Update on the Cash Grant and More - Chadbourne & Parke's April Newswire

Chadbourne & Park's April 2010 Newswire is available here.

Again, Chadbourne has provided excellent up-to-date information on matters relating to the clean energy project finance market.


In This Issue
1 Strategies for Starting Construction
5 Germany Cuts Solar Subsidy
8 Update: Tax Equity Market
20 Swap Gets Wholesale Generator Into Trouble
22 Tax Credits for Green Manufacturers: Who Will Use Them and How
27 Court Orders Lender to Continue Funding Defaulted Loan
28 Shedding Assets Quickly in Bankruptcy
34 Environmental Update 

Strategies for Starting Construction
by Keith Martin and John Marciano in Washington, and Eli Katz in New York

FULL CREDIT TO CHADBOURNE & PARKE

The race is on to get renewable energy projects in the United States under construction by year end to qualify for cash grants from the US Treasury. Developers are pursuing different strategies. It is not enough merely to have made a large down payment toward turbines, modules or other equipment for the project by year end. A senior Treasury source said the government is looking for economic activity during 2010. A developer must show work at the site or at the factory on equipment for the project during 2010. The grants are 30% of the project cost and are paid on new wind, solar, geothermal, biomass, landfill gas, waste-to-energy, ocean energy and fuel cell projects that are completed in 2009 or 2010 or that start construction in 2009 or 2010. Grants of up to 10% of project cost are also paid on small cogeneration facilities of up to 50 megawatts in size. Projects that merely start construction in 2010 must be completed by a deadline. The deadline is 2012 for wind farms, 2016 for solar, small cogeneration and fuel cell projects and 2013 for other types of projects.

Congress may ultimately give companies more time. A bill in the House would give developers another two years through December 2012 to start construction without changing the deadlines to complete projects. However, the odds of such an extension at this point are probably a little better than 50%. Most developers are taking steps to start construction in case there is no extension.

Two Ways 


The Treasury Department explained what it means to start construction in written guidance on March 15. The guidance left many unanswered questions. The Treasury answered some of the questions since then in private meetings and in public statements at industry conferences.There are two ways to show construction started. One is to show there was “physical work of a significant nature” on the project during 2010. The Treasury said that “the beginning of excavation of the foundation, the setting of anchor bolts into the ground or the pouring of concrete pads of the foundation” at the site count as such work. It also counts if physical assembly of major components starts off site at a factory. However, the developer must have a “binding” contract in place before such work starts in order to count work done by an equipment supplier or other contractor. To be “binding,” the contract must be more than an option to choose equipment later. The Treasury said “the amount and design specification of the property to be purchased” must be clear from the contract. The contract should not limit damages if the developer walks away to less than 5% of the contract price. Any conditions to performance by a party must be outside the control of the parties. Thus, for example, if the developer must give a notice to proceed before the contractor will start work, the notice should be given before year end. It is not clear whether a contract between related parties can be “binding.” It is best to assume not. There is a risk that amending the contract after work starts could lead to loss of grandfather rights. The guidance suggests that it does, but the Treasury may still be thinking about this issue. The guidance said that any amendment must be “insubstantial.” Minor modifications in design are not a problem; an example is the later addition of a “cold weather package for wind turbines.” The IRS used a similar standard in 1986 after the investment tax credit was repealed. Projects that were under binding contract before the repeal to be built still qualified for an investment credit provided there was no “substantial modification” of the contract later. An amendment that increased the contract cost by more than 10% was considered substantial.


Ellen Neubauer, the cash grant program manager, said at a wind industry finance conference
in New York in early April that it is the start of physical work of a significant nature to construct roads on the project site. The roads must be used to transport equipment rather than solely to provide access for people working at the site. She said it is also the start of physical work for the developer
to lay three concrete pads for a wind farm that will consist of 65 turbines or for the turbine vendor to commence physical assembly of at least one turbine for the project at the factory under a binding turbine supply agreement signed before physical assembly starts.


It is not clear whether it matters if work starts in 2010 but then nothing is done for another year at the site or at the factory on the turbine order. Some senior Treasury staff are not bothered by such a delay; they stress that the Treasury guidance said all that is required in 2010 is the “beginning” of construction or else they view the deadline to complete the project as a check on how long a delay is possible. However, there may be a risk if the facts show with hindsight that construction did not truly get underway.  Developers who plan to rely on physical work to start construction plan to work steadily once construction starts, although possibly at a slower pace than normal. For example, a
wind farm that might normally take six months to construct might take 12 to 18 months under an elongated construction schedule.

There is an assumption in each of these cases that the developer will choose to treat all the turbines or solar arrays as a single “property” so that the work done in 2010 counts as the start of work on the entire project. The Treasury treats each turbine or solar array that can operate independently as a
separate property. Therefore, work must start independently on each. However, a developer can choose to treat multiple turbines or solar arrays that are owned by the same company and are on the same site as a single project.

5% Test

The other way to show that construction started is to “incur” more than 5% of the total project cost by December 2010. A developer does not have to satisfy both the physical work test and the 5% test; either is enough. Costs are considered “incurred” when the developer pays them, but only if he expects the equipment or services for which payment was made to be delivered within 3 1/2 months
after payment. Otherwise, he must wait until delivery to count the costs. Thus, for example, a payment made on December 31, 2010 counts in 2010 as long as the equipment is reasonably expected to be delivered by April 15, 2011. Otherwise, the payment is treated as spending in 2011 after delivery in 2011. Delivery may include transfer of title to equipment that has been manufactured, but that the manufacturer is holding in storage at the site.

