Expected changes in renewable energy policies
Investors watch for potential inflection points in markets. Many people will be focused this year on what changes the new Biden administration will make to accelerate deployment of renewable energy and to address climate change. Three knowledgeable Washington observers talked about what to expect at the annual renewable energy law conference hosted by the University of Texas in Austin in late January. The following is an edited transcript.
The panelists are Abigail Ross Hopper, CEO of the Solar Energy Industries Association, Heather Zichal, former second-term Obama energy czar and the new CEO of the American Clean Power Association, which is the successor to the American Wind Energy Association, and Richard Glick, incoming chairman of the Federal Energy Regulatory Commission. The moderator is Keith Martin with Norton Rose Fulbright in Washington.
MR. MARTIN: Abby Hopper, what do you expect to see for renewable energy in the clean energy and infrastructure plan that Biden will propose, and when do you expect the details to be released?
MS. HOPPER: Let me say first that I am thrilled to have an administration that prioritizes the intersecting crises that our nation is facing — the climate crisis, the environmental crisis, the environmental justice crisis, the economic crisis — and that sees clean energy as a path to tackle all of them at one time.
What I think will happen is that all the levers of government will be used to solve those crises.
We should see an infrastructure package fairly soon. There will be things for clean energy — like transmission, like tax policy, like funding for research and development — but the focus will be on acceleration.
The clean energy transition is happening. The market has spoken. There is no question about the direction in which things are headed. How quickly it will happen is what is up for grabs. I think this administration will focus on rapid, rapid deployment, and that is what I am excited about.
MR. MARTIN: Heather Zichal, do you have any sense of what might be in it and when it will be announced?
MR. ZICHAL: The early indications are we may start seeing details as soon as February.
In terms of the substance itself, to Abby’s point, the new president has made it clear that climate policy is at the front and center of how he is thinking about economic policy. The Biden team is taking a holistic approach and thinking about not only what the Treasury department and US Trade Representative can bring to the table on climate policy, but also what other parts of government can do as well.
They are looking at things like what differences we can make in the power sector, how we can rapidly deploy zero-emission vehicles, and how to rebuild our crumbling infrastructure in a way that can withstand a changing climate. I am very hopeful that we will have a robust package that will drive not only meaningful change on the climate agenda, but also create millions of high-paying quality jobs.
MR. MARTIN: The US Chamber of Congress and the Bipartisan Policy Center said they hope the clean energy and infrastructure bill can be enacted by July 4. Is that realistic?
MR. ZICHAL: If I had a crystal ball and could tell you dates and times, I would be the most popular woman in Washington. Unfortunately I don’t, but the infrastructure agenda should be something that can unite Republicans and Democrats.
Everyone is for job creation. Our Clean Power Association member companies are creating jobs in all 50 states. There is a growing interest in addressing climate policy on both sides of the aisle. I think Biden is uniquely situated to deliver a policy in a way that can garner bipartisan support.
In terms of timetable, July is fairly optimistic to be through the entire legislative process, but we are going to do everything we can to create political space and ensure success for that package.
MR. MARTIN: Abby Hopper, do you think the clean energy and infrastructure bill will have to pass as a budget reconciliation measure so that it requires only a majority vote rather than the usual 60 votes in the 100-member Senate and, if so, what are the implications for what can be included?
MS. HOPPER: I think what you are asking about is the durability of a climate policy. That is important. We learned that in past legislative battles.
I echo what Heather said. The notion that a clean energy transition is partisan is a false narrative. All of our polling shows that Republicans and Democrats both believe the government should play a stronger role in helping with the transition. Look at places like South Carolina. A couple years ago, it had a Republican governor and a Republican legislature, and it passed a really good bill to encourage wider adoption of solar within the state.
That gives me some hope that the clean energy pieces of a larger bill will remain durable going forward.
MR. MARTIN: Heather, polls have shown that the Republican party, as a whole, does not really believe that government action is required on climate change. The Republicans in Congress have been pretty unified in their opposition. Do you see a major break in this now that Trump has left office?
