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Solar Energy Industries Association Proposes Compromise Plan for U.S. – China Solar Conflict

by | Oct 4, 2013 | ,

by Raymond Paretzky and Melissa Dorn

The Solar Energy Industries Association (SEIA) has announced a proposal to address the trade dispute between the United States and China regarding solar generating equipment.  Both China and the U.S. have imposed duties on imports of solar equipment: (i) the U.S. Commerce Department found that certain Chinese solar companies had benefited from government subsidies and “dumped” their products into the U.S. market at prices below fair value, and (ii) in July, China began imposing duties as high as 57 percent on imports of polysilicon, a main ingredient in solar cells, from the U.S.  SEIA’s proposal would result in the termination of current disputes, a prohibition on new trade actions, and the establishment of funds to support the U.S. solar industry.

The U.S. trade remedy orders on Chinese solar cells and modules have resulted in Chinese manufacturers attempting to circumvent the antidumping and countervailing duty (AD/CVD) orders by assembling third-country cells into modules in China and then legally importing those modules into the U.S. free of AD/CVD duties.  (See McDermott’s Energy Business Law blog post on the AD/CVD orders.)  SEIA contends that the U.S. and Chinese trade remedy orders currently in place are causing adverse effects in the global solar industry without ultimately addressing the causes of unfair trade competition.

SEIA has been actively involved in the trade proceedings both in the U.S. and in China, and through its proposal hopes to provide a solution that is a “win-win” for both countries, the industry and consumers.  The SEIA proposal would:

  • Establish a U.S. Solar Manufacturing Settlement Fund (Fund) and a U.S. Solar Development Institute (Institute), both funded by Chinese solar manufacturers.  The Fund would help finance the production of solar equipment in the U.S. through investments in capital equipment, facilities, research and development, worker training and other areas.  The Institute would work to expand the U.S. solar market and grow the U.S. solar manufacturing base. Money for the Fund and the Institute would come from Chinese companies contributing a percentage of the price premium they currently pay to third-country cell producers to avoid the U.S. AD/CVD orders.  The U.S. entered into a similar settlement arrangement regarding the Brazilian cotton industry.
  • Require both the U.S. and China to revoke all AD/CVD orders and terminate all regulatory and judicial proceedings related to U.S. imports of solar cells and modules from China and Chinese imports of polysilicon from the U.S.
  • Prohibit the initiation of any new trade remedy investigations or other actions between the U.S. and China regarding imports of polysilicon, solar cells, or modules for the five-year term of the proposed agreement plus 12 additional months thereafter.

While the proposal has not met with an entirely positive response from the U.S. solar manufacturing industry, certain U.S. Senators, including Senators Patty Murray and Maria Cantwell, have expressed support for the proposal.   In the meantime, China recently announced additional tax breaks, in the form of refunds of 50 percent [...]

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IRS Issues Additional Guidance on When Construction Begins for Purposes of Production Tax Credit, Investment Tax Credit

by | Oct 3, 2013 | ,

by Gale E. Chan, Martha Groves Pugh, Philip Tingle, Madeline Chiampou Tully and Amy E. Drake, 

The Internal Revenue Service (IRS) has issued additional guidance relating to when construction begins with respect to wind and other qualified facilities for purposes of the production tax credit and investment tax credit. This guidance focuses on the continuous construction and continuous efforts tests and the effects of ownership transfers of a facility after construction has begun.

To read the full article, click here.



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DOE Announces Funding for Hydrokinetic Power Projects

by | Sep 5, 2013 | ,

by Bethany Hatef

The Department of Energy (DOE) announced last week that it will commit $16 million toward 17 projects to capture energy from waves, tides and currents.  In a press release, DOE stated that the commitment is “part of the Obama Administration’s all-of-the-above strategy to deploy every available source of American energy.”  Although DOE’s committed funds are relatively modest, they may spur the growth of a largely untapped but potentially significant clean source of domestic power.

Wave and tidal, or hydrokinetic, energy, a renewable fuel source, may be captured where large volumes of water are moved (e.g., changing tides and currents).  According to DOE, development of this resource may supply clean and reliable power to millions of homes, including in many coastal U.S. cities with high power demands.  DOE’s latest assessments found that wave and tidal energy could potentially generate up to 1,400 terawatt hours (or 1.4 billion megawatt hours) annually.  (One terawatt hour would be sufficient to power 85,000 homes.)