The developer can look through any “binding” contracts with equipment suppliers or other contractors that are signed before manufacture of the equipment or other work starts and count spending by the contractor using the same principles. Thus, for example, the developer can count spending by a turbine vendor on components or services, but the spending counts at time of payment only if it is reasonable to expect delivery of the components or services to the turbine vendor within 3 1/2 months of payment. Otherwise, costs are incurred only as equipment or services are delivered to the vendor. This will require getting equipment suppliers to certify how much they spent toward manufacture by year end this year. To show how this works, suppose a developer signs a binding turbine supply agreement in mid-2010 for turbines to be delivered in late 2011 and makes a 20% down payment. The turbine vendor then spend 15% on components for the turbines. The developer cannot count the 20% down payment in 2010, but can count the 15% spent by the turbine manufacturer provided the manufacturer expects delivery of the components within 3 1/2 months of payment. The manufacturer would also have to link the components to the turbines ordered under the contract. Two large wind turbine manufacturers told the Treasury at a meeting in early April that it is impossible to certify that components ordered this year are for particular turbines that will be manufactured next year or the year after. One said that components are ordered well in advance of use based on expected orders. Ninety-five percent of the components in a turbine are interchangeable across turbine types. The manufacturer said components are not assigned to a particular turbine until roughly a week before manufacture starts. Actual manufacture of the turbine takes five days. This has caused wind developers to take a harder look at starting physical work at the site or else requiring manufacturers to manufacture at least one turbine for each project in 2010 in order to commence construction under the physical work test.

The developer must incur more than 5% of the actual project cost, not the expected cost in 2010. A developer would be wise to incur more to leave a margin for error. However, it may be possible if project costs spiral to fix the problem by choosing not to include one or more turbines or solar arrays as part of the project on which a cash grant is taken. For example, the developer has the option in a 65-turbine wind farm of treating 63 turbines as one project and two turbines as a separate project.

Other Issues

The Treasury is still thinking about several issues. They may be addressed in questions and answered posted to the Treasury website. Any such answers are unlikely to be posted before June. The Treasury has not sorted out how to deal with frame or master agreements that larger wind companies use to buy turbines for multiple projects. The agreement is usually signed by a parent company. Closer to the time turbines are manufactured, “daughter” contracts are signed with project companies
essentially designating turbines for use in particular projects and copying over the terms from the master agreement into each standalone contract. Among the issues are whether spending by the parent company carries over to the subsidiary and by when turbines must be designated for use in particular projects.

The Treasury is looking for a way that it can confirm to developers that they started construction. A developer can apply for a grant after starting construction, but before the project is completed. The Treasury said last year that it planned to respond in such cases whether it agrees the project is under
construction. However, it has not sent any such confirmations to date despite receiving more than 100 applications. In all the cases to date, the agency concluded that the projects would be completed by December 2010 so it was a moot issue when construction started. Whether it is able to send such confirmations in the future is a resource issue. It is looking into what is possible.

Developers should ask equipment suppliers to certify to spending or the start of physical assembly as soon after the threshold for starting construction is reached in 2010, and then the developer should apply to Treasury for a grant. This may leave time to fix any problems before year end if the Treasury responds promptly. Even if the response is not received until early 2011, at least the issue whether construction started in time can be taken off the table. Geothermal companies that started drilling before 2009 for power plants that will not be completed until after 2010 received some relief in March. The Treasury said that it is not the start of physical work on a project to do “test drilling of a geothermal project.” It also said that a developer “may treat physical work of a significant nature as not having begun until more than 5 percent of the total cost of the property has been paid or incurred.”

Senior Treasury staff told Chadbourne at the same time that it is the start of physical work on a geothermal power plant to drill a fully-functioning production well whose output will be dedicated to the power plant. An example of such a well is one drilled to production depth and diameter and for
which permanent casing, a tree or other above-ground equipment and flow controls have been installed and tested. 

Update on Treasury's Cash Grant Program

April 16, 2010

Tax Cuts, Renewable Energy Grants Attract Unlikely Allies

By JOEL KIRKLAND of ClimateWire, New York Times

They might seem like strange traveling companions, but solar power companies and chemical manufacturers are riding the same bandwagon to urge Congress and the Obama administration to expand tax cuts and grants for clean energy.

The push in the past two days has corresponded nicely with Tax Day. With health care reform in the rearview mirror and talk of more economic stimulus bills around the bend, industries are going hat in hand to Congress for extensions of tax credits and government financing programs that could run out this year.

Wind and solar energy companies are desperate to maintain subsidies they say are needed to carve out a permanent place in the U.S. economy. Heavy industries, such as Dow Chemical Co., are looking for help retooling factories to shift some of their business to clean energy technology.
Two programs created by the 2009 economic stimulus package, the clean energy manufacturing tax credit and Section 1603 grants for renewable projects, are at the center of discussions. Since the departments of Energy and Treasury began administering the programs, hundreds of individual projects or companies have accessed the government's largesse.

Obama administration officials, along with industries that have benefited, tout the programs as big job creators, and according to DOE, they have created thousands of jobs. But in a political atmosphere colored by tea party protests, Congress battles perceptions among conservative Americans that the stimulus funding has not created jobs, even as companies press for expansions of the government financing programs that they say will yield concrete clean energy jobs growth this year and next year.
"The competition for these funds was oversubscribed 3-to-1 in competitive projects," said Matt Rogers, head of DOE's stimulus funding program, referring to the manufacturing tax credit.

