|
Server : Apache/2.4.62 System : FreeBSD fbsdweb2.web.rcn.net 14.1-RELEASE FreeBSD 14.1-RELEASE releng/14.1-n267679-10e31f0946d8 GENERIC amd64 User : www ( 80) PHP Version : 8.3.8 Disable Function : NONE Directory : /domains/enrgy/feldman/ |
Upload File : |
<html>
<head>
<title>February 2009: Stimulus VAR Support</title>
<style>
<!--
h1
{margin-top:0in;
margin-right:0in;
margin-bottom:12.0pt;
margin-left:.5in;
text-align:justify;
text-indent:-.5in;
tab-stops:list .5in;
font-size:12.0pt;
font-family:"Times New Roman Bold";
}
-->
</style>
</head>
<body style="font-family: Arial" vlink="#808080">
<div align="center"><center>
<table border="0" cellpadding="8" cellspacing="0" width="98%" bgcolor="#000000">
<tr>
<td width="100%" valign="middle"><a name="top"></a>
<img src="../images/pmamagsm.gif" alt="PMA Online Magazine" border="0" align="right" width="229" height="100"></td>
</tr>
</table>
</center></div><center>
<table border="0" cellpadding="8" width="98%">
<tr>
<td width="25%" valign="top" align="center">
<!--webbot bot="Include" U-Include="wv_sidebar.htm" TAG="BODY" startspan -->
<table border="0" cellpadding="8" width="98%" id="table1">
<tr>
<td width="25%" valign="top" align="center"><map name="FPMap0_I1">
<area href="http://www.powermarketers.com/adrates.html" shape="rect" coords="14, 297, 97, 322">
<area href="http://www.powermarketers.com/pmajobs.htm" shape="rect" coords="11, 230, 95, 257">
<area href="http://www.powermarketers.com/main.htm" target="_parent" shape="rect" coords="12, 163, 96, 189">
<area href="http://www.powermarketers.com/power2.htm" target="_blank" shape="rect" coords="12, 95, 96, 121">
<area href="../pmamag.htm" shape="rect" coords="11, 29, 96, 54"></map>
<img rectangle="(12,163) (96,189) http://www.powermarketers.com/main.htm##_parent" rectangle="(12,95) (96,121) http://www.powermarketers.com/power2.htm##_blank" rectangle="(11,29) (96,54) ../pmamag.htm" src="../images/magmenu.gif" alt="PMA OnLine Magazine Menu" border="0" align="center" usemap="#FPMap0_I1" width="110" height="350"><p>
<a href="../searchpma.htm">
<img src="../images/archives.gif" alt="Archives Search" border="0" align="center" WIDTH="70" HEIGHT="40"></a></p>
<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>
<p class="BodyText05DS" align="left" style="text-align:left"> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p> </p>
<p><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" WIDTH="71" HEIGHT="35"></a></td>
</tr>
</table>
<!--webbot bot="Include" i-checksum="19883" endspan --></td>
<td width="75%" valign="top">
<img src="../images/feldman.gif" alt="Washington Viewpoint by Roger Feldman" border="0" width="375" height="75"><p align="left"><b><u><br>
</u></b><u><b>February 2009</b></u></p>
<p align="center"><font size="6"><b>Stimulus VAR Support</b></font></p>
<p><strong>by Roger Feldman --
</strong><b>Andrews Kurth, LLP</b><strong><br>
</strong><font face="Arial" size="2">(<em>originally published by PMA OnLine
Magazine: 2009/04/07</em>)<br>
</font></p>
<div>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Can
clean energy investments carry their important share of the Recovery &
Reinvestment load? Here’s a contrarian answer: its up to the utility
industry and its regulators. </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">In these
bleak times the challenge to America is spending public money to fill
the gap in investment and preserve jobs. Energy investment has been
designated as one key to this goal. The tandem of the “Smart Grid” and
renewables (slated to receive together many billions of dollars) is
meant to be a centerpiece of the program to pump money into the
economy. The new wires to be built are to conduct the clean new energy
to supplant the use of greenhouse gas emitting fuels and also create
“green jobs.” Complementing this thrust, energy efficiency savings are
to be achieved through a diverse series of buildings and government
grants programs which combine for a comparable aggregate amount.
