Category: Energy & Utilities

1
Invigorated Federal Interest in Fusion Energy Presents Opportunities and Questions for Growing Private Fusion Energy Sector
2
California Energy Storage Update – What’s In the Latest Procurement Plans?
3
Women in Power event: Indentifying and Innovating through Points of Resistance in Renewables
4
Event: Blockchain Technology for the Energy Sector
5
Event: Blockchain in Energy Forum 2018
6
FERC Rule Seeks to Expand Energy Storage Participation in Wholesale Electricity Markets
7
Act on Electromobility and Alternative fuels Enters into Force
8
FERC Rejects DOE’s Grid Reliability and Resilience NOPR
9
Tax Reform Conference Bill Released: PTC and ITC Emerge Battered
10
The Senate has passed the Tax Cuts and Jobs Act. Is this the next drop in the renewable energy roller coaster?

Invigorated Federal Interest in Fusion Energy Presents Opportunities and Questions for Growing Private Fusion Energy Sector

By Tim L. Peckinpaugh, Michael L. O’Neill, R. Paul Stimers                     

Significant investment is flowing into private companies seeking long-sought-after breakthroughs to develop practical power generation solutions based on nuclear fusion reactions. [1] Fusion reactions have become relatively commonplace in the laboratory setting, but no one has developed a nuclear fusion reactor yet that produces more energy than the device uses to operate and maintain the reaction. Numerous private companies, in the United States and around the world, are attacking this challenge with a variety of approaches, with the goal of making the technology sustainable, practical, and commercial. These companies are receiving significant investment from backers who believe a solution is within reach.

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California Energy Storage Update – What’s In the Latest Procurement Plans?

By Buck B. Endemann and  Kristen A. Berry

Just as Prometheus hid fire in a fennel stalk to gift it to the unaware ancients, the pioneers of energy storage technology seek to harness and store energy in increasingly novel ways. Transforming captured energy into storable and consumable power stands at the forefront of this century’s revolution in green energy technology. In 2017, the United States deployed 431 MWh of energy storage capability, largely spurred by state-specific energy storage mandates.[1] California’s state legislature has continued to lead the nation and spread Prometheus’s “secret spring of fire.”

While the concept of storing energy is centuries-old, new battery technologies promise to mitigate California’s infamous duck curve and provide the low carbon, flexible ramping resources necessary to accommodate the state’s increasing penetration of solar power. The Union of Concerned Scientists estimates the United States’ total current storage capacity at 23 gigawatts (GW), which approximates the capacity of 28 coal plants.[2] Ninety-six percent of this capacity, however, derives from pumped hydroelectric storage, most of which was built in the 1960s and 1970s and is increasingly vulnerable to drought and other environmental risks. More recently, energy storage developers have focused their efforts on battery technologies, with lithium-ion batteries in particular making great strides in terms of duration and cost-effectiveness. Market watchers have projected that by 2020 the price of battery storage could decline to $200 kWh, compared to today’s market price of approximately $340/kWh.[3]

As detailed in the K&L Gates Energy Storage Handbook (Version 2.0), California’s two landmark energy storage bills require California’s Investor-Owned Utilities (IOUs) to procure and install nearly 2 GW of storage by 2024.[4]  Under AB 2514, the California Public Utility Commission (CPUC) required California’s IOUs to procure by 2020 1,325 MW of storage capacity split among the transmission, distribution, and customer domains.  In AB 2868, the legislature set an additional procurement target of 500 MW for distributed-connected energy storage systems, with individual 166 MW goals established for Southern California Edison (SCE), Pacific Gas & Electric (PG&E), and San Diego Gas & Electric (SD&E). Under both laws, California’s IOUs must submit periodic procurement plans to show progress toward each law’s targets.  In February and March 2018, SCE, PG&E, and SDG&E submitted their 2018 energy storage procurement plans, which lay out each IOU’s strategy to meet its energy storage goals in its respective service territory.

