geological storage of carbon dioxide. The provision is effective for carbon dioxide captured after ARRTA’s date of enactment.
New Clean Renewable Energy Bonds (“New CREBs”) and Qualified Energy Conservation Bonds (“QECBs”)
The ARRTA increases the current allocations for New CREBs and QECBs from $800 million to $2.4 billion and $3.2 billion, respectively. For QECBs, ARRTA provides that the implementation of green community programs (which is one of many qualified purposes for QECBs) includes “the use of loans, grants, or other repayment mechanisms to implement such programs.” Moreover, QECBs issued for capital expenditure to implement green community programs shall not be treated as private activity bonds solely because proceeds are to be used for such loans or grants to implement green community programs. This treatment is significant because it enables such QECBs to be eligible for the governmental portion of the QECB allocation. Each of the New CREBs and QECBs was created in the Energy Improvement and Extension Act of 2008 that was included in the financial sector bailout package enacted on October 3, 2008.
Both the New CREB and QECB programs are governed by Section 54A, which was added in the Heartland, Habitat, Harvest and Horticulture Act of 2008. Section 54A makes significant changes to the statutory framework that governs existing CREBs (Section 54). Those changes include, among others, introduction of a reserve fund option that generally allows for equal annual installments that are not treated as retiring a portion of the bond (subject to yield limitations), a three-year temporary period for expenditure of “available project proceeds,” a 2% limitation on financing costs of issuance from the proceeds of the tax credit bond, stripping of the tax credits and carryover of the tax credits.
Beyond the ARRA
The ARRA’s renewable energy provisions are just the first part of the administration’s ambitious plans. In his February 24th address to a joint session of Congress, the president declared that energy would be one of the administration’s three domestic policy priorities. He reiterated his goal of doubling renewable energy production in three years and “laying thousands of miles” of new transmission lines. He also pledged to spend $15 billion a year “to develop technologies like wind power and solar power; advanced biofuels, clean coal, and more fuel-efficient cars and trucks built right here in America.” Finally, he called on Congress to pass carbon cap and trade legislation that would permanently make renewable energy the “profitable kind of energy.”22
The president’s recent budget proposal reflects these priorities. In addition, a proposed $410 billion omnibus appropriations bill that would fund executive agencies for the remainder of the fiscal year provides for a $47 billion expansion to EPAct’s Innovative Technology Loan Guarantee Program, of which $18.5 billion “shall be for nuclear power facilities.” The ARRA had originally included $50 billion in additional funding for this program but it was eliminated during conference discussions in part because of fears that the guarantees would overwhelmingly be used to support new nuclear power plants. Given Secretary Chu’s priorities and proposed reforms to the existing DOE loan guarantee programs, it seems likely, however, that a substantial part of the total funding will in fact be used to support innovative clean energy technologies.
In the House of Representatives, Rep. Ed Markey (D-MA), the chairman of the Select Committee on Energy Independence and Global Warming, has unveiled a renewable energy standard (“RES”) bill that would require utilities to procure 25 percent of their energy needs from renewable resources by 2025. Energy and Commerce Committee Chairman Henry Waxman (D-CA) reportedly favors a comprehensive climate and energy bill (that would include a RES component). He has stated that he intends to release a draft by the end of the month and to move a bill through his committee by Memorial Day. Meanwhile, the Environmental Protection Agency is already moving to adopt greenhouse gas regulation, which could also spur Congress to act.
In the Senate, Senate Energy and Natural Resources Committee Chairman Jeff Bingaman (D-NM) has floated a discussion draft of a bill that would establish a 20% RES starting in 2021. He has also scheduled a series of hearings on issues related to possible energy legislation and is expected to circulate an energy bill by the summer. Senate Majority Leader Harry Reid (D-NV) has likewise expressed support for climate and RES legislation. After initially stating that he believed the two issues should be addressed in separate bills, he now appears to share Rep. Waxman’s view that a single piece of comprehensive legislation would be the best vehicle for moving forward.
Sen. Reid had also recently introduced legislation, the “Clean Renewable Energy and Economic Development Act.” It would authorize the president to designate “Renewable Energy Zones,” establish new planning mechanisms to promote transmission to integrate renewable energy in those zones, and give FERC backstop siting and permitting authority for certain “green” transmission projects. Many have argued that such legislation is needed, especially in light of a recent court decision that curtails the limited “backstop” siting authority that FERC was granted under the EPAct.23
It remains to be seen whether any of these plans will actually be realized. They already face substantial opposition. The outcome seems likely to turn on whether the administration’s green energy plans are perceived as conducive to economic growth and the creation of new “green jobs” or as hugely expensive and inimical to job creation. Nevertheless, the passage of RES and/or climate legislation could have a transformative impact on the economy, and on the renewable energy industry, that would go beyond even the ARRA’s expected impact.