MR. ZICHAL: I am very optimistic that we will see a break. It is not just because this reflects a growing desire among the American electorate. When the Biden administration announced we are rejoining the Paris climate accord, every major corporation and trade association, including the American Petroleum Institute, embraced that move.
There is a little bit of a misconception about what is possible in this area. Biden will hit the reset button, and then we will find out. The American Clean Power Association members are putting steel in the ground. We are creating jobs. I think that is an agenda that both Democrats and Republicans can get behind.
MR. MARTIN: Let me drill down into some details and ask what odds you place on any of the following being enacted. Starting with Abby Hopper, how likely do you think it is Congress will enact a tax credit for standalone storage this year?
MS. HOPPER: Likely. That is one of those things for which there is broad bipartisan support.
MR. MARTIN: Heather Zichal, same answer?
MR. ZICHAL: Yes. Absolutely.
MR. MARTIN: What about a direct-pay alternative to tax credits. Abby, what are the trade associations asking for at this point? The House passed a quick-refund program last July that would work through the IRS rather than the Treasury and refund only 85% of the credit value.
MS. HOPPER: We have seen a tightening of the tax equity market. We are asking for refundability in a quick and effective way to get the market moving. I don’t think 85% is enough. We are lobbying for a bit more than that.
MR. MARTIN: Is the plan still to rely on the IRS rather thanthe Treasury?
MS. HOPPER: I don’t think we have a particular preference for one over the other.
MR. MARTIN: What are you hearing from Democrats who traditionally have not been keen to make direct payments to companies?
MS. HOPPER: I think there is a recognition that these are unprecedented times. The economic situation remains challenging. A short-term, direct-pay option is different than a long-term payout to corporations, so I think there is some appetite to do that.
MR. MARTIN: Heather Zichal, what are you hearing about this?
MR. ZICHAL: The ACP is new and so I have been spending a lot of time talking to members. Direct pay has been a priority for every single CEO to whom I have spoken. We are going to be aggressively supporting and lobbying for 100% direct pay.
Direct pay is fair game in a reconciliation package. We are seeing growing receptivity to it. There is a growing recognition that we need to pull out all the tools that can help to deploy clean energy and create jobs as quickly as possible.
MR. MARTIN: Have you just given us a signal how you want your new trade association to be referred to — A-C-P and not sound out all the letters like for the other trade associations, SEIA or AWEA? Not ACK-pa?
MR. ZICHAL: Please don’t call me ACK-pa! That would make me very sad.
MR. MARTIN: Obama tried to get a clean energy standard through Congress, and it failed in the House after the politics changed in 2010. Do you think that will be on the Biden agenda as part of the infrastructure bill?
MR. ZICHAL: Unclear. I do think that there is broad recognition because Biden has such a large climate team that is well versed in the policy . . . . Sorry about my dog. He gets jealous when I have cameos.
MR. MARTIN: He is more than welcome.
MR. ZICHAL: I think there is broad recognition across the administration about the need for a long-term price on carbon. Whether that is a carbon tax, whether it is a clean energy standard, I think they are going to want to keep an open mind and hear from Capitol Hill, industry and other key stakeholders about what the best way is to address this.
The good news is that there are tools readily available that will lead to more deployment of clean energy. We all know what the science says. We all know that we lost the last four years and this is really our moment to take the reins and rapidly deploy these projects. We have a great opportunity to hit the ground running with this new administration.
MR. MARTIN: Dogs are supposed to be good judges of character. Maybe after the last four years, a litmus test for people in important positions should be whether dogs like them?
MR. MARTIN: Abby Hopper, this is the $64,000 question. Are you pushing for a further extension of the renewable energy tax credits and, if so, at what level and for how long?
MS. HOPPER: The companies that belong to Heather’s and my trade associations want certainty. They want to know how can they plan for their businesses. Government actions that upend their economics are not welcome developments.