SCE proposes to procure a total of 60 MW of energy storage by 2018 in two separate procurements of 20 MW and 40 MW.  The 20 MW of procurement would respond to an additional legislative directive, SB 801, under which SCE is required to deploy energy storage in response to the natural gas shortages caused by the Aliso Canyon gas storage facility’s well failure.  For the remaining 40 MW, SCE plans to launch programs and investments to solicit utility-owned storage, as mandated under AB 2868. SCE’s procurement plan also seeks CPUC approval to allocate $9.8 million to install energy storage at low-income, multi-family dwellings.

PG&E’s procurement plan focuses on the 166 MW of energy storage under AB 2514 that it is required to procure in the 2018-2019 procurement period.  To meet that target, PG&E proposes an energy storage request-for-offers framework. To achieve its AB 2868 target, PG&E outlined its four categories of distribution-connected storage investments: (1) researching the role of distributed energy storage in wildfire safety, particularly within the context of the North Bay Wildfire rebuilding efforts, (2) launching a behind-the-meter storage program for up to 5 MW of thermal storage, (3) identifying and seeking immediate CPUC approval (via a Tier 3 advice letter) for storage investments up to 166 MW, and (4) requesting authorization for additional investments beyond the categories identified in the 2018 application.

SDG&E’s filing proposes seven utility-owned micro-grid projects, all of which would exist at the distribution circuit level. These projects would provide services to entities that contribute to public safety, like police stations and firehouses, by providing storage capabilities separate from the main grid.  SDG&E argues that these distributed storage systems will provide a wide-range of benefits, including grid resiliency, wholesale market revenues, and reduced dependency on non-renewable energy sources by minimizing the need for back-up generators.  SDG&E also plans to contribute $2 million toward a pilot energy storage incentive program for non-profit facilities, such as nursing homes.

Each of these utilities will roll out its initiatives over the remainder of 2018 and beyond.  K&L Gates will continue to monitor energy storage developments and provide updates.

[1] GTM Research / ESA, U.S. Energy Storage Monitor, https://www.greentechmedia.com/research/subscription/u-s-energy-storage-monitor#gs.KZIlnzQ (2017).

[2] Union of Concerned Scientists, How Energy Storage Works, https://www.ucsusa.org/clean-energy/how-energy-storage-works#.WtAsTq2otD8 (2013).

[3] McKinsey & Company, The New Economics of Energy Storage, https://www.mckinsey.com/business-functions/sustainability-and-resource-productivity/our-insights/the-new-economics-of-energy-storage (August 2016). Energy Storage Report, Study: Flow Batteries Beat Lithium Ion, http://energystoragereport.info/study-flow-batteries-beat-lithium-ion/#sthash.c07jCAVv.gXdjY17t.dpbs (July 2017).

[4] K&L Gates, Energy Storage Handbook, http://www.klgates.com/epubs/Energy-Storage-Handbook-Vol2/ (April 2018).

Women in Power event: Indentifying and Innovating through Points of Resistance in Renewables

3 April 2018
8:30 a.m. to 1:30 p.m.

K&L Gates
925 Fourth Avenue
Floor 29
Seattle, WA 98104

Presenters: Elizabeth ThomasJessica C. TsaoElizabeth C. Crouse, Elisabeth Yandell McNeil

The Seattle office is hosting a series of exciting discussions about the innovations driving the renewables industry into the future. A diverse range of women panelists from across the industry will discuss methods that industry participants are currently developing to move through known constraints and collaboratively identify additional points of resistance and possibilities for pushing through them.

8:30 a.m. Registration & Breakfast
9:00 a.m. Morning Updates
12:15 p.m. Keynote Panel & Lunch
1:30 p.m. Conclusion

Morning Updates
Regulatory Considerations
Moderator: Liz Thomas, K&L Gates LLP, Seattle
Mariah Kennedy, Puget Sound Energy
Rachel Brombaugh, King County

Technological Advances
Moderator: Jessica Tsao, K&L Gates LLP, Seattle
Jennifer Worrall, Iteros
Kristine Parra, Washington Clean Energy Testbeds
Laura McCarty, Local-E and Energy Trading Technology, Inc.