Grant program made solar industry shine in '09

The Treasury Department had anticipated that it would distribute about $3 billion in renewable energy grants by the end of 2010. Treasury has already surpassed that figure. Companies ate up the $2.3 billion clean energy manufacturing tax credits quickly, and the administration has requested another $5 billion in its fiscal 2011 budget.

Wall Street has not fully recovered, according to the solar industry's top trade group. If it wasn't for the grant program, which pays companies upfront cash in lieu of tax credits, the industry in 2009 would have been held hostage to a banking sector that had frozen tax equity lending.

Rhone Resch, president of the Solar Energy Industries Association, yesterday called the Treasury program "instrumental in spurring industry's growth" and urged Congress to extend the program beyond this year. It expires at year's end.

By February, 182 solar projects had received Treasury grants totaling $81 million, which helped attract nearly $300 million in additional financing. The grant program "reduces the need for tax equity partners and significantly lowers the transaction costs for a solar project," the industry said in a report issued yesterday.

"The combination of the 48C program and 1603 renewable generation payments has put the United States on a path to doubling high-technology clean energy manufacturing and renewable generation capacity by 2012," Rogers said. "These programs are bringing private capital off the sidelines and back into the clean energy financing markets."

Chemical industry wants tax credits expanded

The manufacturing tax credit has been just as popular. Yesterday, the American Chemistry Council (ACC), a powerful Washington-based industry group that represents the nation's largest chemical manufacturers, urged Congress to expand the so-called 48C program.

"Policies that drive expansion of low-emission industrial technologies and clean energy innovation are important elements of any national greenhouse gas emission reduction policy," said the ACC.

"ACC fully supports the effort to encourage investment in energy efficiency and re-tooling for clean energy manufacturing via programs such as a manufacturing revolving loan fund, expansion in the 48 (c) advanced energy manufacturing tax credit, and other tax incentives," it said.

Officials from the trade group said Dow Chemical, for example, has used the manufacturing tax credit to encourage the development of an advanced auto battery that will make use of clean energy technology. The credit has also been of use in Dow's development of solar shingles. The profitability remains uncertain, but the tax credit has gotten the manufacturing off the ground.

Chemical companies are an active player in a group of major industry trade organizations pushing for industry-friendly policies in energy and climate change policy being crafted in the Senate. The ACC, while mentioning its interest in additional tax credits, said Congress should take the lead on any climate-related policy ahead of pending U.S. EPA regulations under the Clean Air Act to reduce greenhouse gas emissions.

Copyright 2010 E&E Publishing. All Rights Reserved.

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Kaiser Permanente Uses PPA Model to Create Distributed Energy

Kaiser Permanente Launches 15 MW Solar Initiative

By Leslie Guevarra, Greenbiz.com

Published March 30, 2010

OAKLAND, CA — Kaiser Permanente will install solar power systems totaling 15 megawatts at California facilities in the first wave of renewable energy projects planned by the largest managed care organization in the U.S.

Starting in April at a receiving warehouse in the San Francisco Bay Area city of Livermore, Kaiser Permanente will roll through a series of installations that are expected to bring solar power systems to 15 medical centers and other facilities in California by the end of summer 2011.

Kaiser Permanente announced its plans this morning. In interviews yesterday, sustainability and green building leaders of the organization provided details about the first stage of KP's broad renewable energy initiative.

"This is just the tip of the iceberg," said John Kouletsis, director of strategy, planning and design for Kaiser Permanente’s National Facilities Services group.

When they are complete, the 15 installations are expected to provide 10 percent of the power used at the Kaiser Permanente sites that host them and prevent the equivalent of 15,890 metric tons of CO2 emissions annually.

Kaiser Permanente's plunge into solar power follows an initial venture at its nearly 2-year-old Modesto Medical Center, which was designed as a high-performance energy efficient campus and included a 50-kilowatt solar energy system (pictured right) among its environmentally friendly attributes.

As planned, the installations also represent one of the larger solar power projects -- and possibly the largest thus far, Kaiser Permanente believes -- within the healthcare industry.

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The organization has been a leader of an industry effort to reduce greenhouse gas emissions by curbing energy consumption; increasing efficiency of facilities, equipment and business operations; finding substitutes for toxic chemicals in products; cutting waste; and providing food choices that are better for patients and employees as well as the environment. Kaiser Permanente also helped develop standards for greening healthcare.

"This is about health," said Kaiser Permanente's Environmental Stewardship Officer Kathy Gerwig, who is also vice president for workplace safety. "We're doing this because we see a direct connection between reducing greenhouse gas emissions and improving public health."

Kaiser Permanente's sustainability efforts are core to its goals of providing affordable healthcare and enhancing the communities inside and outside their hospital walls, she said.

"Facilities that perform better are better for the community, better for patients and better for employees," said Gerwig.

Kaiser Permanente, which serves 8.6 million members in nine states and the District of Columbia, will extend the solar program within its service area and is exploring other forms of renewal energy including geothermal, wind power, cogeneration and advanced technology fuel cells such as the Bloom Box, Kouletsis said. Kaiser Permanente has a goal of meeting 25 percent if its energy needs through on-site generation by 2020.

"If each of our sites had something, that would be terrific -- that's what we're looking at as an aspirational goal," Kouletsis said.

