Tom West, deputy assistant secretary of the Treasury for tax policy, told the 18th annual renewable energy law conference at the University of Texas in Austin in late January that the Treasury hopes to issue Inflation Reduction Act guidance on at least five topics as early this year as possible.

The five are bonus tax credits for projects located in "energy communities," bonus tax credits for using domestic content, the "transferability" rules for direct sales of tax credits, direct pay (meaning the procedures for tax-exempt and state and local government entities, rural electric cooperatives, Indian tribes and the Tennessee Valley Authority to be paid the cash value of tax credits on projects they own), and proposed regulations on new wage and apprentice requirements.

He said he could not commit that this guidance would be out during the first quarter. Some topics require input from other agencies. In general, he told the audience, the small Treasury tax policy staff feels like it has been pulled into the film "Everything Everywhere All at Once."

Immediately after West, JC Sandberg, chief advocacy officer for the American Clean Power Association, and Greg Wetstone, CEO of the American Council on Renewable Energy, talked about policy issues affecting the clean energy sector that they expect to be in play this year in Washington. The moderator is Keith Martin with Norton Rose Fulbright in Washington.

Inflation Reduction Act

MR. MARTIN: JC Sandberg, what are the two biggest issues on which your members want Inflation Reduction Act guidance quickly?

MR. SANDBERG: Domestic content and energy communities.

On domestic content, our members are making procurement decisions now for the next couple of years. They need greater clarity about how the calculations of US content work. We have expressed our views on how the calculations should work to both the White House and Treasury.

For energy communities, it is more a matter of assessing whether projects that have already been sited qualify. It is hard to change a site once a project is under development. Changing where a project is sited is such a long process with local regulators that no developer will want to undertake.

MR. MARTIN: Are you hearing from anybody who can meet the domestic content requirements currently?

MR. SANDBERG: Some wind turbine manufacturers feel they have enough US content currently in the pipeline that it may be possible for wind farms on land to qualify. A key issue is what is the end product since the steel and iron construction materials used to make the end product must be 100% US-made while the other components must be 40% US-made initially, increasing over time to 55%.

The Treasury is short staffed. The Department of Energy is lending Treasury a hand. DOE appears to feel more comfortable making the wind turbine the end product.

If they do define the "facility" as a wind turbine, then there are some turbine manufacturers currently who feel they can meet the domestic content requirement. The domestic supply chain is more built out on the wind side.

It is a little less clear what is likely to be the end product for solar projects. Is it the block? The array? What is the "facility" for solar?

MR. MARTIN: Greg Wetstone, what is the number one issue for your members?

MR. WETSTONE: What JC mentioned are the biggest issues for our members as well.

To pick something else, transferability. Project developers need a good sense of how the various elements of the capital stack will break down in order to determine the price at which they can afford to offer the electricity from their projects. They need to understand how the transferability rules work to sort this out fully.

Another issue is how the apprenticeship requirements work. What is the program going to be to certify new apprentices? What will the waiver look like if you can't find qualified apprentices?

Another area where there are plenty of questions is around the new hydrogen tax credit. That sector could boom or be a bust, depending on how they are answered.

We filed joint comments with the Treasury with the American Clean Power Association and other groups. The Treasury has gotten a ton of feedback. This is not an easy process, but if we are going to realize the immense potential growth for our sector under the IRA, we are going to need clarity on these issues.

MR. MARTIN: I thought it was interesting to hear Tom West say the Treasury hopes to issue proposed regulations soon on the wage and apprentice requirements that are the fine print behind many of the tax credits in the Inflation Reduction Act. The full tax credits cannot be claimed without complying with, or being exempted from, the wage and apprentice requirements.

I assumed the Treasury felt it had bought more time than that to write wage and apprentice regulations when it issued guidance about the requirements in late November.

Were you surprised the Treasury is already getting ready to release regulations to follow up the earlier guidance?

MR. SANDBERG: Yes. Seeing is believing.

We have had many substantive engagements with both the Wage and Hour Division and the Education and Training Administration within the US Department of Labor about prevailing wages and apprentices.

They keep defaulting to the frequently-asked-question part of their website. That makes us nervous. There are some very particular provisions requiring guidance because there are penalties for failure to comply, and it is not clear any law firm would be able to write the type of "will"-level opinions required by the tax equity market based on answers posted to a website to frequently-asked questions.

