Air Pollution Control Equipment Services, Renewables

A Watershed Moment

Issue 4 and Volume 113.

By David Wagman, Chief Editor

The power generation industry rarely sees watershed events, those brightly defined moments that change the industry in fundamental ways. So take note. We may be experiencing one such watershed moment right now.

In the words of Barry Worthington, Executive Director of the U.S. Energy Association, renewable energy has never seen a brighter day than right now. Speaking at Renewable Energy World North America last month, he pointed to an unprecedented set of economic and political circumstances that favor renewable energy. In particular, he says renewable energy has never had a more supportive team in the White House and federal agencies than in the personas of Steven Chu, Carol Browner, Ken Salazar, Nancy Sutley and Lisa Jackson. And as in the Bush administration, the Obama administration appears ready to run climate change initiatives directly from the White House. Some wonder, Worthington says, whether Energy Czar Carol Browner will be the equivalent of a “green” Dick Cheney.

Worthington also said the U.S. Environmental Protection Agency could play a “stunningly important role” on climate change, with its presumed authority to regulate carbon dioxide should Congress fail to act on the issue. (For an early look at action under the Obama administration’s EPA read Robynn Andracsek’s Clearing the Air column on page 8.)

House leaders want a climate change bill out of committee by Memorial Day. The goal may be ambitious, however, given the debate last summer over climate change bills such as Warner Lieberman. Reaching consensus on an economy-wide approach to greenhouse gases could prove difficult, Worthington said. In particular, a cap and trade approach is by no means the unanimous choice for regulating carbon. Renewed interest in a carbon tax is growing.

In the February 17 Power Engineering magazine e-newsletter I reported on remarks Duke CEO Jim Rogers made at an annual industry gathering Cambridge Energy Research Associates hosted in Houston. Rogers told CERA Week attendees that Congress “needs to get (carbon legislation) right.” If they don’t, “the political backlash will be so great it could deflect us from solving the carbon problem.” I have already expressed skepticism over whether meaningful climate change legislation can be crafted. I continue to have my doubts, although the proverbial train (diesel? coal? electric?) is certainly leaving the station.

Congressional leaders hope to have an approach adopted before the international Copenhagen climate change summit convenes in December. “It will be hard to imagine how the U.S. negotiating team can endorse a new (climate change) treaty without clear signals from Congress on what will be acceptable,” Worthington said.

Adam Umanoff, attorney with Chadbourne & Parke, also spoke at Renewable Energy World. He said the renewable industry clearly has felt the effects of frozen capital markets. Beginning last fall and extending into early 2009, it was almost impossible to secure major loan commitments. European banks, which had financed many U.S. renewable energy projects, largely retreated to their home markets as economic conditions worsened in North America and elsewhere.

Umanoff said much new renewable energy development is based on tax credits. All that’s great, but the model assumes investors have taxable income they need to shelter. With profits down, taxable income has fallen meaning capital raised from such sources is more difficult to secure. For example, last summer around 30 large institutional tax equity investors were active in the renewable energy market. As of January 1 the number had shrunk to four and those were largely on the sidelines. The scale of this “dramatic dislocation” of capital “put the fear of God” in many chief financial officers, he said.

Umanoff called the stimulus package a “transcendent” piece of legislation targeted toward dislocations in the debt and capital markets. The stimulus uses four primary tools: tax incentives, cash grants, loan guarantees through the Department of Energy and direct spending.

For construction projects starting work before September 30, 2011, federal loan guarantees may be sought. The stimulus bill sets aside $6 billion for loan loss reserves, opening up anywhere from $60 billion to $100 billion in financing capacity.

(For a special video report on the stimulus produced last month, visit the Power Engineering magazine web site at www.power-eng.com” target=”_new”>www.power-eng.com and click on the Media Center link.)

Siting new transmission resources, a key element in exploiting renewable resources, is likely to remain difficult. At present, the Federal Energy Regulatory Commission can intervene only if a state rejects a transmission project within an existing right of way. A bill under discussion would allow FERC to overrule state transmission decisions using its eminent domain powers. But expect legal challenges to that presumed federal superiority. “We have a long way to go on transmission development,” Umanoff said.

If greenhouse gas legislation faces an ambitious timetable, then the goal of having 1 million electric vehicles on the road is “underambitious,” according to Worthington. After all, even in the current down economy Detroit still plans to produce around 13 million units. The 1 million vehicle goal is equally puny when set against the base of 250 million vehicles already in the United States, Worthington said.

Watershed events aplenty. With care, these initiatives truly can be game changers. Otherwise it could be a California 2000 type debacle on a national scale.