A hint of government support for hydrokinetic energy production first arose in 2009, when the Federal Energy Regulatory Commission (FERC) and the Bureau of Ocean Energy Management (BOEM) entered into a memorandum of understanding addressing their respective jurisdiction over hydrokinetic projects on the Outer Continental Shelf.  In January 2012, FERC issued its first pilot project license for a hydrokinetic project, which will generate power from the tidal flow of the East River in New York.  In August of this year, BOEM issued a Finding of No Significant Impact with respect to a proposed hydrokinetic power project off the Florida coast, giving the go-ahead for the first such BOEM-leased project.

DOE’s commitment consists of $13.5 million for eight projects to assist American companies with building wave and tidal devices to reduce production costs and maximize the harnessed energy.  These projects “will develop new drivetrain, generator and structural components as well as develop software that predicts ocean conditions and adjusts device settings accordingly to optimize power production,” according to DOE’s press release.  Additionally, DOE will provide $2.4 million to nine projects “that will gather and analyze environmental data from wave and tidal projects as well as potential development zones” to proactively handle environmental impacts and promote efficient development.



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United Kingdom Government Confirms Change to Sustainability Criteria for Biomass

by | Aug 30, 2013 | , , ,

by Caroline Lindsey

The Department of Energy and Climate Change (DECC) in the United Kingdom published its response to its “Consultation on proposals to enhance the sustainability criteria for the use of biomass feedstocks under the Renewables Obligation (RO)” on 22 August 2013 (the Response). The original consultation was published on 7 September 2012.

In the Response, the UK Government confirms that it will proceed with its proposals to revise the content and significance of the sustainability criteria applicable to the use of solid biomass and biogas feedstocks for electricity generation under the Renewables Obligation (RO). The RO is currently the principal regime for incentivising the development of large-scale renewable electricity generation in the United Kingdom. Eligible electricity generators receive renewables obligation certificates (ROCs) for each megawatt hour (MWh) of renewable source electricity that they generate. Biomass qualifies as renewable source electricity, subject to some conditions.

Changes to the criteria

The sustainability criteria associated with the RO is broadly divided into greenhouse gas (GHG) lifecycle criteria, land use criteria and profiling criteria. There will be changes to all of the criteria, but the significant changes relate to the first two criteria, and will take effect from 1 April 2014.

In general terms, the GHG lifecycle criteria are designed to ensure that each delivery of biomass results in a minimum GHG emissions saving, when compared to the use of fossil fuel. The savings are measured in kilograms (kg) of carbon dioxide equivalent (CO2eq) per MWh over the lifecycle of the consignment (sometimes referred to as “field or forest to flame”). The UK Government has confirmed that all generating plants using solid biomass and / or biogas (including dedicated, co-firing or converted plants and new and existing plants) will be on the same GHG emissions trajectory from 1 April 2020 (200 kg CO2eq per MWh). In the meantime, new dedicated biomass power will be placed on an accelerated GHG emissions trajectory (240kg CO2eq per MWh). All other biomass power will remain on the standard GHG emissions trajectory (285kg CO2eq per MWh) until 1 April 2020.

Changes to the land use criteria will also be introduced. In particular, generating plants using feedstocks which are virgin wood or made from virgin wood will need to meet new sustainable forest management criteria based on the UK Government’s timber procurement policy principles.

The land use criteria set out in the European Union (EU) Renewable Energy Directive 2009 (RED) will continue to apply to the use of all other solid biomass and biogas, with some specific variations for energy crops. As is the current position, the land use criteria will not apply to the use of biomass waste or feedstocks wholly derived from waste, animal manure or slurry.

The new sustainability criteria will be fixed until 1 April 2027, except if the EU mandates or recommends specific changes to the sustainability criteria for solid biomass, biogas or bioliquids, or if changes are otherwise required by EU or international regulation.

Making compliance mandatory

Currently, whilst generators using [...]

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Massachusetts DPU Adopts Procedures for Relaxing Eligibility for Net Metering Renewable Energy Facilities

by | Jul 31, 2013 | ,

by William Friedman

The Massachusetts Department of Public Utilities (DPU) recently issued an order giving greater flexibility to renewable energy projects seeking to qualify for Massachusetts’ net metering program. Net metering allows the owner of a renewable energy project (such as wind or solar) to receive a retail credit for at least a portion of electricity it generates and feeds back into the grid. In a previous order, the DPU defined the terms facility and unit in order to provide guidance as to which projects can qualify for net metering in Massachusetts.  