MR. MARTIN: Probably right. Answers to questions posted to a website are not binding on the government. The law firms will look for any legal authority elsewhere on which to base an opinion.

Markets generally figure out a way to function, with or without guidance. Sometimes that is not possible. There may be a few areas where there is too much risk and then an insurance market will develop to take that risk. You can put a price on it that way.

Here's another question for you. The Department of Labor has had a process for a long time where one can ask for a wage determination when no prevailing wage is listed for a particular job type or location on the department's website. For example, if you look for a wage for a geothermal rig operator in California, you won't find one. You could file a form. The department was already receiving more than a thousand forms a year before the IRA passed. It can take months to get a determination.

The IRS said in late November, presumably after consulting with the Labor Department, that all you have to do in the future is send an e-mail. One can imagine a flood of requests now that it is easier to submit them. What will that do to response times? Have you heard from anyone who has tried already to get a wage determination?

MR. SANDBERG: Not yet. This is a point of frustration because when we speak with the Department of Labor and organized labor, they tell us that every classification under the sun is done and there is no need to do much more. What our developer members are figuring out is that is in fact not the case, and that introduces risk.

I don't really feel like there is a process yet. We have not broken through to "Well, maybe we might need more classifications." It still seems to be "There is a classification for everything, and all you need to do is pay scale."

To your point, I think there will be a way to avoid penalties by showing you acted in good faith.

Energy Bill?

MR. MARTIN: Greg Wetstone you were on Capitol Hill where you worked on environmental issues, and you continued to work on them for a long time off the Hill. Will there be an energy bill this year? Will it have a permitting core? What else will be in it?

MR. WETSTONE: Good question. There are ambitious plans in the House. The committee chair, Cathy McMorris Rodgers, has introduced a bill. Others have introduced other bills in the House. These bills do what you would expect. For example, they authorize the Keystone pipeline and more oil and gas drilling and attempt to streamline permitting for mining of critical minerals. That formulation is not likely to resonate well with the Democratic Senate, much less get signed by President Biden.

The real question is how this evolves over the course of the year. Are we going to see the Republican majority in the House feel a need to reposition to appeal to independent voters and move a little toward the middle? You could see a compromise emerging that has some things that appeal to the renewable energy community, especially for transmission.

Joe Manchin proposed a package of permitting reforms that failed to get through Congress at the end of last year. It showed how polarized Washington is now. It was a bill that, if you were to remove all the labels in terms of who introduced what, you would say, "That's a Republican bill. Democrats are going to oppose it."

Manchin introduced it on the heels of the IRA. The overwhelming majority of Democrats supported it. The overwhelming majority of Republicans opposed it. Nevertheless, it is a possible road map for how to reach an eventual compromise. I don't expect to see an energy bill early in the current Congress, but you could see movement that way later on.

MR. MARTIN: "Later on" meaning this year?

MR. WETSTONE: Late in the year. Each Congress lasts two years, but you don't want to get too close to an election year when the politics get more complicated. On the other hand, sometimes an election year can force action. We saw that in the Gingrich Congress after he shut down the government. The Gingrich Republicans felt the need to get something done after the public backlash for the shutdown. I think what got done was the Safe Drinking Water Act. At the time, that was a big deal.

MR. MARTIN: JC, what else do you expect to be in an energy bill, if anything, besides permitting?

MR. SANDBERG: I really don't know despite your advance warning that this question would be coming. Frankly for us, it is a matter of keeping focused. Can we play offense on a few things and keep everybody together? Can we also prevent any backtracking? I am not worried about what might happen with the tax credits that the IRA has given us, but could there be efforts to set boundaries around those in some way, for example by restricting sourcing from China? Such proposals don't ever make it over the finish line, but the noise and disruption that would cause in the marketplace is concerning.

For us, I think it a question of whether we can play the transmission pieces right. Also, will the National Environmental Policy Act reforms that Republicans want to make happen in such a way that is good for offshore wind development. NEPA governs projects on federal lands and in federal waters. For us as an industry, that means offshore wind. All of those projects are in federal waters. Anything that happens to streamline federal permitting is good for developers and good for getting projects in the water.

MR. MARTIN: So it will fall to the trade associations to come up with an agenda of things they want to try to push in any energy bill. Will this be it for actions from this Congress that affect our industry? Just a potential energy bill?

