FERC & DOE Incentives for Renewables

KIRKLAND & ELLIS LLP

DOE and FERC Renewable Initiatives

Renewable Energy in New EnglandLaw Seminars International June 25, 2009

Elaine M. WalshKirkland & Ellis LLP655 15th Street, NW

Washington, DC 20005+1 (202) 879-5044

[email protected]

www.kirkland.com | 2


Renewable Generation Intermittent Sources

• Wind• Solar

Non-Intermittent Sources• Geothermal• Biomass• Hydrokinetic

Source: Queen Mary, University of London



Wind 25,369 MW of U.S. installed capacity as of 2008 1,087,791 MW of total (all sources) U.S. generation in 2007 42% of all new installed capacity in 2008 5,000 MW expected in 2009





Source: AWEA



Offshore Wind Currently no U.S. offshore projects operating commercially

• Cape Wind (Mass.) and Bluewater (Del.) are closest

National Renewable Energy Laboratory estimates capability 1,000 GW Atlantic and 900 GW Pacific• Department of Energy expects to have 54 GW of offshore

wind power by 2030

Under EPAct of 2005, MMS has authority for leasing offshore acreage for wind farms



Wind Installed Capacity (MW) by ISO-NE State

103.6

25.4

6.05

5.42

0.66

0

0 20 40 60 80 100 120

Maine

New Hampshire

Vermont

Massachusetts

Rhode Island

Connecticut

Source: AWEA, as of 3/2009



ISO-NE: Renewable Generation

Renewables Total Percent RenewablesNew England 631 21629 2.9%Conn. 59 5495 1.1%Maine 330 2848 11.6%Mass. 98 6799 1.4%NH 103 4163 2.5%Rhode Island 11 1227 0.9%Vermont 29 1097 2.6%

Year-to-Date through February 2009. (Thousand Megawatt-Hours)

Source: EIA - Electric Power Monthly released May 15, 2009.



Solar Utility-Scale Solar

• Concentrated Solar Power (“CSP”)

• Photovoltaic (“PV”)

454 MW of installed CSP and PV capacity as of 2008

As of Sept. 2008, roughly 5,000 MW in planned CSP in the U.S. Source: InnovationFactory.nl





Solar Installed Capacity (MW) by State

354

88

8

3

1

0 100 200 300 400

California

Nevada

Colorado

Penn.

Arizona

Source: SEIA



Geothermal 3,040 MW installed

geothermal capacity in the U.S. as of March 2009

9,057 MW existing geothermal capacity across 13 states

Potential of 517,800 MW geothermal creation

Source: Department of EnergySource: Department of Energy



Source: U.S. Geological SurveySource: U.S. Geological Survey



Geothermal Installed Capacity (MW) by State

2605.3

333

35

50

15.8

10

0.68

0.24

0.24

0 500 1000 1500 2000 2500 3000

California

Nevada

Hawaii

Utah

Idaho

Nevada

Alaska

Wyoming

New Mexico

Source: Geothermal Energy Association



Biomass Includes landfill gas/MSW;

ag byproducts; wood products

12,344 MW installed capacity in U.S. as of 2007

39 billion kWh from biomass in 2007 (0.9% of total U.S. electricity production)

Source: University of FloridaSource: woodtofuelllc.com





Renewable Portfolio Standards Maine

• 30% by 2000. 10% increase with new renewables by 2017.

Vermont• "Goal" to meet load growth with renewables from 2005-2012, which becomes mandatory if

not met. Goal of 25% by 2025.

Connecticut• 27% by 2020.

Massachusetts• 15% by 2020 with 1% increase per year thereafter.

Rhode Island• 16% by 2020.

New Hampshire• 25% by 2025.



DOE Renewable Incentives American Recovery and Reinvestment Act

• $45 MM wind turbine drivetrain R&D• $14 MM for advance tech for turbine and components• $10 MM for National Wind Technology Center• $68 MM research for energy efficient office buildings• $19.2 MM renewable site infrastructure• $13.5 MM biorefinery research upgrades



DOE Innovative Energy Loan Guarantee Program

ARRA expanded existing DOE loan guarantee program by authorizing up to $60 B

Qualifying facilities include: • renewable energy systems that generate electricity or thermal

energy• facilities that manufacture related components• electric power transmission systems

Must commence construction before September 30, 2011

DOE intends to distribute 70% of funds by end of 2010



Other Federal Financial Incentives Treasury Grants

• ARRA created a “refundable” grant of 30% of basis • Qualified Facilities must be placed in service:

(a) during 2009-10 or (b) prior to 2012 for wind, 2016 for solar, and 2013 for

others, provided construction begins in 2009-10 • Cannot be combined with PTCs or ITCs



Other Federal Incentives Green Bank

• In March 2009, House introduced Green Bank Act• Green Bank — a tax-exempt entity providing financing for

clean energy projects• In May 2009, Green Bank amendment added to Waxman-

Markey Bill• Green Bank would be administered by DOE



Grid Stability Higher levels of intermittent renewables can strain grid New build must be responsive to intermittency of wind and solar Inability to handle intermittency could lead to grid failure

Renewables as a percentage of total generation:

Minnesota - 7.48%

Iowa - 7.12%

Colorado - 5.01%

North Dakota - 4.86%

Texas - 3.62%Source: AWEA



The Transmission Issue Moving Power from Resources to Load

Source: Center for American Progress, citing AWEA and SEIA







Transmission Siting FERC’s jurisdiction over interstate transmission siting

• EPAct 2005 – FERC jurisdiction over “national interest electric transmission corridors” when state withholds approval

• 4th Circuit in Piedmont Env. Council v. FERC limited FERC’s authority

• Current legislation grants FERC siting authority over high priority projects



Siting Issues Locationally Constrained

State Approvals

NIMBY• Challenge permitting at agency level• Challenge state agency determinations in court• Environmental groups challenging EIS• Legislative actions to prevent development



ARRA and Transmission Infrastructure ARRA requires DOE to include in its 2009 triennial

transmission congestion study:• analysis of adequate transmission capacity for renewables• $6 billion in “rapid deployment” loan guarantees for both

renewable generation and transmission projects that begin construction no later than Sept. 30, 2011



FERC Incentive Rates For Transmission Order No. 679 EPAct 2005 added Sec. 219 to FPA to promote

transmission investment

Ensure reliability or reduce cost by reducing congestion

Order No. 679 rebuttable presumption• Fair and open regional planning process that evaluates

reliability/congestion• Approved by state



FERC Criteria for Incentive Rates Nexus between investment and incentive sought

(risk/reward balance)

Not “routine” • scope of project• effect of project• risks of project



FERC Incentive Rates For Transmission Order No. 679 The potential incentives include:

incentive ROE for new investment, RTO membership recovery of prudent construction, pre-commercial

operating costs use of hypothetical capital structures accumulated deferred income taxes adjustments to book value for Transco sales/purchases accelerated depreciation deferred cost recovery for utilities with retail rate-

freezes



Transmission Projects Green Power Express

• Owned by ITC Holdings• FERC approved April 2009• 12.38% ROE, including 1.6% ROE incentive adder• 765-kV, 3000-mile line across 7 states from Dakotas to WI

and IL• Cost $10-12 B• Deliver over 62 GW of wind capacity in MISO



Transmission Projects Chinook and Zephyr

• Owned indirectly by TransCanada• 1,000 mile projects from Montana and Wyoming to Las

Vegas• Proposed in-service 2014• Uses anchor customer model• 50% presubscription before open season



Transmission Projects Prairie Wind

• AEP, MidAmerican, and Westar Energy• 230 miles of 765 kV from Wichita to Tallgrass project at KS-

OK border• Cost $600 B• Planned in-service by 2013• Awaiting state and federal approvals



Transmission Projects Tallgrass Transmission

• AEP, MidAmerican, and OG&E• 170 miles of 765 kV transmission from KS-OK border to

OG&E’s Woodward station and into OK panhandle• Cost $500 MM• Planned in-service by 2013• FERC approved rate filing for OK. AEP seeking other federal

and state approvals



Smart Grid & Demand Response Initiatives Energy Independence and Security Act of 2007 (EISA)

• DOE Funding up to 50% Matching funds

• FERC National Assessment of Demand Response and National Action Plan

on Demand Response Smart grid interoperability rules

• NIST to coordinate smart grid standards



American Recovery and Reinvestment Act of 2009 (ARRA) Smart Grid Collaborative with NARUC and FERC

Funding considerations• Transmission, distribution and customer projects• Appropriate scale• Geographically diverse• Compatible with rate designs• Cyber-security• Measurable customer response



FERC and Smart Grid Policies FERC’s Mar. 19, 2009 Proposed Policy Statement

• Single-issue rate filings to recover costs if: no adverse effect on reliability minimize potential for stranded costs share information with DOE Smart Grid Clearinghouse

• Possible rate recovery for non-DOE-funded portion• Accelerated depreciation• Abandonment authority



FERC’s Proposed Policy Statement (cont’d) Key smart grid functionalities

• Wide-area situational awareness (real-time visual display)• Demand response• Electric storage• Electric transportation



Demand Response Types Direct load control

Interruptible service

Dynamic Pricing



Demand Response (cont’d) Direct load control

• controlled by end-user• customer can override• customer payment or rebate



Demand Response (cont’d) Interruptible service

• reduction when requested by utilities• generally only C&I customers• lower rate or payment to reduce load



Demand Response (cont’d) Dynamic pricing

• prices vary with demand and system conditions• critical peak pricing, peak-time rebates, and real-time pricing• customer requires “smart meter”



FERC and Demand Response FERC demand response study under EISA

• FERC completed demand response assessment Jun. 18• Estimates reductions 9-20% peak demand by 2019• Regional differences in cost-effectiveness• National Action Plan due to Congress Jun. 2010



Consumer-Side Smart Grid Miami Smart Grid

• “Energy Smart Miami” plan April 2009 Installs 1 MM smart meters in homes and businesses

• FP&L with GE, CISCO and Silver Springs Networks providing smart meters and wireless equipment.



Consumer-Side Smart Grid Google PowerMeter

• “PowerMeter” software, in partnership with 8 utilities, including SDG&E, WPS, and TXU

• Allows customers access to usage history via Internet



Consumer-Side Smart Grid Proposed Duke Energy Settlement

• Pending before Indiana Commission• 800K advanced meters over 5-6 years• Cost recovery by rider with retail cost caps• Proposes new advisory groups to recommend customer DG,

home area networks and plug-in hybrid programs



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FERC & DOE Incentives for Renewables

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