The recent order confers on the DPU and local distribution companies flexibility to relax certain eligibility requirements for net metering.  In a previous order, the DPU made eligibility contingent on the generating facility being located on a single parcel of land, with a single point of interconnection, behind a single meter.  While these eligibility criteria offer clear, easily verifiable parameters for net metering projects, they can also inhibit the development of certain net metering projects, such as large public net metering facilities up to 10 MW, which may be safer and more reliable and efficient if interconnected to the electric grid at multiple points.

The DPU’s recent order declines to grant any blanket exemptions from the eligibility criteria, but it does allow individual exceptions to be granted when required for optimal interconnection.  A petition for an exception to the single parcel rule may now be filed with the DPU, and an exception to the single meter or single point of interconnection may now be sought from the local distribution company.  The DPU explained that local distribution companies are best situated to determine what constitutes optimal interconnection on their distribution system.  The order directs the distribution companies to apply a consistent standard in granting exceptions, but it declines to establish additional documentation requirements that must be submitted to the distribution companies. 

Along with their new authority to grant exceptions, the distribution companies have the responsibility to ensure that net metering services are provided only to eligible customers.  The DPU is requiring distribution companies to develop a means of evaluating all customers’ and facilities’ eligibility for net metering services at an early stage of project design.  The distribution companies must submit a joint proposal addressing how they will evaluate eligibility for net metering services and when they will communicate with customers about eligibility.



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California Proposes Energy Storage Procurement Requirement

by | Jul 17, 2013 | , ,

by Melissa Dorn

The California Public Utilities Commission (CPUC) recently released a proposal that would require the major investor-owned utilities (IOUs) in the state to procure approximately 1.3 gigawatts (GWs) of energy storage by 2020.  Consistent with state’s energy storage bill, Assembly Bill 2514, which passed in 2010, the CPUC’s proposal aims to reduce market barriers and incentivize development of viable, cost-effective energy storage methods.  The CPUC hopes that the rapid growth of energy storage in California will support the state’s renewable energy industry as the state seeks to meet the legislature’s mandate to have one third of California’s energy generated from renewable sources by 2020.  Many renewable energy sources are intermittent, making energy storage technologies important for the integration of a large quantity of renewable energy into the existing electric system.

Central to the CPUC’s proposal are biannual procurement targets for the three major IOUs, Pacific Gas & Electric, Southern California Edison and San Diego Gas & Electric. The CPUC’s proposed aggregate procurement targets for each IOU are divided into three different “use cases” based on the end uses of the energy storage:  transmission-connected storage systems, distribution-connected storage systems, and customer-sited storage systems. The initial proposed procurement targets are: 

* The Totals include the additional interim targets for 2016 and 2018 that were intentionally omitted from this table.

To procure third-party owned energy storage to meet the targets, the CPUC proposed a “reverse auction” market mechanism, similar in structure to the state’s existing Renewable Auction Mechanism for renewable power sources. Under a reverse auction, energy storage providers would bid non-negotiable price bids, and the IOUs select projects starting with the lowest cost. The first auction, proposed for June of 2014, will require the IOUs to procure an aggregate 200 MW of storage. Subsequent auctions will be conducted every two years. The procurement targets are subject to change if the IOUs can demonstrate, among other things, that the energy storage resources bid into the reverse auction are not reasonable in cost, are not cost effective, or were insufficiently competitive.

The CPUC anticipates releasing its final order in October of this year.



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Italy: Government Extends Scope of Application of “Robin Hood Tax”

by | Jun 25, 2013 | , , ,

by Carsten Steinhauer

Law Decree no. 69 of 21 June 2013 (theDecree), published in the Official Gazette on 21 June 2013  would expand significantly the application of the “Robin Hood Tax” on electricity production companies, including renewable energy companies (solar, wind and biomass) originally exempt from the tax, by lowering the turnover and taxable income thresholds.

The “Robin Hood Tax” was originally introduced by Section 81, Paragraph 16 of Law Decree no. 112 of 2008, converted by Law no. 133 of 2008.  It provided for a 6.5 per cent increase of the corporate income tax rate (IRES) payable by electricity production companies other than renewables with annual gross revenues exceeding Euro 25 million.

Earlier, Law Decree no. 138 of 2011, converted by Law no. 148 of 14 September 2011, eliminated the exemption for renewable energy companies and reduced the annual gross revenue threshold to Euro 10 million, provided the electricity production company had a taxable income of Euro 1 million.