MR. WETSTONE: We are going to see pretty aggressive oversight on implementation issues under the IRA and the bipartisan infrastructure law.

Before that, we will see an effort under the Congressional Review Act to overturn the Department of Labor's rules on ESG finance. The effort to bar pension funds from considering ESG factors when deciding where to invest is a form of direct government intervention in the free market. The idea that long-term investors should not consider the repercussions of climate change is asking them to put their heads in the sand.

MR. MARTIN: The House Republicans have two new catchphrases that they hope will give them traction in the next election: "woke capitalism" and the "climate cartel."

MR. WETSTONE: Being awake is not necessarily a bad thing in this area. Investors who want the ability to consider climate change impacts should be able to do so.

Anti-Circumvention Duties

MR. WETSTONE: There will be an effort to use the Congressional Review Act to overturn the moratorium that the Biden administration imposed on collection of anti-circumvention duties on solar panels imported from Southeast Asia. Both parties have pivoted in the last six or seven years from free trade to protectionism.

There is a global supply chain not just for renewables, but also for the whole economy. No one is saying that all cell phones, medical equipment and other items must be made in the US, and yet suddenly we are facing these questions in the renewables sector.

We are at a really critical pivot point in our climate response. We need to be able to continue to rely on a global supply chain while we build out domestic capacity. We can't walk away from the global supply chain overnight.

MR. MARTIN: Let's talk about the anti-circumvention effort. This is the idea that China-level duties will be collected on solar panels coming from Vietnam, Malaysia, Thailand and Cambodia. Biden said we will not collect those duties for two years. The two years expire on June 5, 2024. Panels have to be in by then and then actually installed by December 3.

JC, last week a bipartisan group of House members said it will try to overturn the moratorium by using something called the Congressional Review Act, which gives an incoming Congress the chance to override regulations that were issued at the tail end of the last Congress by a federal agency. This seems like a Hail Mary pass. It really can't work. It only works where the White House has changed parties. Biden would veto any rollback of the moratorium. His veto would take a two-thirds vote by both houses to override.

MR. SANDBERG: I agree it's a Hail Mary pass, but it creates noise in the market. We have to take that seriously; not to give it too much oxygen, but enough to make sure that in fact we build a firewall.

We spent a lot of last week focusing on what needs to happen to make sure that we have that firewall. If it gets to the president's desk, that is a very long time to have to deal with a noisy problem in the marketplace.

Transmission

MR. MARTIN: So the uncertainty is the killer. Switching gears, when you poll your members, they usually say lack of transmission is the biggest issue. They have been saying that for at least the last eight years.

The Federal Energy Regulatory Commission and PJM made proposals last fall to deal with this. One suggestion was to move from first-come, first served for letting projects in the queue interconnect to the grid to first-ready, first-served. There are something like 8,100 projects sitting in interconnection queues in this country. What are your members telling you about the effectiveness of what FERC and PJM are proposing?

MR. SANDBERG: The first thing they tell us is they need more transmission capacity. That sounds simplistic, but with more capacity, some of these interconnection problems solve themselves.

The second thing on which they focus is the rules around what it takes to get in the queue and the penalties for not being ready to deliver power when projects reach the front of the queue. It is a big problem to have the queues clogged with projects whose developers lack the capital to build them. That is where we are going to focus a lot of effort.

MR. MARTIN: What realistically can FERC do about building more transmission capacity? That seems like a states' rights question that it is Congress's responsibility to tackle. Nothing is going to happen at the administrative level.

MR. SANDBERG: Yes, but I think there are some green shoots in the new bipartisan infrastructure law that the last Congress enacted that could help. Also, the Manchin proposal had some things in it such as backstop siting authority.

I agree with Greg that there will have to be a compromise between the two political parties.

MR. MARTIN: Greg, one challenge FERC has is it has now lost its chairman. Then one of the other members, a Republican, has to step down in June. It will be down to three members. Have you heard any rumors that a Democratic nominee and a Republican nominee will be paired and brought to the Senate this year?

MR. WETSTONE: There is nothing definitive yet. There are various ways this could go. The administration could nominate a new chairman. It could wait. Obviously, pairing a Democrat with a Republican makes a certain amount of sense, but then you have to wait until June to get started.