(Electric transportation and energy efficient manufacturing
demonstration programs are miniscule by conparison.) But there’s a
catch: the nature of the electricity business which is slated to absorb
this shock therapy.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Energy
policy proponents are accustomed to tie-ups in interregional energy
resource, and energy processor internecine squabbles. It is the dirty
linen of the business, and it is attested to in the final form of every
Energy Bill. They just never thought all those issues would all have to
be resolved to save the country. We hope it will.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">But
there are three major “matchup” factors which have to be taken into
account in assessing the probability of energy repositioning
representing a pillar of recovery. It is these three factors which make
the involvement of the utility industry so important. </span></p>
<blockquote>
<blockquote>
<ul>
<li>
<p class="BodyTextHanging5SS" style="text-indent: -.25in">
<span lang="X-NONE" style="color:black">Match of stimulus
funding availability and industry capital requirements</span></li>
<li>
<p class="BodyTextHanging5SS" style="text-indent: -.25in">
<span lang="X-NONE" style="color:black">Match of grid needs
and grid regulation with renewable power source requirements</span></li>
<li>
<p class="BodyTextHanging5SS" style="text-indent: -.25in">
<span lang="X-NONE" style="color:black">Match of national
goals for energy growth/substitution and carbon/other
environmental goals</span></li>
</ul>
</blockquote>
</blockquote>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">The
renewable energy industry is one that has grown up based on tax credits
and leverage, with the former making possible the latter. Its
development is certainly made easier if there are mandatory purchase
requirements as represented by Resource Portfolio Standards. The
overriding problem, therefore, facing the industry is the shrinkage in
both the number of financial lenders and the number of investors willing
to provide equity for tax credits. The efficacy of the new provisions
to provide Treasury direct grant funding in lieu of credits require
implementation is critical to success. In any case, however, project
development in remotely located areas remains a time consuming process
that may fall outside the Stimulus penumbra.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Loan
guarantees have proven to be a cumbersome tool for aggressive bank
lending to date, particularly when they have been focused on
commercializable innovation which can pay back the Government. They
work best for the economy when there is someone other than the Federal
Financing Bank to make the loans. Again the form and efficiency of the
new “short form” program which the Stimulus gives to DoE to implement
remains to be worked out. It, too, is conceived, however, as a
relatively short term rather than a sustaining measure.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">More
fundamentally, loans--whether guaranteed or not--generally must proceed
after pre-development and be based on firm offtake markets. The former
is time consuming; the latter is frequently problematic, given the
uncertainties as to power market prices (however much those future
prices may be fueled by visions of cap-and-trade-driven price
escalation). </span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Who
still has the capital, the processing needs, and now entitlement to
renewable tax credits? The utilities. If they opposed a Federal RPS
designed to meet their power needs, do not contribute to removal of
capital constraints, and are only modestly driven to seek to alter
current regulation, this energy pillar of recovery is jeopardized.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">This
conclusion is exacerbated by the fact that renewables’ success in many
cases will only be driven if there is a vast expansion of the “smart
grid,” to which so many dollars have been allocated. There are several
different connotations as to the meaning of a “smart grid”: the
“smartest grid,” from a low cost power delivery/cost effectiveness
standpoint, might wind up delivering fossil fuel power from remote
locations--not quite what renewables’ sponsors probably had in mind.