The organization's real estate portfolio spans 73 million square feet with about 1,100 buildings, including 36 hospitals, 450 medical office buildings, plus ambulatory surgery centers, administration buildings, parking structures and others, he said.

The roots of the company's renewable energy initiative lie in the fact that Kaiser Permanente controls 60 to 70 percent of the property it occupies. "Because we do own and operate so many of our buildings, we have great opportunities to reduce costs for our operations and our members," Kouletsis said. "And with such a big portfolio, we thought that it should speak to who we are, show that Kaiser is serious about public health and [show] what we can do to lessen harmful impacts to the environment and improve communities."

By starting the solar program in California, the initial projects have the benefit of being located in Kaiser Permanente's home state -- the organization is based in Oakland -- and can take advantage of state as well as federal rebates. The largest utility that works with the system, Pacific Gas and Electric Co., also is headquartered in California, and that provides a good opportunity for Kaiser Permanente to showcase how a strong relationship with an energy company is an important component for successful renewable energy projects, Kouletsis said.

The solar program is designed to be cost-neutral for Kaiser Permanente. Project partner Recurrent Energy, based in San Francisco, will own and operate the solar power systems and is eligible for a 30 percent tax credit. Kaiser Permanente will buy the solar power through a power purchase agreement with Recurrent Energy at rates that are less than or equal to those or energy on the grid.

"This is a long-term, ongoing commitment for us," Kouletsis said. "We're already actively starting to look for the next 15 to 20 sites."

Kaiser Permanente's renewable energy initiative dovetails a $36 billion, 12-year plan to expand and renovate more than 150 hospitals and medical office buildings by the close of 2015.  More information about it sustainability efforts is available at www.kp.org/green.

Top Image: A view of the planned 1 MW elevated solar installation atop existing parking garages at the Kaiser Permanente Santa Clara Medical Center. Rendering courtesy of Recurrent Energy. Inset: The solar installation at the Modesto Medical Center. Courtesy of Kaiser Permanente.

EPA Finalizes Changes to Renewable Fuel Standard Program

Milbank's Renewable Fuel Standard Client Update sheds light on the outlook for biofuels.

Special thanks to Milbank, Tweed, Hadley & McCloy LLP

Introduction

The Environmental Protection Agency (“EPA”) has finalized regulations that update the Renewable Fuel Standard (“RFS”) Program, pursuant to the Energy Independence and Security Act of 2007 (“EISA,” Pub. L. No. 110-140).1 The initial RFS Program (“RFS1”), established by the Energy Policy Act of 2005 (Pub. L. No. 109-58), required a minimum volume of renewable fuel to be blended into gasoline each year.2 The new program (“RFS2”) now applies to all transportation fuel, increases the volume standard and creates new fuel categories and eligibility requirements, including mandatory greenhouse gas (“GHG”) reduction thresholds for select fuels.3


RFS2 expands on the purposes originally set forth by RFS1. By mandating minimum volumes of renewable fuel in the U.S. fuel supply, it is expected that greenhouse gas emissions will decrease, greater independence from imported petroleum will be achieved, and the nation’s renewable fuels sector will grow considerably.4 EPA has projected that by 2022, when the required volume of renewable fuels increases to 36 billion gallons (“bg”), there will be new and expanded markets for agricultural products, like corn and soybeans, and cellulosic feedstock, as well as markets for advanced biofuels and conversion technologies.5

To further encourage growth in the biofuel sector, the U.S. Department of Agriculture is considering increasing funding for companies that want to convert biomass to bio-energy and bio-based products.6 The EPA is also reviewing a Clean Air Act waiver request that, if approved, would permit the ethanol content of gasoline to be increased from10 percent to 15 percent.7 This would allow the market to better absorb the increase in biofuels. Though EPA does not expect to issue a decision until mid-2010, the Agency has indicated the “need” to approve such an increase.8

This all coincides with the expansion and promotion of renewables. As mentioned earlier, the
RFS2 program now applies to all transportation fuel. This includes gasoline and diesel for use in motor vehicles, motor vehicle engines, nonroad vehicles and nonroad engines.9 It also includes marine diesel, heating and jet fuel.10 This means that refiners, except for small refiners that fall into the statutory exclusion, and importers who produce or import such gasoline or diesel fuel within the 48 contiguous states or Hawaii have to comply with the standards set out in RFS2.11 In areas where a U.S. territory opts in, the standards also apply.12 The new regulations set out in this recent final ruling will apply starting on or after July 1, 2010. However, with regards to the volume standards each obligated party must meet, the compliance period runs from January 1, 2010 to December 31, 2010.13


Click here for the full article from the Milbank website.

The following chart details the RFS schedule BEFORE the EPA updates to the program.

Evolution of the California Solar Feed-in Tarriff

State of the California Feed-in Tariff

David Niebauer - Cleantech Blog

A new, innovative feed-in tariff for small-scale solar development is coming to California. Rather than setting a fixed price in an environment in which technology costs appear to be dropping, the California Public Utilities Commission (CPUC) has proposed a market-based approach, allowing developers to bid the lowest prices at which they would be willing to develop projects. This approach focuses on adding capacity to meet California’s aggressive renewable portfolio standard (RPS), and appears to avoid the pitfall of setting a price that is too high or too low. Time will tell if the approach is effective, but the outline of the program released by the CPUC looks promising.