Yes, we are advocating for a stable policy that allows businesses to grow. My job is to do that. That’s what SEIA does. We lobby for a competitive environment in which solar and storage companies can continue to grow. That means a clean energy standard. That means extensions for tax credits.
We are a bit agnostic about what the correct policy tool is. We are very focused on the outcome. The art of the possible will influence what we lobby for, but the desired outcome is clear. It is a stable business environment so that capital can be deployed and projects can be built.
MR. MARTIN: Heather, many people are asking whether the tax credits will be extended again and increased in amount. They were just extended on December 22. What do you think?
MR. ZICHAL: We are in the early days of the new Congress. People are still trying to determine the priorities and what should loom large on the climate agenda.
We have a new chairman of the Senate Finance Committee who has introduced a bill that is really interesting and has some potential momentum. He is proposing a technology-neutral tax credit whose amount for any particular taxpayer would be based on emissions. If you want to think strategically about cleaning up the tax code, about doing something that creates a level playing field for wind, solar, storage and offshore wind, I think that approach has potential benefits.
MR. MARTIN: Abby, what do you expect to happen with tariffs on solar panels?
MS. HOPPER: In October, the former president issued a proclamation that revoked the bi-facial exemption and then slowed the stepdown in tariff amounts for all solar panels. We have been litigating his prior attempts to remove the bi-facial exemption. We continue to litigate that.
Business does not do well with unpredictable rules. Deals that were in process prior to a proclamation last October were affected by the change in step-down rate.
We are asking for the original phase-down schedule to be restored. We think the bi-facial panel exemption should be put back in place. There is no reason to collect tariffs on a product that is not being manufactured in the United States.
Beyond that, these tariffs do not need to be extended. There is zero policy reason to do that. There is certainly a policy discussion to be had about how we can incentivize domestic manufacturing. SEIA has done a lot of thinking about this. We put out a white paper about what those policies should be and have been talking to the new administration about that.
MR. MARTIN: SEIA moved quickly to encourage solar companies to diversify their supply chains after the news broke about forced labor practices in Xinjiang province in western China. Do you expect Congress to pass a bill banning imported products from the region? Do you expect the administration to take action on its own without waiting for Congress?
MS. HOPPER: We expect that to happen in some form, and that is why we have been so out front on this issue. We are working quickly to develop a traceability protocol so that not only do we have companies assuring us that they are not sourcing from there, but we also have objective ways to confirm that the supply chain is free from forced labor.
Other Biden Actions
MR. MARTIN: Heather, Biden has already issued a series of executive orders that will help renewables.
He gave notice that the United States will rejoin the Paris climate accord. He is ordering federal agencies to buy more renewable energy. The next item hasn’t happened yet, but the SEC and bank regulatory agencies are expected to require more robust disclosures about climate change effects. Biden has instructed federal agencies to take account of the full social cost of greenhouse gas in their rulemaking. BOEM is expected to start issuing construction permits for offshore wind.
Are there other things you expect that are not on this list?
MR. ZICHAL: There are a few things. The administration not only is taking proactive measures through the executive orders, but is also identifying any problematic decisions that were made by the Trump administration that need to be revisited. A handful of issues are likely to bubble up to the top from that process.
I expect the administration to set a national target to achieve 100% clean energy in the electric sector by 2035 together with some accompanying steps.
I would not be surprised to see targets for permanent renewables on federal lands and waters, including offshore targets. Another likely effort is getting the Department of Transportation and the Environmental Protection Agency to work together on revised fuel economy standards.
I am sure Chairman Glick will speak to some of the other steps the Federal Energy Regulatory Commission is likely to take. There is a basket of issues around permanent challenges and environmental review that I expect to see from this administration.
MR. MARTIN: Does either of you expect a carbon tax to be enacted or a carbon border adjustment to be imposed?
MS. HOPPER: I don’t think we are at the point of enacting a carbon tax, but the technology-neutral tax credit proposal from Ron Wyden, the incoming chairman of the Senate tax-writing committee, is a step on the journey toward addressing carbon emissions.