Finance and Strategy of Expansion
Moderator: Elizabeth Crouse, K&L Gates LLP, Seattle
Corey Camacho, Vestas
Karin Berardo, SIRES Advisors
Kate McGinnis, Fluence

Keynote Panel Discussion and Lunch
Moderator: Elisabeth Yandell McNeil, K&L Gates LLP, Seattle
Vanessa Miler Fels, Microsoft
Tess Williams, Doosan GridTech
Christina Page, Page Sustainability Consulting

Event: Blockchain Technology for the Energy Sector

We invite you to join us for EUCI’s ‘Blockchain Technology for the Energy Sector’ workshop on May 8-9, 2018 live in Houston, Texas. Co-authors of the Blockchain Energizer, Buck Endemann and Ben Tejblum will discuss blockchain’s growing role in the energy sector and the current opportunities and regulatory barriers. Additional topics to be covered will include:

  • the fundamentals of blockchain technology and its core components
  • the opportunities and applications for blockchain technology within the energy industry
  • how blockchain could improve and/or replace existing systems and processes relevant to electric utilities
  • how blockchain could enable peer-to-peer “transactive” energy markets, and help lead the way in enabling a resilient, distributed energy grid of the future
  • evaluate sustainability aspects of blockchain — such as how blockchain could improve traceability for natural gas trading
  • the associated phenomenon of ‘bitcoin mining’

Use the discount code BLOCK18SPK when registering to receive 10% off!

Click here to learn more about the program and to register.

Event: Blockchain in Energy Forum 2018

We invite you to join us for GTM Squared’s Blockchain in Energy Forum on March 7, 2018 live in New York City and available to stream online. Washington, D.C. associate and co-author of The Blockchain Energizer, Benjamin Tejblum, will be presenting on the implementation of blockchain and how to best navigate regulations and new business models. Additional topics to be covered will include a discussion on distributed ledger technologies, re-envisioning the future, enabling a transactive grid, and optimizing operations and identifying new opportunities.

Please note you must be a member of GTM Squared to participate.

FERC Rule Seeks to Expand Energy Storage Participation in Wholesale Electricity Markets

By William Keyser, Buck Endemann, Mike O’Neill and Jim Wrathall

On February 15, 2018 the Federal Energy Regulatory Commission (“FERC”) issued a Final Rule addressing participation of energy storage resources in electricity markets operated by Regional Transmission Organizations (“RTOs”) and Independent System Operators (“ISOs”).  Largely adopting the proposal issued in November 2016, the Final Rule seeks to remove barriers for energy storage participation in wholesale capacity, energy, and ancillary services markets.  The ultimate impact of FERC’s directive will be determined over the next few years as RTOs and ISOs implement the standards through their respective stakeholder processes, compliance filings, and (potentially) litigation.    FERC deferred ruling on a companion proposal addressing participation of distributed energy resources (“DERs”) in wholesale markets.  In the coming months, stakeholders should carefully consider these measures as there will continue to be opportunities to shape the final outcomes. Read More

Act on Electromobility and Alternative fuels Enters into Force

By Dr. Karol Lasocki, Piotr Michajłow, and Paulina Barańska

The Act of 11 January 2018 on Electromobility and Alternative Fuels enters into force on 22 February this year. It establishes a system of incentives for the promotion of the use of vehicles powered by alternative fuels, mainly electricity, and also introduces mechanisms for initiating investments in the necessary infrastructure.

The Act introduces into Polish law the requirements of Directive 2014/94/EU of 22 October 2014 on the deployment of alternative fuels infrastructure. EU Member States are to ensure that by 31 December 2020, an appropriate number of publicly available recharging points have been created to allow electrically powered vehicles to move at least in urban/suburban agglomerations and other densely populated areas.