Background

Feed-in tariffs have been employed around the world for a number of years as a policy mechanism designed to encourage the adoption of renewable energy sources. Because non-renewable energy sources (e.g., fossil fuel combustion) cost significantly less to develop in a pure unregulated market environment, renewables require subsidies to make them competitive. Of course, the reason for the disparity is that we already subsidize non-renewable energy development by not assessing the full cost of the resource extraction activities, but that’s a topic for another article.

One approach to the cost disparity problem would be for governments to start taxing non-renewable energy generation, assessing the full cost to society and the environment for those activities. A more politically realistic solution is to provide an incentive to those developing renewable energy resources. The feed-in tariff is an innovative incentive program that is designed to provide a level playing field for renewable energy project development.

A feed-in tariff typically includes three key provisions: 1) guaranteed grid access, 2) long-term contracts for the electricity produced, and 3) purchase prices that are based on the cost of renewable energy generation. Under feed-in tariff regulation, utilities are required to buy renewable electricity from all eligible participants, effectively leveling the market for electricity generation.

Feed-in tariffs have been successfully employed in many countries over the last few years, most notably in Germany and Spain. The goal is described as “grid parity”: the point at which renewable electricity is equal to or cheaper than (non-renewable) grid power.

The California Approach

California regulators, guided by the CPUC, have flirted with a feed-in tariff for a number of years. Standard Offer Contracts for renewable power development were first introduced in California in the early 1980s in response to the state's investor-owned utilities (IOUs) perceived discrimination against small power producers. The CPUC ordered the utilities to offer standardized contracts and to offer one such contract, Standard Offer No.4 (SO4) with fixed prices. By the mid-1980s, private power producers had installed a significant amount of wind capacity in California, much of which is still in service today. Solar technologies had not matured to a level sufficient to take advantage of SO4.

California’s renewable portfolio standard (RPS) implemented in 2002 significantly raised the stakes for solar development. The California RPS program requires electric corporations to increase procurement from eligible renewable energy resources by at least 1% of their retail sales annually, until they reach 20% by 2010. On September 15, 2009, Governor Schwarzenegger signed an Executive Order directing the California Air Resources Board (CARB) to adopt regulations increasing California's Renewable Portfolio Standard (RPS) to 33 percent by 2020. As currently designed, RPS projects tend to be large and located in remote areas with abundant available land, but little transmission access or capacity. These larger projects take several years, at a minimum, to develop, due to the generation and transmission permitting processes, as well as the construction time required.

In early 2008, and as a means to promote smaller scale renewable projects, CPUC adopted a feed-in tariff that directs IOUs to offer a standard contract at the so-called market price referent (MPR) to all renewable technologies up to 1.5 megawatts (MW). However, this program has been generally ineffective because the price is not high enough to attract solar development: the MPR is based on the cost of generating electricity with a combined cycle gas turbine facility.

Renewable Auction Mechanism (RAM)

In August 2009, the CPUC issued a new proposal designed to significantly increase the amount of solar energy installed in the state from smaller producers. It has moved away from using MPR to set the price and instead proposes to implement an innovative bid mechanism. The program would first expand the current feed-in tariff to 10 MW (to cover projects in the 1 – 10 MW size). Rather than setting the price at MPR, the CPUC proposes to allow developers to bid out projects through market-based pricing in what is termed a renewable auction mechanism (RAM). Under this system, developers would bid the lowest prices at which they would be willing to develop renewable energy projects and IOUs would be required to accept eligible projects starting at the lowest bid. As stated in the CPUC proposal: “This mechanism would also allow the state to pay developers a price that is sufficient to bring projects online but that does not provide surplus profits at ratepayers’ expense.”

Solicitations would be staggered for each IOU throughout the year using standard long-term power purchase agreements whose terms would not be negotiable. The program would be capped in each year and IOUs would be required to accept contracts up to the maximum amount of the cap. The program as currently envisioned totals 1 GW over 4 years, although industry observers believe that once implemented it could be easily expanded.

Next Steps

An Administrative Law Judge is currently reviewing certain jurisdictional objections raised by Southern California Edison after the initial CPUC proposal. The issue is whether the state commission can set wholesale prices or whether such an action can only be mandated by the Federal Energy Regulatory Commission (FERC). The RAM approach adopted by the CPUC appears to moot any such jurisdictional challenge. A decision is expected shortly. Once the decision is rendered, the content and mechanism for roll-out of the program will come up for deliberation and vote at an upcoming meeting of the CPUC.

David Niebauer is a corporate and transaction attorney, located in San Francisco, and a founding partner of Energy Counsel Partners, LLP (www.energycounselpartners.com). David’s practice is focused on renewable energy project development and environmental technologies. www.niebauer.net.

BrightSource Lands Federal Loan Guarantee

U.S. Offers Solar Project a Crucial Loan Guarantee

By TODD WOODY, NEW YORK TIMES

Published: February 22, 2010

The United States Department of Energy offered a $1.37 billion loan guarantee on Monday to a California company planning to build a large-scale solar power plant in the Southern California desert.

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The loan guarantee for BrightSource Energy of Oakland, Calif., is the largest the department has given for a solar power project. BrightSource’s planned project, the Ivanpah Solar Electric Generating System, is the first utility-scale solar power plant to undergo licensing in California in nearly two decades.

It would use solar thermal technology, in which mirrors concentrate sunlight to heat a fluid and generate steam. If built, it would be the largest of its kind.

“We’re not going to sit on the sidelines while other countries capture the jobs of the future — we’re committed to becoming the global leader in the clean energy economy,” Steven Chu, the energy secretary, said in a statement.