MR. MARTIN: Heather, do you expect a carbon border adjustment?
MR. ZICHAL: I think this administration will keep all options on the table. There is a lot that is not known about the appetite in Congress. At the end of the day, any administration sets priorities. There are things on which it will choose to spend political capital, and there are things that are too controversial to pass.
The lens through which the administration will view all of the possible policy tools is which will drive the most renewable or clean energy deployment across all sectors? Which will create the most economic opportunity?
MR. MARTIN: Let’s move next to someone whom dogs like, the new chairman of the Federal Energy Regulatory Commission, Richard Glick. He is well liked in Washington. He is a veteran of the renewables policy debates, as he has spent his entire career on them.
Wind developers have been saying for some time their number one issue is lack of transmission. FERC has had backstop authority to force siting of interstate transmission lines within national-interest corridors since 2005. A US appeals court in 2009 set aside a FERC order laying out procedures to invoke the authority.
Why hasn’t anything been done by FERC since 2009 to fix the procedural problems? Is this an area where action is expected this year?
MR. GLICK: First, I have to warn you that I have a couple cats, and they may walk in like Heather’s dog did.
FERC does have backstop siting authority for transmission, but the 4th circuit court of appeals ruled several years ago that the authority is somewhat limited. You are correct that the transmission would have to be located in an interstate national-interest corridor. The court ruled we can only act when a state fails to act on a transmission siting request. If a state acts by saying ‘no,’ per the court ruling, we can’t do anything about it.
Some members in Congress have introduced legislation over the years that would overturn that decision and give us backstop siting authority in cases where a state says “no.” Some commentators have suggested that we do not need to wait for Congress and should act in cases where a state rejects a transmission siting request, but I think it is better to give Congress time at least to decide whether to overturn the decision.
Siting has been a very important issue. It has been very difficult to site some long-distance transmission lines that would provide access for remotely located renewable resources. Any such lines have to cross a number of states, and one state can veto the entire project.
But there are a lot of other issues. I think FERC can play a role in getting transmission lines built. Planning, cost allocation and incentivizing transmission are three areas where we are going to be spending a lot of time in the near future.
MR. MARTIN: Do you think Congress is likely to weigh in on this given the tension between states’ rights and federalism?
MR. GLICK: It is a difficult issue because it involves eminent domain. We see that flaring up with natural gas pipelines, as well. FERC has federal authority over siting of natural gas pipelines. That has led to lots of litigation and angst from both sides of the political spectrum. That is another reason why these are such hard questions for Congress to tackle. As for the 4th circuit decision, our best approach is to ask Congress for more clarity around what it intended when it gave us the backstop siting authority.
MR. MARTIN: You mentioned cost allocation. As you know, renewable energy developers often compare the grid to an interstate highway that makes the last car entering the interstate pay the full cost of any needed upgrades. The utilities complain at the same time about bloated interconnection queues and the amount of time they must spend studying the effects not only on their systems, but also on other affected systems nearby.
What role does FERC have in fixing this, and how do you see FERC fixing it?
MR. GLICK: We have a significant role to play in a couple respects. First, in terms of allocating the cost of transmission upgrades, the courts have essentially told us that we have to allocate the costs in the same manner as the benefits are received. What happens currently is the developer whose project triggers the need for the transmission upgrade is usually assigned most, if not all, of the cost, which can be pretty significant.
We have to recognize that there will be other beneficiaries. When transmission grids are upgraded, that gives utilities greater access to lower-cost generation. We need to take a look at our cost allocation priorities.
In addition to that, it seems to me that if one project gets built and the developer has to pay for the entire cost of a network upgrade, others who follow may also benefit. They get a free ride. That is another issue that we will need to address.
Finally, I think we need to figure out a way to improve the interconnection process. In many of the regions we are talking about, something like 90% of the projects sitting in queues are wind and solar. It takes a long time to get to the front of the line. FERC has authority to deal with some aspects of this. I would like for us to look at it further because it is an important barrier to the transition to renewables.