To read the full alert on K&L Gates HUB, click here.

FERC Rejects DOE’s Grid Reliability and Resilience NOPR

By William M. Keyser, Molly Suda, Gillian R. Giannetti and Toks A. Arowojolu

On January 8, 2018, the Federal Energy Regulatory Commission (the “Commission”) issued an order rejecting the Department of Energy’s (“DOE”) notice of proposed rule making (“NOPR”) that would have allowed fuel secure generation that would include coal and nuclear generation facilities with a 90-day fuel supply to “fully recover costs” to maintain the resiliency of the electric grid. The Commission found that the NOPR did not comply with Section 206 of the Federal Power Act (“FPA”). Instead, the Commission initiated a new proceeding to “examine holistically the resilience of the bulk power system” and directed regional transmission organizations (“RTOs”) and independent system operators (“ISOs”) to respond to questions outlined in the order addressing grid resilience issues by March 9, 2018. All other interested entities may submit reply comments by April 9, 2018. Commissioners LaFleur, Chatterjee, and Glick each issued separate concurring opinions.

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Tax Reform Conference Bill Released: PTC and ITC Emerge Battered

By Elizabeth C. Crouse

Earlier this evening, the conference committee considering the tax reform bills previously passed by the U.S. House of Representatives and the U.S. Senate released legislative text for the much rumored conference bill. Although neither the Production Tax Credit (“PTC”) nor the Investment Tax Credit (“ITC”) are directly impacted, the Base Erosion and Anti-Abuse Tax (often referred to as the “BEAT” or “International AMT”) provides only partial relief for U.S. corporations subject to that tax that have PTCs or ITCs available to offset their U.S. federal income tax.

Under the conference bill, a U.S. corporation that is subject to the International AMT may use up to the lesser of 80% of the PTCs and ITCs available to them or the “base erosion minimum tax amount” only through 2025. The PTC and ITC cannot be used to eliminate any International AMT otherwise due.

As in previous iterations of the Tax Cuts and Jobs Act, the conference bill does not distinguish between PTCs and ITCs earned in respect of qualifying projects that have already been placed in service or begun construction. In addition, although the International AMT rate has been adjusted (5% for tax years beginning in 2018, 10% for tax years beginning between 2019 and 2025, and 12.5% thereafter), the rate applicable to U.S. corporations that are in an affiliated group with any bank or registered securities dealer will always be 1% higher than the generally applicable rate. In addition, the PTC and ITC cannot be used to reduce the International AMT due in any tax year beginning in 2026 or thereafter.

Thus, although the impact of the International AMT is somewhat reduced in the conference bill, the International AMT could still prompt some multinational investors in renewable energy projects to divest certain operating projects and projects under development as well as discourage investment in new projects.

The Senate has passed the Tax Cuts and Jobs Act. Is this the next drop in the renewable energy roller coaster?

By Elizabeth C. Crouse

Early in the morning of Saturday, December 2, the U.S. Senate voted along party lines to approve its version of the Tax Cuts and Jobs Act (the “Act”). The U.S. House of Representatives approved its rather different version of the bill on Thursday, November 16, 2017. Although the two bills now must proceed through the conference process to reconcile their differences, many predict that any bill ultimately sent to the President will largely resemble the Senate version. It is not clear how long the conference process may take, but Congressional Republicans have indicated that they intend to send a final bill to the President before Christmas, perhaps as early as December 15. Ultimately, while it appears that the investment tax credit (“ITC”) and production tax credit (“PTC”) provisions likely will not be changed in the reconciliation bill, the net effect of other provisions, particularly a new “International AMT,” may significantly chill the tax equity market that supports much of the renewable energy industry.

