Monthly Archives: December 2015

Virginia wind and solar companies say tax credit extensions cue up a happy new year

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Photo by Dennis Schroeder / NREL

Photo by Dennis Schroeder / NREL

Congress included a welcome gift to the wind and solar industries in last week’s package of goodies that made up the year-end spending bill. For the wind industry, the renewal of the expired production tax credit (PTC) with a five-year phase-out finally ends the guessing game that has driven repeated boom-and-bust cycles—and will help Virginia’s first-ever wind farm move forward.

For solar, the extension of the investment tax credit (ITC) beyond the end of next year ensures that one of the fastest-growing industries in the U.S. won’t face a major disruption that would have driven many small companies out of business. That’s critical in Virginia, where the lack of incentives has left the market mostly to small players able to get by on small profit margins. As the economics of solar continuously improve, these small companies see a bright future in the Commonwealth.

I asked several Virginia industry members how they were feeling after Congress’ year-end gift.

“The certainty the tax credit extension gives our business is critical,” answered Jeff Nicholson, Director of Development for Waynesboro-based Sigora Solar. “While there won’t be as much of a crunch to get systems installed next year, we can hire without being concerned that the market for solar will plummet in a year.”

Sigora has been one of Virginia’s most remarkable small business success stories, growing from 11 employees at the beginning of 2015 to 44 today. With the ITC extension, the company now foresees a “long-term, steady stream of business” through the rest of the decade, said Nicholson.

The 30% ITC had been set to expire at the end of 2016 for residential customers, while dropping to 10% for commercial and utility-scale projects. Under the bill passed by Congress and signed by President Obama on December 18, the tax credit will remain at 30% for all systems through 2018, and then taper off gradually until it reaches 10% in 2022. If current price trends continue, the extra few years may be enough to make solar competitive with other fuels without subsidies.

“We know solar is a solid energy production fuel, every bit as viable as coal, oil, nuclear and wind, and it is clear that the more we build, the more cost effective it becomes,” said Paul Risberg, President of Charlottesville-based Altenergy Incorporated. Altenergy grew by 40% in 2015, and Risberg told me he now expects that trend to continue in 2016.

Another Virginia success story is Staunton-based Secure Futures LLC, which has carved out a niche supplying solar energy to tax-exempt entities like universities and local government entities in Virginia, using third-party power purchase agreements. CEO Tony Smith told me, “The ITC extension means that our business can continue to offer at or below grid-parity solar electricity to our commercial scale customers beyond 2016.”

But, he added, “It still remains challenging to attract investment in Virginia due to the disparity in incentives to solar in our state as compared with our neighboring states, especially for behind-the-meter third party owned solar.  We remain hopeful that our industry will continue to build support in Richmond to reduce the barriers to solar investment in Virginia.”

The Virginia solar industry got an extra year-end gift on Monday when Governor Terry MacAuliffe announced plans for the state government to buy 110 megawatts of solar over the next three years, accounting for 8% of its electricity usage. While 75% of that will be utility-scale solar to be built by Virginia Dominion Power, 25% will consist of on-site projects of less than 2 megawatts in size, to be built by third-party developers using power purchase agreements.* The state will follow a competitive procurement process, but in response to a question at the press conference, MacAuliffe said it will not limit participation to Virginia-based companies.

Still, the Virginia industry members were optimistic the announcement would help boost the profile of solar energy in the Commonwealth. The industry trade group, MDV-SEIA, says it participated in the discussions leading to the announcement.

Virginia has a lot of catching-up to do, of course; neighboring states are so far ahead and have so much momentum that, as the Virginia Sierra Club’s Glen Besa observed, “If Dominion sticks to its commitment (of 400 megawatts of solar by 2020), we’ll be further behind on solar than we are now.”

Photo credit NREL

Photo credit NREL

Like the ITC for solar, the 2.3 cents per kilowatt-hour PTC has been a crucial support for the wind industry, making it the second-biggest source of new electric generation in the U.S. for many years now. But until last week, Congress had been reluctant to extend the PTC for more than a year at a time, sometimes retroactively, causing havoc for planners and developers and leading to boom-and-bust cycles deeply damaging to growth.