MR. MARTIN: Good list. It will take a little time to work out solutions to those issues with your colleagues on the commission.
Let’s move to the MOPR. You have been a critic of the minimum offer price rule that forces renewable energy generators bidding into capacity auctions in PJM to bid at least a minimum price. The counterpart in New York is called the BSM rule. It requires bidders in the New York City and Hudson Valley capacity markets to meet a price floor until their capacity has cleared 12 monthly auctions.
How and when does this get resolved?
MR. GLICK: At our last monthly meeting just before Trump left office, there was a proposal to take up a petition to expand the New York program to the entire state. That proposal was rejected by a vote of four to one. That means the petition is still pending, so I am not permitted to talk about how we might act on it.
I will say in general that I have been critical of MOPR programs and of the New York program in particular. BSM stands for buyer-side market power. We are imposing these requirements on renewable energy generators, storage projects and others that are not buyers and have no market power. That doesn’t make any sense to me. I would like the commission to address the issues involved and provide more clarity.
MR. MARTIN: There are two capacity auctions scheduled this year for PJM. One is coming up pretty quickly, and I believe the MOPR will apply to it. Another one is expected in December. Will the MOPR apply to the one in December?
MR. GLICK: I believe the first one is in May. It is hard to make a prediction about the rules that will apply to any future auction. I have four other colleagues on the commission, and we have to get three votes for a particular position to move forward.
That said, I think everyone recognizes that the days of the MOPR are numbered. State regulators, RTOs and stakeholders around the region don’t like it. It has been a complete mess since the commission started down this path a few years ago. We created a lot of uncertainty. People don’t know, even for the auction coming up in May, what the rules are. We still haven’t established all the rules yet.
I think we need to reconsider how we address capacity markets and all the other markets in RTOs around the country. We need to figure out a better way forward to accommodate state clean energy programs and not try to block them through pricing mechanisms.
MR. MARTIN: The MOPR is tied up in two US appeals courts. Do you expect FERC to ask the courts to send it back to FERC for reconsideration?
MR. GLICK: It is something we need to discuss internally. I have only been chairman for a few days and have not had a chance to talk yet to the commission staff about this.
MR. MARTIN: Switching topics, FERC has been wrestling with whether to treat storage as generation, transmission or a hybrid of the two. It held a technical conference last October. Two questions: first, what difference does it make how batteries are treated?
MR. GLICK: There is some benefit for storage providers to be treated as transmission. If a battery is a transmission asset, then you get to recover your cost plus a reasonable rate of return on your investment from all users of the grid. If the battery is a generation asset, the return is subject to the whims of the market.
Most of these markets are competitive. Obviously when prices are high, you do well, but when prices are low, you don’t do as well. It is probably a little more difficult to obtain financing for a storage project that is treated as a generation asset.
Over the last several years, we have had individual storage projects ask to be treated as transmission assets. We have addressed those requests on an individual basis. Recently, Mica came in with a more generic proposal about when storage projects should be treated as transmission. We issued an order allowing Mica to do that under some very narrow circumstances.
We still need as a commission to provide clearer guidelines for when we will allow storage to be treated as transmission. There is a string of issues. For instance, should storage projects that are treated as transmission assets be allowed to participate in the energy market when they are not being used for transmission? What should happen in a transmission planning process when you have multiple storage assets and only some of them are treated as transmission? There is a potential for discrimination.
MR. MARTIN: My next question was going to be when will this be sorted out? It is clear there are still a lot of issues in play.
MR. GLICK: I think so. We are working our way through them. It is better like we did with Mica to try to address these issues on a more generic basis.
Trump Grid Order
MR. MARTIN: A Trump executive order last May barred the purchase or use of equipment from companies in foreign adversary countries that might cause harm to the US electricity grid. An example may be some types of Chinese equipment. FERC issued a notice of inquiry in an attempt to collect information about the extent to which potentially risky equipment is already being used by US power companies. As you can imagine, an order banning something immediately without being clear about what is banned creates challenges when financing transactions.