The loan guarantee is contingent on the Ivanpah project passing state and federal environmental reviews.

Some environmental groups have objected to the site of the project in the Ivanpah Valley, arguing that the plant would eliminate habitat for the imperiled desert tortoise and other rare plants and wildlife. BrightSource earlier this month offered to reduce the size of the plant to lessen its impact on wildlife, but representatives of the Sierra Club and Defenders of Wildlife said the move was inadequate and argued the project should be relocated.

Surveys have found 25 desert tortoises on the site, which is about 45 miles south of Las Vegas.
Executives at BrightSource, which is backed by Google, Morgan Stanley, Chevron and BP, have said the loan guarantee is crucial to obtaining financing to build the plant at a time when banks are reluctant to finance new technologies. The company will not disclose the total projected cost of the power plant.

The Ivanpah plant will deploy thousands of mirrors, called heliostats, that focus the sun on three towers that will each contain a boiler filled with water. The focused heat creates steam that drives a turbine to generate electricity. The plant, to be built by Bechtel, is expected to create 1,000 construction jobs.

BrightSource has signed contracts to deliver 2,600 megawatts of electricity to the utilities Pacific Gas and Electric and Southern California Edison.

Chadborne & Parke Project Finance Feb 2010 NewsWire

Chadborne & Parke Project Finance NewsWire contains great up-to-date information on the word of clean energy project finance.

Click here to link to the Newswire in PDF form


Table of Contents
1 The Year Ahead: What to Expect from Washington
11 DOE Moves on Loan Guarantees
17 Treasury Cash Grant Update
22 Update: M&A Market
28 Update: Tax Equity and Debt Markets
35 Islamic Project Finance: Structures and Challenges
40 Cross-Border Renewables — Baja to California
43 Finding Development Capital
48 A New Transmission Superhighway Takes Shape in the West
54 Environmental Update

Top Energy Stories of 2009

Top Energy Stories of 2009: Volatility, Exxon's Nat Gas Bet and Ethanol Bankruptcies (and Bargains)

By Kirsten Korosec, BNET | Dec 31, 2009

The year is wrapping up literally in a few hours here in the U.S. So, why not look back at the biggest oil and gas — OK, and ethanol — stories of 2009. In a year, where a barrel of crude touched a low of $32.70 in January and then subsequently rose to $82 in October before backing off slightly. Today, crude oil for February delivery is just below $80.
In short, it’s been a volatile year. Throw in a recession — and the weak demand for fuel that comes with it — and you get a year filled with bankruptcies, mergers and a great shifting of resources. So, here are some of the biggest energy stories of 2009, not in any particular order. Feel free to add ones you think I missed.

ExxonMobil buys XTO Energy: We waited all year for Exxon to do something with its cash. And bam! It finally happens. Exxon announced in December it would acquire independent oil and gas producer XTO Energy in a $31 billion all-stock purchase, the company’s biggest purchase in more than a decade. Exxon also agreed assume $10 billion in debt as part of the deal.
Any acquisition this big that involves Exxon is sure to make any top stories list. But there’s another reason: unconventional natural gas. XTO is a major player in unconventional gas and Exxon’s acquisition is one giant bet that nat gas will be the world’s go-to power source.

China’s energy appetite: The country and its insatiable thirst for energy resources came up in dozens of BNET Energy posts in 2009 whether it was its continued purchase of gas from sources like Chevron’s Gorgon LNG project, its loans-for-fuel deals with countries in South America, its success in the Iraq oil auction or its attempts to snap up Kosmos Energy. And the trend will surely continue into 2010.

Refiner Valero Energy gets into ethanol: We’re not talking small potatoes here. Valero Energy, the largest independent U.S. refiner, bought up last March seven ethanol plants and a development site from bankrupt VeraSun for $477 million — a ridiculous 70 percent discount. The purchase translates into about 780 million gallons of ethanol a year Valero won’t have to buy from outside companies to meet the federal Renewable Fuels Standard.

And it’s actually turned out to be a moneymaker. The company earned $22 million on operating income in the second quarter from its ethanol segment. That number more than doubled in the third quarter, which is good news for any refining business right now. Valero is its eyes on more ethanol plants. The company announced it would buy Renew Energy’s 110 million gallon per year plant for $72 million. That deal could be scuttled by a motion filed with the U.S. Bankruptcy Court by ALL Fuels & Energy out of Iowa, which claims it was the highest bidder.

Valero wasn’t the only company to take advantage of these bargain basement ethanol prices. Philadelphia-based oil refiner Sunoco jumped into the ethanol-producing business in May with its $8.5 million bid for a Northeast Biofuels plant, which originally cost $200 million to build back in 2006. Ethanol producer Green Plains Renewable Energy also got into the mix. The company bought two plants in Nebraska for $123.5 million from AgStar Financial Services, a lending group that purchased that from VeraSun.

Iraq’s Oil Auctions: Iraq opened its door just a smidgen to foreign firms this year, giving oil companies access to the country’s resources for the first time in nearly four decades. The country held two auctions, which allowed international and national oil companies to bid on contracts to produce oil.