We have some really important processes pending currently at FERC. If it is possible to find a candidate with whom Democrats are happy and whom the chair of the Senate Energy Committee, Joe Manchin, likes, things could move sooner. That would be helpful. The only way we unleash the full growth potential under the IRA is to enhance the ability to get projects on line.

We need FERC to do something to clear the bloated interconnection queues, potentially use backstop siting authority and encourage better long-term planning, and not merely tackle cost allocation and the other issues piece by piece. Early action is really important. The next FERC nominee cannot be someone who has to recuse himself or herself from the current FERC proposals.

Customs Detentions

MR. MARTIN: JC, US Customs told Axios, a digital news source read by many policymakers in Washington, that it seized 2,600 shipments from October to January worth $806 million on forced labor grounds. Are you hearing from your members that those seizures are a problem, particularly for the solar market?

MR. SANDBERG: This is a huge issue. Let me start by saying that the industry opposes forced labor in all of its forms and has taken vigorous steps to ensure that the supply chain is free of forced labor.

What it comes down to is the Customs and Border Patrol process. What is the process to let the good stuff in and, to the extent there is anything bad, keep the bad stuff out?

There was some progress late in the year around non-China sources of polysilicon. I am going to grossly oversimplify this, but there are three main polysilicon suppliers in the world. One is US and one is German, but those two represent about 30% to 40% of the US market. Sixty percent of polysilicon in US solar panels comes from a Chinese entity, Tongwei.

Solar panels that have been cleared for entry so far into the US use non-China sources of polysilicon. The issue is how to speed up entry of panels with no Chinese polysilicon and how to allow Tongwei to prove that forced labor has not been used to produce its polysilicon.

MR. MARTIN: Where does that effort stand?

MR. SANDBERG: Candidly, much better right now on the non-China side. Usually what happens is a small release followed by a larger batch release for similar paperwork essentially. Things are starting to speed up. We would like to see the process get to 45 days or less for clearance. There is going to be a lag on the China side. We are still waiting on the China side.

MR. MARTIN: Panels that have been subject to detention orders on suspicion of benefit from forced labor are not easy to free from Customs. I have been watching one case where the legal fees have hit $150,000 after just three months of effort.

MR. SANDBERG: At some point, the storage costs alone eat through the margin on the panels. At that point, the vendor will either reexport them or not even put the panels on the water to the US, other than small test cases because the panels cannot sit in a bonded warehouse at a port forever.

SEC Disclosures

MR. MARTIN: We have time for just two more questions. The Securities and Exchange Commission has proposed extensive disclosures that public companies would have to make about how climate change could affect their business models. The proposed disclosures are so extensive that big companies have been adding people who will work full-time year-round to collect the data required.

Are the trade associations engaging with the SEC on any aspect of this and, if so, what?

MR. WETSTONE: Yes. The existing voluntary framework for climate disclosure is uneven. There are inconsistencies. The existing framework does not necessarily reflect the reality of the greenhouse repercussions of corporate actions.

We favor a more consistent approach. We think that will lead to greater investment in our sector. The disclosures should allow companies to take credit for investments in renewable energy that are clearly part of the climate solution. We don't see that yet. We think the SEC has an important role to play, and we support many of the elements in the proposed rule.

MR. MARTIN: JC, are you engaged with the SEC on any aspect of this?

MR. SANDBERG: We are not. We have many publicly-traded members that are, but we as a trade association are not.

MR. MARTIN: My last question is whether there are other issues we haven't discussed that you think will be in play this year in Washington and that affect our industry?

MR. WETSTONE: I am tempted to say yes and leave it at that.

We are hoping to see from FERC a requirement for interregional transfer capacity between RTOs. We need to move in this country toward a macro grid that connects the parts of the country with the best renewable resources to the parts with the greatest electricity demand. Obviously, we don't have that.

We are in Austin today under threat of an ice storm barely two years after Winter Storm Uri. During Uri, people froze to death because the electricity went off. Electricity was available in neighboring states that could have been shifted to Texas, but the Texas grid is not interconnected with the rest of the country. We need better interconnection. I think it can be done in a way that does not subject the Texas grid to federal regulation. Tee that one up as an additional issue.

MR. MARTIN: Okay, JC?

MR. SANDBERG: We talked today about federal siting and permitting. The Department of Energy is thinking about issuing guidelines for developing solar projects on federal lands and adjacent sites. It is a potential issue we are watching because it could affect deployment.