The new Decree further reduces the gross revenue and taxable income thresholds so that the “Robin Hood Tax” would apply to any energy production company, including renewable energy companies, with:

  • gross revenues in the preceding year of more than Euro 3 million
  • taxable income for the same year of more than Euro 300,000

The additional tax only applies to legal entities that are organised as corporations and are therefore taxable pursuant to Article 73 of the Consolidated Income Tax Code, but does not apply to special purpose vehicles (SPVs) that are organised as limited partnerships.

If confirmed by the Italian Parliament, these changes will increase the IRES for a great number of renewable energy production companies that initially had been exempt from the “Robin Hood Tax.”   In order to become definite, the Decree—which was enacted by the Italian Government—must be converted into law by the Italian Parliament.  The timeline for conversion is 60 days, i.e., 20 August 2013, and the Italian Parliament is entitled to make amendments to the Decree.  Provided that the Italian Parliament confirms the current wording of Section 5, Paragraph 1 of the Decree, renewable energy companies that exceed the new turnover and income thresholds in 2014 will have to pay the increased IRES of 34 per cent, instead of 27.5 per cent.

It is worth noting that the compatibility of the “Robin Hood Tax” with the Italian Constitution has been challenged and an action is currently pending before the Constitutional Court.  In particular, the “Robin Hood Tax” would seem to be in breach of the principles of equality and contribution pursuant to economic capabilities.  The Constitutional Court has not yet scheduled a date for the hearing so that it is impossible to foresee when a decision will be made.



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Massachusetts DOER Unveils Emergency Regulation to Address Oversupply of Solar Applications

by | Jun 17, 2013 | ,

 by William Friedman

At a recent solar stakeholder meeting, the Massachusetts Department of Energy Resources (DOER) outlined its emergency regulation that will address the recent influx of applications for the Massachusetts Solar Carve-Out.  The Solar Carve-Out program, which was established in 2009, is currently capped at 400 megawatts (MW) of installed capacity.  DOER announced this spring that the program cap had been exceeded months earlier than expected with applications totaling more than 550 MW.  While reaching the 400 MW cap four years before Governor Patrick’s target is a remarkable step for the Commonwealth of Massachusetts and its renewable energy goals, it left the solar industry in Massachusetts, particularly those developers with projects on the waiting list, with questions about solar’s present and future in the state.

In Massachusetts, participation in the Solar Carve-Out enables a solar system to produce Solar Renewable Energy Certificates (SRECs).  For each megawatt-hour generated by a qualified solar system, it receives one SREC, which can be sold on the open market or at auction.  Distribution companies purchase SRECs to meet their compliance obligations under Massachusetts’ Renewable Portfolio Standard, which requires distribution companies to fill a minimum percentage of their electricity sales with generation qualified under the Solar Carve-Out.

At the stakeholder meeting, DOER announced that it will scrap the 400 MW cap; all projects that applied to DOER and executed an Interconnection Service Agreement with a local distribution company by June 7, 2013 will qualify under and be able to participate in the existing Solar Carve-Out if they meet prescribed project construction deadlines. Specifically, a solar project must be completely installed and receive authorization to interconnect from a local distribution company by December 31, 2013.  If a project does not meet the December 31 deadline, it may receive an extension until March 31, 2014 if it can demonstrate that it expended at least 50 percent of its total construction costs by December 31, 2013.  Finally, if a project can demonstrate that it is ready to begin operations and is only waiting for a distribution company to issue its authority to interconnect, the qualification deadline is extended indefinitely.  DOER also intends to recalibrate the Solar Carve-Out compliance obligations of distribution companies to match the extended cap. The emergency regulation is expected to be published this month.

DOER’s emergency regulation comes as welcome news to developers and investors who faced the possibility that projects in which they have already placed substantial investments would lose access to the potentially significant revenue stream created by the Solar Carve-Out.  DOER’s extension of the Solar Carve-Out program demonstrates the agency’s preference for solar projects that are well invested and significantly developed and its awareness of the vital role that the Solar Carve-Out has played in the rapid growth of the solar industry in Massachusetts. 

DOER has also begun the rulemaking process for a new Solar Carve-Out to meet Governor Patrick’s recently announced goal of an aggregate of [...]

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In Upholding MISO Tariff, Seventh Circuit Declares In-State Renewable Preference Unconstitutional

by | Jun 17, 2013 |

 by Ari Peskoe

Buried in a court ruling that largely upholds challenged transmission-funding provisions of the Midwestern Independent System Operator (MISO) Open Access Transmission Tariff is a single sentence that could imperil state programs promoting renewable energy.   Writing for the three judge panel, Judge Richard Posner wrote that “Michigan cannot, without violating the commerce clause of Article I of the Constitution, discriminate against out-of-state renewable energy.”   While the sentence was dicta—not essential for the court’s holding—it marks the first time a federal appeals court has found that a state renewable portfolio standard (RPS) violates the Constitution’s commerce clause.