The first auction in July received poor reviews after only one contract was secured by BP and its consortium partner China National Petroleum Co. BP was the only firm willing to lower its per barrel fee to $2, the maximum amount Iraq’s oil ministry said it would pay. The auction in December produced two contracts. Once again, China — as part of a consortium with minority partner Total – snapped up one of the development contracts. Royal Dutch Shell and Petronas of Malaysia were awarded right to develop the Majnoon oil, one of the world’s largest remaining untapped oil fields.
Chevron, partners give final OK to Gorgon LNG plant: Chevron and its partners ExxonMobil and Royal Dutch Shell gave the thumbs up to its $37 billion Gorgon liquefied natural gas venture. The final investment decision to build the massive facility located in Western Australia was made only after Australia’s government assumed any long-term liability for potential damages incurred from carbon storage, a key feature of the project.

Climate legislation: There isn’t a bill, yet. But the House passed its version in June and the Senate has made a few attempts including the recent triapartisan compromise bill from Sens. John Kerry, D-Mass., Lindsey Graham, R-S.C., and Joseph Lieberman, I-Conn. Lobby efforts from environmental groups as well as oil, gas and coal have ramped up to new heights. And even the U.S. Chamber of Commerce has gotten into the act, with its call for a Scopes-like Monkey Trial on global warming and the exodus of companies from the business organization that followed.
EPA’s endangerment finding: The Environmental Protection Agency deemed greenhouse gas emissions a danger to human health and welfare, a finding that has vast implications for the regulation of carbon dioxide and the businesses that emit it. If approved by the Office of Management and Budget, the EPA will likely issue rules to regulate greenhouse gas emissions under the authority of the Clean Air Act. This means the EPA — not Congress — would be writing the rules for emitters of greenhouse gases. And that does not make the oil and gas industry happy.

Copenhagen and The Outlook for Renewables

December 17, 2009

From Copenhagen: Renewable Energy Gets Boost as Climate Talks Stall

by Lauren Poole, Correspondent

Copenhagen, Denmark [RenewableEnergyWorld.com]

Photo Credit: Warren Gretz

In the midst of a turbulent week of demonstrations outside the Climate summit in Copenhagen, in which the police released teargas and arrested hundreds of people, the U.S. announced new initiatives and legislation that will give renewable energy a significant boost at home and in developing countries.

Last week, representatives from developing countries walked out of negotiations, but returned this week after the U.S., European Union and other country representatives came up with a plan to accelerate the development of renewable energy in poor countries, particularly in India and in the Americas.

On Monday, U.S. Energy Secretary Steven Chu announced a new five-year, $350 million international collaborative initiative nicknamed “Climate REDI” designed to encourage the rapid deployment of renewable energy in developing countries. Climate REDI (Climate Renewables and Efficiency Deployment Initiative), will focus on four key areas: a solar lantern and LED lighting program to replace polluting kerosene wick lamps commonly used in developing countries; a super efficient deployment program for appliances; a clean energy information program designed to provide better and globally available information on solar and wind resources; and a scaling up renewable energy program.

Climate REDI addresses a key issue at the Climate Change Conference: the need for rich nations to finance the sustainable development of poorer nations. The U.S. will contribute at least $85 million according to Chu, with $30 million coming from Australia, $5 million from Italy, and the remainder from other partner countries including the United Kingdom, Netherlands, Norway, and Switzerland.
“Climate REDI will save greenhouse gas emissions, save folks money, and fight poverty,” said David Sandalow, U.S. Department of Energy Assistant Secretary for Policy and International Affairs. “It’s a quick start initiative that complements the technologies and financial mechanism of the climate treaty that we are negotiating here this week.”

India’s Environment Minister Jairam Ramesh said Climate REDI funds will help his country develop solar, wind, and small hydro projects more quickly.

“Indian countries helped pioneer pharmaceuticals widely used in Africa, so there is no reason why India, with the help of the United States, can’t emerge as a world leader in low-cost renewable technologies within the next five years,” said Ramesh.

Renewable energy in the U.S. will benefit from a new partnership between the U.S. Department of Agriculture and the American Dairy Industry, which announced on Tuesday it will reduce greenhouse gas emissions by 25% by 2020 using a variety of technologies, including solar and wind energy technologies. The partnership will also provide an additional source of income for the dairy industry, which is in trouble due to the recession.

Legislation passed by the House of Representatives and under consideration in the Senate will create a market for carbon offsets that can be sold by America’s farmers, ranchers and landowners to businesses that are large carbon emitters. Farmers and ranchers will be able to install solar and wind energy systems on their farms to help offset greenhouse gas emissions. Some farmers and ranchers use solar power now to convert methane to power. The USDA will support the dairy industry’s goal through program modifications, added program enhancements that fund electricity generation with renewable energy dollars, and better marketing of anaerobic digesters to dairy farmers.

A third party will verify emission reductions and will be enforced by the USDA. The move is also designed to let industry and the USDA set policy for the farmers and ranchers rather than having the industry regulated by the EPA.

Solar Energy Industries Association (SEIA) President Rhone Resch challenged the American dairy industry “to look at the roof space sitting in the sun” on their farms and to not just think about wind turbines in the field. Rhone also asked the U.S. Secretary of Agriculture Tom Vilsack if the USDA was doing anything to streamline REEF (Renewable Energy and Energy Efficiency Fund), a government program that helps farmers and ranchers to design and plan for renewable energy. Vilsack said the USDA is focused on larger bioenergy programs now, but is planning to address the issue later.

SEIA, along with the European Photovoltaic Industry Association and the Alliance for Rural Electrification, presented new national targets, figures, and analyses on the role of solar energy technologies in combating climate change in a new report called Seizing the Solar Solution, which predicts the combined production of the European and U.S. solar industry alone could reduce carbon dioxide emissions by nearly 1 billion metric tons by 2020.