The smartest grid from a renewables standpoint would be one that reached
to the far corner of renewables’ power sourcing and was also robust
enough (<i>e.g</i>., sources of reactive power) that it could deal with
fluctuations in the availability of unstored solar/wind power. The
smartest grid from a consumer standpoint, on the other hand, should be
flexible enough to accommodate the possibility of varying use to conform
not only to renewable power characteristics’ variance, but to the
requirements presented by the objective of energy efficiency. Certainly
the renewable grid would be costly--$100 billion according to a recent
study sponsored by several ISOs. Its efficiency smartness is only
maximized when utility revenues and rates are decoupled so that
utilities become a friend, not a foe, of required demand. Certainly
this would be controversial. Why? A recent Wall Street Journal
characterization says it all: “Less Demand, Same Great Revenue.”</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Whatever
grid is the smartest of them all, and however much support it may
receive, it is clear from years of experience that its development will
face many of the types of regulatory issues which grid development has
in the past, exacerbated by the requirements of the types of long
distance construction which the program may entail. To be anticipated,
for example, are resistance from affected landowners, quarrels over who
should pay for the grid, timing delays in getting permits, and continued
assertion of individual state’s rights versus the assertion of national
policy requirements by the Federal government.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">It’s no
wonder that various proposals of the Stimulus Bill had buried in them
variations regulatory incentives: expenditure of funds by itself just
doesn’t cure these problems. Probably the most dramatic that did
succeed is the empowerment of certain Federal power agencies to exercise
their eminent domain authority to build transmission wires. In part,
that represents an effort to basically minimize the otherwise extended
siting process. Not all measures with regulatory overtones were as
successful. Pushback was experienced, for example, regarding programs
linking efficiency incentives to the introduction of rate decoupling.
None of the regulatory fixes to achieve a smart system directly
addressed the underlying allocation of transmission costs problem: it
remains a sore point for both utilities and renewable project sponsors.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Hovering
over these issues is an environmental cloud: the uncertainty of to what
extent power prices will be driven upward by cap and trade carbon
regulation. To such an extent that renewables will be competitive in
the future? This is likely to be particularly important, if tax
incentives prove insufficient (as many believe they will) for investors
to counterbalance the lower cost of conventional technology choices.
Renewables then may be competitive in some cases only if the most
stringent of caps (with resulting costs) are installed. Additionally,
to the extent renewables have been “pulled” into the market by Resource
Performance Standards, to the extent to which RECs are replaced by
“unbundling” into carbon credits, this key regulatory incentive for
renewables may be confused or even vitiated. Directly or indirectly, it
is the interface of environmental regulation with utility reserve
planning which will be at the heart of the matter.</span></p>
<p class="BodyText05DS"><span lang="X-NONE" style="color:black">Of
course no one institution has the power to deal separately with all of
the non-financial challenges which are presented to the implementation
of the energy component of the Stimulus package. Perhaps, however, the
institution least incented is that with the greatest investment in
existing infrastructure, which definitely stands to have collateral
costs from the new energy programs imposed on it by the Stimulus and
related policies, but which does not stand to directly benefit from a
significant portion of the Stimulus benefits. This appears to be the
public utility industry.</span></p>
<span lang="X-NONE" style="font-size: 12.0pt; color: black">One of the
better ways the issues which a private sponsor/Stimulus subsidized
project likely will confront is to initiate now a review of how Federal
policies could serve to constructively address the issues. While doing
all it can to make the Stimulus program work, it certainly would appear
that a conscious reaching out by Federal authorities to the stalwarts of
the energy game, the utility industry, might be a productive
undertaking, if energy is going to carry its significant portion of the
recovery and reinvestment ball. Ratemaking, regulation, and the
governmental programs specifically addressing issues like those
affecting public utilities may be key to making the Stimulus work. To
build more energy infrastructure in the renewables and energy efficiency
space, the program must enlist the utility industry, not as a passive
subject of change, but as a pragmatic advocate of Stimulus initiatives.
At the very least the policy equivalent of VAR support is critical.</span><span lang="X-NONE" style="font-size: 12.0pt; font-family: Times New Roman; color: black"><br>
</span><!--webbot bot="Include" U-Include="wv_bottom.htm" TAG="BODY" startspan -->
<hr color="#FFFF00">
<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>
<!--webbot bot="Include" i-checksum="63395" endspan --></div>
</td>
</tr>
<tr>
<td width="25%" valign="top" align="center"> </td>
<td width="75%" valign="top">
<p align="center"><a href="#top">
<img src="../images/b-t-top.gif" alt="Back To Top" border="0" width="71" height="35"></a></td>
</tr>
</table>
</center>
<p align="center"> </p>
</body>
</html>