The commerce clause empowers Congress “to regulate commerce . . .  among the several states.”  Under a long line of Supreme Court cases, the clause prohibits states from enacting laws or regulations that benefit in-state economic interests by burdening out-of-state competitors without justification.  For example, as authority for its statement that Michigan’s RPS, which mandates that utilities purchase energy from in-state renewables, violates the Commerce Clause, the court cited two Supreme Court cases.  In Oregon Waste Systems, the Court held that a surcharge by the state of Oregon on out-of-state waste that was three times higher than the surcharge on in-state waste was discriminatory and failed to advance a legitimate local purpose.  In Wyoming v. Oklahoma, the Court struck down an Oklahoma law that required at least 10% of coal burned in the state’s power plants to come from Oklahoma. 

In this case, petitioners challenged portions of the MISO Tariff, which allocated costs among members for regional Multi-Value Projects, or MVPs.  Amendments to the MISO Tariff, approved by FERC in 2010, allocate costs to member utilities in proportion to each utility’s share of the region’s total wholesale consumption, a departure from the prevailing methodology that allocates costs of new transmission to the nearest utilities, regardless of electricity consumption.   

Among several challenges to the MISO Tariff, Michigan utilities and the state’s Public Service Commission claimed that the state would not receive benefits commensurate with their increased cost allocation because it draws little power from outside of Michigan and because the state’s RPS does not allow out-of-state power to count towards meeting the renewable energy mandate.  The Court quickly dismissed both arguments.  With regard to the first, it noted that one of the MVP projects is specifically designed to bring more power into Michigan.  The court wrote that the second challenge “trips over an insurmountable constitutional objection” and determined that Michigan’s RPS violates the commerce clause.

Numerous state RPS statutes have in-state requirements.  Only Texas has an in-state requirement as severe as Michigan’s.  Other states, including Ohio, require that a certain percentage be from in-state generation, and some states require that energy be capable of being delivered in-state.   Other states, including Montana and Wisconsin, require that the energy actually be delivered in-state.  Several states, such as New Mexico and Oregon, require that a [...]

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EU State Aid Investigation into German Renewable Energy Law

by | Jun 11, 2013 | ,

by Martina Maier and Philipp Werner

The European Commission (Commission) is likely to open a formal EU State aid investigation into the German Renewable Energy Source Act. According to the Commission, the Act may have given unlawful advantages to renewable energy producers and energy-intensive companies (those producing chemicals or steel) in Germany. Producers and companies that benefited from the Act are therefore exposed to the risk of the alleged benefit being recovered, which is likely to amount to a figure in at least the tens of billions of Euros.

The European Commission is currently examining whether or not the German Renewable Energy Source Act infringes EU State aid law. The Commission is expected to reach a decision on whether or not to open a formal investigation procedure in autumn 2013, following its summer break.

The German Renewable Energy Source Act aims to support renewable energy by fixing the tariffs that electricity providers, such as E.ON, RWE, Vattenfall or EnBW, must pay for energy from renewable sources, e.g., solar panels or wind turbines. These tariffs are higher than those for energy from traditional sources. The Act also exempts energy-intensive companies, e.g., those producing chemicals or steel, from the EEG surcharge that electricity providers are entitled to charge their customers. These higher tariffs and the EEG exemption could be in breach of EU State aid law and are currently the subjects of a Commission examination.

Should the Commission come to the conclusion that they do infringe EU State aid law, it can order Germany to recover the advantages from the companies that benefitted from these rules. The potential State aid involved is likely to amount in total to a double-digit billion Euro figure.

In a separate but similar case, in March 2013 the Commission opened an in-depth investigation into the exemption of large electricity consumers from network charges in Germany, dating back to 2011. This exemption was financed by the final electricity consumers, who, since 2012, must pay a special surcharge. A German court, recently declared this exemption and the surcharge as unconstitutional and the legal provisions will be changed. The Commission may, however, still conclude that, up until the German court ruling, large electricity customers were benefitting from State aid. It could therefore order Germany to recover the past benefit from these customers, which is estimated at around Euro 300 million for 2012.

These investigations by the Commission expose renewable energy producers, energy-intensive companies and large electricity consumers in Germany to the significant risk of the recovery of the alleged benefit. Such companies are therefore strongly advised to co-operate with the Commission during this examination phase and if a full investigation is launched.



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