The PTC and ITC Provisions Are Not Expected to Change

The tax reform measure approved by the full Senate includes several changes compared to the version approved by the Senate Finance Committee and also differs in some significant ways compared to the House bill. It is important to note that while the House bill includes dramatic cuts to the PTC and more limited revisions to the ITC, the Senate bill would not change either credit program. During the Senate Finance Committee mark-up, Republicans indicated their intent to address the availability of the ITC and PTC for certain “orphan” technologies before the end of the year. Addressing energy provisions in a different tax package would relieve some of the pressure on revenues in the tax reform bill as lawmakers must stay within the budget reconciliation instruction constraints, including that the deficit may not be increased by more than $1.5 trillion over a ten-year period.

Provisions That May Suppress Tax Equity Investment

However, both bills include radical changes to corporate and international taxation that may suppress investment in renewable energy projects that qualify for the ITC and PTC.

  • First, the change in the corporate income tax rate to a flat 20% rate (or perhaps a 22% rate, based on recent statements from the President), temporary renewal of 100% bonus depreciation and increased expensing of capital investments are expected to reduce appetite for tax credits because of generally reduced corporate exposure to U.S. federal income taxes. In addition, the Senate bill would not repeal the corporate Alternative Minimum Tax. (Under current law, a corporation that is subject to the Alternative Minimum Tax may be required to pay tax on income that would otherwise be sheltered by the PTC or ITC under certain circumstances. However, there is a significant effort to at least reduce the corporate Alternative Minimum Tax in the reconciliation bill.).
  • Second, in the course of changing the United States from a “worldwide” to a “territorial” tax system, the bills would add “base erosion” provisions that may inhibit investment by multinational corporations in the United States generally and specifically in PTC and ITC projects. In other words, under the bills, a person would be required to pay U.S. federal income tax on the income it earns in the United States, but not outside of the United States. The base erosion provisions are intended to limit the ability of a taxpayer to reduce its U.S. income through certain transactions and arrangements with non-U.S. affiliates. One of these rules would discourage a U.S. company from financing its operations with debt from a non-U.S. affiliate beyond a certain point.

Another base erosion provision would require a U.S. corporation to pay tax on 10% (11% if it is a bank) of (x) its “modified” taxable income, less (y) the tax it would otherwise pay without taking into consideration its U.S. federal income tax credits other than the research and development credit. A U.S. corporation is subject to this rule if it pays non-U.S. affiliates for a threshold amount of goods and services, e.g., component parts or administration, and the multinational group has gross receipts of more than $500 million on average over the prior three years (the “International AMT”). Although generally applicable, this rule would require a calculation of adjusted income that would not account for the PTC or ITC, regardless of when the PTCs or ITCs were earned. Thus, a company that is subject to the International AMT will likely be required to pay tax on income that would otherwise be sheltered by the PTC or ITC, including income that may be sheltered under the existing Alternative Minimum Tax rules. There are reports that a coalition of Republican Senators are attempting to exclude the PTC and ITC from the adjusted income calculation for the International AMT, but it is not clear that will be accomplished during the reconciliation process.

What does this mean for the renewable energy industry?

If the bill that ultimately crosses the President’s desk largely mirrors the Senate bill, it is likely that many of the very large tax equity investors will become subject to the International AMT (since many of those investors are banks, they are also likely to become subject to the higher International AMT rate). Some of those investors have indicated that they will attempt to sell their PTC and ITC holdings and will pull back from further investment. While it seems unlikely that the largest investors will completely exit the PTC and ITC market, even a partial withdrawal seems likely to cause significant turbulence in the market. While the provisions applicable to the tax equity investors that are not subject to the International AMT are more of a mixed bag, the reduction in the corporate income tax rate and increase in bonus depreciation may curb their PTC and ITC appetite.

There is a reasonable possibility that the reconciliation bill will diverge from the bills in material ways, particularly if the President’s recent statements considering a 22% corporate income tax rate are taken seriously. In any event, it seems likely that negotiations over the tax bills may convert the Suniva Section 201 proceeding into just one among several concerns for those riding the “solarcoaster” in the months ahead; at the same time, the uncertainty that the Senate and House bills create with respect to the PTC will occupy the attention of the wind industry.

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