The International Energy Agency’s (IEA’s) Renewable Energy Technology Deployment group and IEA Bioenergy presented key findings from a joint project called “Better Use of Biomass for Energy,” which identifies opportunities for greenhouse gas reduction using bioenergy technologies. RETD collaborated with the Energy Technologies Systems Analysis Program to create models of global renewable energy scenarios. Their findings predict renewable energy will be a primary energy supply by 2050.

Finally, on Wednesday, Senator John Kerry, the lead author on U.S. climate legislation, announced that despite the challenges the negotiators still face, in June, the U.S. will pass climate change legislation that reduces emissions by 83% by mid-century (2050) using renewable energy and other clean energy technologies.

“The makings of the deal are there. All countries have stepped up to make commitments to reduce emissions. I believe by June we will have a full-fledged international treaty.”

In response to skeptics who say this legislation will not make it through what some conference participants are calling the senate legislative “meat grinder,” Kerry said they are now getting bi-partisan support from senators like Robert Byrd (D-WVA), a coal industry supporter, and Lindsay Graham (R-SC), a conservative Republican, who realize they need to be at the table in these global emission reduction discussions. Kerry was uncertain about how the final climate bill will look, but he stated it will include a variety of renewable energy sources like solar, wind, and concentrating solar power as well as natural gas, nuclear energy, and clean coal technologies.  Carbon pricing will be key to its success, he said.

“I know a significant number of businesses that believe the only way to do it is to price carbon.”
On Thursday, the BBC hosted a debate it’s calling the “Greatest Debate on Earth,” that challenged the world’s top leaders on their commitment and contributions to climate change. The debate will air after the conference on December 19-20.

The formal summit of more than 120 world leaders concludes Friday when President Obama arrives in Copenhagen.  UN members will try to agree on how best to slow rising temperatures set to cause heat waves, floods, desertification and rising ocean levels that threaten all nations.  Rich and poorer nations were split last week on who should bear the burden of emission curbs and raising billions of dollars in new funds to help the poor.  China’s emissions alone will increase by 40% by 2020, according to estimates by the U.S. government.

Lauren Poole is a journalist and science writer based in Colorado. She worked for 11 years at the National Renewable Energy Laboratory, where she wrote extensively about solar and wind energy technologies and policy issues.

NRG Buys California PV Plant

NRG acquires 21MW power plant in Blythe, California from First Solar

23 November 2009 | By Mark Osborne | News > Power Generation

NRG Energy, via its wholly owned subsidiary NRG Solar LLC has bought the yet to be completed solar power plant in Blythe, California, from First Solar. The 21MW project occupies approximately 200 acres of land and is expected to be completed by the end of the year and is claimed to be the first and largest utility-scale PV project in California.
First Solar and NRG did not disclose financial terms, however, First Solar will provide operations and maintenance services at Blythe under a long-term contract with NRG.

"First Solar is very pleased that the first of our utility-scale solar projects in California will be coming on line with a leading power producer like NRG," said Bruce Sohn, president of First Solar. "This clean, affordable, and sustainable energy will help California meet the goals of its Renewable Portfolio Standard."

Electricity from the plant will be sold to Southern California Edison under a 20-year power purchase agreement.

“Solar fields generate the greatest amount of clean energy when electricity demand is highest, making this an ideal technology for utilities, municipalities and companies looking to diversify their renewable portfolios and reduce carbon intensity while ensuring that energy needs are met,” said Tom Doyle, President, NRG Solar. “With this acquisition, NRG joins with SCE to add to and further diversify their portfolio of low- and no-carbon generation while we establish a relationship with First Solar and a platform for future solar development.”

First Solar also said that it is developing 1.3GW of PV solar projects under contracts with utilities in California and the Southwest.

First Solar Buys the Carrizo Energy Solar Farm in Central California

First Solar buys 117 MW project from solar startup

Wed Nov 4, 2009 8:39pm EST

* Solar thermal co Ausra started project in 2007
* Financial terms not disclosed
* First Solar says deal to make way for other project
LOS ANGELES, Nov 4 (Reuters) - Solar industry bellwether First Solar Inc (FSLR.O: Quote, Profile, Research, Stock Buzz) said on Wednesday that it bought a 117 megawatt project in California from Kleiner Perkins-backed solar thermal start-up Ausra Inc, a move that could speed up another 550 MW project in First Solar's pipeline.
The companies did not disclose the financial terms.
Ausra, which is also backed by Khosla Ventures, said that the sale of the project -- called Carrizo Energy Solar Farm -- follows its strategy to move away from developing solar projects and focus on supplying large-scale solar steam generators.
"The sale of Carrizo is another step in executing our plan," said Tom Bartolomei, senior vice president of business development at Ausra, in a statement.
Ausra landed a power purchasing agreement with California utility PG&E (PCG.N: Quote, Profile, Research, Stock Buzz) two years ago for the project, located in San Luis Obispo County. That agreement was withdrawn as part of the sale, the company said.
First Solar can use the newly acquired land to revise the layout of the larger 550 MW Topaz Solar Farm project, which has run into "concerns such as farmland conservation and wildlife needs," said Kathryn Arbeit, who oversees Topaz.
Both projects include land near each other in San Luis Obispo County.
Shares of First Solar closed down 2 percent at $121.59 on Wednesday on the Nasdaq. (Reporting by Laura Isensee; Editing by Steve Orlofsky)