Block ip Trap

Recovering From the Recovery Act: Life after stimulus in the renewable power sector

10 Jan 2011

By Steven Wellner & Richard Lehfeldt

Solar powerFor those who viewed the 2009 American Reinvestment and Recovery Act (Recovery Act) as a latter-day Gold Rush, the era was short-lived, and the gold ended up to be mortgage-backed securities. After one year of ramp time and a second year of “ironing out the kinks,” the nation emerged with a smattering of viable renewable power projects—but not the fully mature and self-sustaining renewable industry hoped for at the time of the Recovery Act’s passage in early 2010. Instead, the rosy optimism of the 111th Congress (“What projects are ‘shovel-ready’?”) has been replaced by the dour negativism of the 112th Congress (“Spend no money;” “There’s no scientific consensus on climate change;” etc.). And, the most popular parlor game in Washington these days is trying to craft a legislative proposal that passes the laugh test under what Bill Maher might call The New Rules.

In a time of new fiscal penury, the renewable sector has narrowed its definition of the art of the possible. As we go to press, the 111th Congress has, as one of its final acts, extended through the end of 2011 the Section 1603 Treasury grants—probably the crown jewel of the Recovery Act’s benefits for the renewable sector—and provided what may be the last meaningful federal legislative incentive for renewable power for the foreseeable future. Meanwhile, the industry has begun to turn to other agencies in quest of non-cash support for new projects. As a result, 2011 should be a transition year for the industry, as it attempts to move from the sugar high of the Recovery Act incentives to a more balanced, predictable diet that might be available from traditional development support sources.

If the Department of Energy and the Treasury Department, with their billions of dollars for renewable power, were the leading lights of renewable project development for the federal government under the Recovery Act, the Department of Interior (Interior) and the Federal Energy Regulatory Commission (FERC) appear to be taking the lead in 2011. Even if Interior has no cash for the struggling renewable industry, it has something else of great value: lots of land. In just the past few months, Interior has approved several solar energy projects totaling roughly 3,500 megawatts on federal lands in California and Nevada, and has announced plans to conduct broad environmental reviews for designated “Solar Energy Zones” in the western United States, which will expedite the environmental permitting for proposed projects in those zones and reduce the burden of project-by-project environmental reviews. Given the federal government owns approximately 650 million acres of land—nearly 30% of all land in the country—opening up those lands could dramatically expand renewable deployment.

Interior is also taking major steps to develop and support the fledgling domestic offshore wind industry by streamlining its offshore permitting process, previously estimated to take seven to nine years. As part of this effort, Interior is adapting its onshore “Solar Energy Zone” concept to designated offshore areas in the Atlantic that are particularly promising for wind projects. With the federal government preparing to close the purse strings after one final spending spree, Interior is at least giving credence to the old adage that “time is money.” Given the US currently has no offshore wind installations, reducing the time required for these environmental reviews should eliminate a major obstacle to the initial projects in federal waters. When coupled with recently announced efforts for the private development of an offshore backbone transmission system to facilitate these new projects, and the announcement by Deepwater Wind that it intends to install the first regional offshore wind farm, 2011 should be a banner year for the offshore wind industry.

Meanwhile, FERC and the Regional Transmission Organizations (RTOs) it oversees are seeking to expand transmission capacity for new renewable resources. In the past year, the RTOs that run the transmission system for much of the Midwest have submitted proposals to broadly allocate the costs of new backbone transmission facilities used to deliver renewable energy from often-remote areas where little existing transmission infrastructure is currently in place. This effort should dramatically reduce the costs of transmission infrastructure assigned to individual renewable projects and, therefore, improve the financial viability of pending and future projects.

States also continue to jockey for lead positions in the long-predicted green economy heralded by the growth of renewable power, and that competition can be expected to heat up as the year progresses. For example, states in the Mid-Atlantic and Northeast are betting on the eventual arrival of a sizable offshore wind industry by offering project developers and manufacturers of turbine components tax breaks and other incentives to locate in their states. If states also approve long-term power purchase agreements sufficient to finance project construction, states will wield enormous control over the siting and development of generating facilities to usher in a new era of renewable power and to overcome the economic doldrums of the past three years.

The renewable industry, which struggled to make its first major inroads into the nation’s electricity portfolio over the past several years with significant federal support, now enters the next phase of its growth with a one-year federal lifeline, but limited prospects for new legislative support beyond that time. Of course, in a bittersweet consolation, the nation appears just as stymied in its ability to develop other new resources (nuclear, clean coal, and even natural gas) as it does to renewables. The renewable portfolio standards that are still law in some 29 states hold the greatest promise that domestic renewable power will continue its impressive pace. But with the benchmarks of the 111th Congress—cap and trade, carbon pricing, direct grants, etc.—out of fashion in Washington, the industry will have to look to new and different opportunities for incentives and support as the nation continues its slow path toward recovery.

Steven Wellner is an associate in Dickstein Shapiro LLP’s Energy Practice, counseling developers, owners, and operators of large terrestrial and offshore energy infrastructure projects.

Richard Lehfeldt is a Partner with Dickstein Shapiro LLP’s Energy Practice, and is a corporate attorney with extensive experience in the electricity industry.
Dickstein Shapiro LLP

Dickstein Shapiro LLP
Author: Steven Wellner & Richard Lehfeldt
Volume: January/February 2010