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<title>April 2006: Wind in the Weeds</title>
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<p align="left"><font face="Arial"><strong><small>About The Author:<br>
<br>
</small></strong><span lang="X-NONE" style="color: black"><font size="2">
ROGER FELDMAN, Co-Chair of Andrews Kurth LLP Climate Change and Carbon
Markets Group has practiced law related to the finance of environmental and
energy projects and companies for 40 years. In particular, he has analyzed
and executed a wide variety and substantial value of project financings. He
chairs the American Bar Association’s Committee on Carbon Trading and
Finance, serves on the Board of the American Council for Renewable Energy,
and has been a senior official in the Federal Energy Administration. He is
a graduate of Brown University, Yale Law School and Harvard Business School.</font></span></font></p>
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<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p><b><u><br>
April 2006</u></b></p>
<p align="center"><font size="6"><b>Wind in the Weeds</b></font></p>
<p><strong>by Roger Feldman -- Bingham, Dana L.L.P.<br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2</em>006/05/06)<br>
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<p ALIGN="JUSTIFY">Next to Appropriations, the Law of Unintended
Consequences is Washington’s greatest contribution to our nation’s commerce.
A significant component of future merchant generation is projected to be
from the so-called "renewables" sector. Meanwhile two significant shifts in
national energy policy jeopardize the thrust of this initiative. Both of
them ironically involve the biofuels sector, not typically identified with
the power business.</p>
<p ALIGN="JUSTIFY">First, attention is shifting away from "green"
power—solar, wind, hydro—as the principal or best source of improved
environmental approaches of pollution and greenhouse gases production—and
toward larger central station IGCC and nuclear.</p>
<p ALIGN="JUSTIFY">Second, the policy rationale for renewables has shifted
to the displacement of volatile-priced imported oil and liquefied natural
gas. Biofuels (ethanol, diesel and gasified biomass) have become the primary
focus of Administration efforts in this regard. </p>
<p ALIGN="JUSTIFY">There are some unintended consequences in this for the
power sectors, the greatest challenge by biofuels use is emergent hybrid
electric technologies for transportation. In principle, this represents a
potentially massive new market for utility electricity providers, notably
the distribution systems of traditional utilities utilizing traditional
field. The role for distributed green power could be more limited to the
extent biofuels proponents, either lose the car debate or win it and the
real winners are the traditional energy players. </p>
<p ALIGN="JUSTIFY">Consequently, biofuels matter for merchant power
generators, and it is useful for market strategists focused on the electric
sector to look up from their knitting and become aware of the five key
issues with which the biofuels industry is wrestling. The zig and zags in
these biofuels debates and their ultimate resolution affect what renewable
merchant power can and will do as a market force. </p>
<p ALIGN="JUSTIFY">First, the debate over the merit of the use of biofuels
must be resolved. Recent articles have mocked it as a Trojan Horse for the
agricultural lobby; a most ineffective solution of national needs from an
energy balance standpoint; trumped up grounds for protection for the
American automobile industry and a phony national security issue. In
response increasingly, the entire fuel value chain is being analyzed with a
view to improvement of net energy balance of the biofuels process, i.e.
Supplanting natural gas consumption in ethanol manufacture; reduction in the
use of petroleum fuels for the transportation of ethanol; early introduction
of cellulosic-based ethanol through production improvement are all merchant
activities receiving emphasis.</p>
<p ALIGN="JUSTIFY">Second, the assumption that the government can or will be
the driver of the bioenergy breakthroughs over the long haul is being
obviated. Two different roles government can play are receiving an emphasis
which would serve the merchant power industry well. Government can get the
different incentives right for the development of different types of
bioenergy. It can also jawbone and encourage the three underlying key
business sectors—energy, production, agriculture and transportation—to
remove the commercial barriers along the fuel value chain which interfere
with the bioenergization of the American economy. Like the power sector,
there are numerous "national plans" for biofuels development emerging from
many quarters. The will to implement them by the parties who really are at
risk or stand to benefit, needs to be encouraged by government. The results
of shifts in emphasis in government policy could affect the merchant power
sector.</p>
<p ALIGN="JUSTIFY">Third, the interplay of the energy policies the United
States is pursuing with respect to non-bio based energy sources with
biofuels must be confronted. How we regulate electric prices; facilitate LNG
imports; price markets for improved electric-based transportation, and
promote (or do not promote) tax policies which focus on other renewable
fuels cannot all impact the bioenergization of America. The placement of
biofuels and power in separate bureaucratic situations precludes the
necessary energy policy coherence to the possible detriment of merchant
power. </p>
<p ALIGN="JUSTIFY">Fourth, it is becoming more common than a single, quick,
technical fix through biofuels is required and may be expected. One way to
do that is to enable private technology to work not only on new fuel
production mechanisms, but on the facilitation of fuels transportation;
alternate fuels utilization for different engines; conversion of biogases to
liquid fuels; and response to environmental issues. That means
encouragement, which could extend to the power sector, of entrepreneurial
breakthroughs, by both providing a stable market for their deployment, and
assisting new inventions by smaller entrepreneurs to reach the marketplace.
Government has not been too effective in the power business in these
regards, and its success in the biofuels area could collaterally affect the
sector as well.</p>
<p ALIGN="JUSTIFY">Fifth, there must be strategic alignment with supporters
of sustainable, green, non-polluting technologies and the policies they
endorse. Because the bioenergy revolution is seeking encouragement as one
consonant with "green" objectives—rather than a diversion from a ploy to end
run them, emphasis is now being given to the importance of promotion of
biomass energy utilization on a distributed basis, whether through
digesters, gasification, power generation, or as ancillary to dealing with
major bio waste problems plaguing parts of the country. A possible boast for
merchant power associated with efforts in the biofuels sector could result.</p>
<p ALIGN="JUSTIFY">Thus, resolution of the several key biofuels issues can
affect the future profile of renewable merchant power. A wise word to
captains of the merchant power ships: heed the winds that through the green
weeds below.</p>
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<p class="MsoBodyText" align="left" style="margin-bottom:0in;margin-bottom:.0001pt;
text-align:left"><font face="Arial" size="2">
<span lang="X-NONE" style="color: black">ROGER FELDMAN, Co-Chair of Andrews
Kurth LLP Climate Change and Carbon Markets Group has practiced law related
to the finance of environmental and energy projects and companies for 40
years. In particular, he has analyzed and executed a wide variety and
substantial value of project financings. He chairs the American Bar
Association’s Committee on Carbon Trading and Finance, serves on the Board
of the American Council for Renewable Energy, and has been a senior official
in the Federal Energy Administration. He is a graduate of Brown University,
Yale Law School and Harvard Business School.</span></font></p>
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