What do you see as the next step in this saga?
MR. GLICK: One of President Biden’s day-one executive orders sensibly froze various Trump administration orders, including this one.
The new administration will make its way forward. I think the issue will be whether to issue a whitelist or blacklist of equipment or entities that are allowed or banned. Any such list would come from the Department of Energy or the Department of Homeland Security.
From FERC’s perspective, we have authority, along with the North American Electric Reliability Corporation or NERC, over reliability of the bulk-power system. My colleagues and I at FERC are greatly concerned about security issues. The concerns extend not just to hardware, but also to software. We saw in the recent SolarWinds incident that software can be a significant problem for cybersecurity.
FERC will continue to assess what requirements should be imposed on utilities. Some such requirements are already in place. However, we are not the agency that will make decisions about particular types of equipment. Other agencies are better equipped to handle such questions.
Other FERC Actions
MR. MARTIN: FERC said in a policy statement last fall that it is open to having the RTOs incorporate carbon pricing into their markets. What is an example of what FERC would entertain?
MR. GLICK: We are sifting through the comments about the policy statement now. We have not finalized that policy statement yet.
As for an example, New York has imposed a carbon pricing regime for a number of years. Since we have authority over the wholesale markets, if the New York ISO were to tell us that it wants to apply the same policy to incorporate a price for carbon into wholesale power prices, the policy statement suggests we would approve that.
It is a little more complicated when you have multi-state RTOs, which we do in most parts of the country, but I think we have signaled that the commission is serious about accommodating state carbon policies, even in a multi-state system.
MR. MARTIN: FERC issued an order called Broadview Solar last fall that attracted a lot of criticism. It addresses how to measure project size where, for example, a project has a nameplate capacity of 130 megawatts, but the inverters limits the electricity that can actually be delivered to the grid to 80 megawatts. Is it an 80-megawatt or a 130-megawatt project for purposes of the 80-megawatt limit on when utilities can be required to buy the electricity under PURPA?
FERC basically said it is 130 megawatts, but the commission did not explain how adding a battery affects the capacity. Do you know the answer?
MR. GLICK: I dissented from that particular order and the order is pending on re-hearing at FERC, so I am not allowed to comment specifically.
We are still making our way through what it means to have an 80-megawatt project when the nameplate capacity is more than 80 megawatts, but the project is only able in practice to send 80 megawatts or less to the grid. Hopefully the commission will speak on it soon.
MR. MARTIN: Last question. Environmental justice has become more important. Both you and Allison Clements, the other Democratic commissioner, have been talking about it. FERC expects finally to stand up a new office to give the public more input into policy decisions before the commission. I read somewhere that the new office might charge applicants for FERC orders fees to help interveners to cover legal costs to intervene. How do you expect this to work?
MR. GLICK: Congress actually created an office of public participation in 1978, but for some reason, FERC never established the office. Congress included language in the most recent COVID-relief bill in late December directing the commission to deliver a plan for moving forward with that office. We expect to establish the office soon.
All of our expenses are funded currently via fees on various stakeholders that participate in proceedings at the commission. For instance, when you file a complaint, you have to pay a fee. When you ask for a declaratory order, you have to pay a fee.
Most fees are used to fund the commission’s activities, and I think people are suggesting that the office of public participation would be funded the same way. We are still working our way through the language in the original bill creating the office and the most recent bill that just passed.
No decision has been made about whether we need to go to Congress to get extra appropriations to fund intervenor participation or we can do that with the existing fees we impose on everybody.
Environmental justice and the office of public participation will play a role in future decisions on such things as the siting of natural gas pipelines and hydroelectric facilities. The commission has not really paid significant attention to environmental justice considerations in the past. It is something that I am committed to do as we move forward.
MR. MARTIN: Those of you watching on Zoom can’t tell, but this program has now gone to the cats and dogs. Our producer has a cat walking across her desk between her and the camera. Thank you, panelists.