Now the PTC will be extended through 2016 before tapering off and expiring altogether at the end of 2019. Projects that “commence construction” by the end of a given year will qualify at that year’s level. (“Commence construction” language was also added to the solar ITC.) The predictability that comes with the five-year tapering-off period is expected to finally bring stability to project planning.

And like the solar industry, the wind industry now predicts bright days ahead. Bruce Burcat, Executive Director of the Mid-Atlantic Renewable Energy Coalition, told me, “Sound policies like the PTC have driven innovation which has helped reduce the cost of wind energy down by about 66 percent over the past six years, making it highly price competitive with traditional forms of energy resources. This trend bodes well for the opportunity for wind to take hold in Virginia.”

Burcat is undeterred by Virginia’s lack of success with wind farms to date. “While no wind farms have been developed in Virginia, we believe that with the right signals from the Commonwealth, Virginia could see its first wind farms developed sometime in the next few years,” he said. “Wind farms would bring investment and jobs and other economic development opportunities to Virginia.  Wind farms would also be a very important tool for cleanly and cost-effectively helping Virginia meet the requirements of the EPA’s Clean Power Plan.”

Virginia’s first wind farm is expected to be Apex Clean Energy’s 75-MW Rocky Forge project in Botetourt County, which the company projects to have operational in 2017. Tyson Utt, Apex’s Director of Development for the Mid-Atlantic, told me, “The extension of the PTC will enable the facility to charge less for the energy it produces, saving electricity consumers money.” And, he added, “The project will be built on private land with private investment and will help diversify Virginia’s energy mix while injecting millions into the local economy.”

Apex also has a second wind farm of up to 180 MW under development in Pulaski County, scheduled for completion in 2017 or 2018.

Utt agrees the wind industry won’t need incentives for long to compete with fossil fuels. “The PTC exists to help level the playing field for renewable energy, relative to legacy generation sources that have benefited from permanent subsidies for decades. That said, renewable energy is becoming so economically competitive on its own that the industry now feels comfortable accepting a phase out of the PTC over the next five years, and the tax extenders package that just passed through congress does exactly this. Of course, wind energy offers additional benefits that are not currently reflected in our incentive structure, including the ability to generate electricity without producing carbon dioxide or consuming water. We expect that as our nation moves towards the recognition that there should be a price placed on carbon, wind energy will become even more competitive with conventional generation sources.”

[UPDATE: on January 6, the Associated Press reported that Appalachian Power is seeking to buy up to 150 MW of wind power through direct ownership or long-term power purchase agreements.]

In addition to the tax credit extensions for wind and solar, Congress passed other clean energy incentives that have gotten less attention. Scott Sklar, President of the Arlington-based Stella Group, Ltd. and an adjunct professor at George Washington University, noted that other renewable technologies also qualified for tax credits, and a tax deduction for energy efficiency improvements in commercial buildings was renewed. He also pointed to provisions in the Highway Authorization Act passed into law this month that favor renewable energy. As a result, he told me, “The end-of-year passage by Congress of extensions for the entire portfolio of energy efficiency and renewable energy, coupled with the infrastructure incentives for renewable energy in the highway bill, will more than double private investment into these sectors over the next six years.”

Sklar is bullish on clean energy. “With expanding markets, allowing these technologies to-scale even further, will insure electric grid and fuel parity before 2020, and also insure that renewable energy and energy efficiency will become the dominant energy provider both in the US and the world.”

I should note, though, that not everyone was entirely happy with Congress last week. Though they lauded the tax credit extensions, environmental groups including the Sierra Club opposed the lifting of the oil export ban that Republicans demanded in return. Exporting American crude oil, they fear, will lead to more drilling in the U.S. and higher oil consumption worldwide, further driving climate change. And while wind and solar compete head-to-head with the biggest climate culprit, coal, currently they offer little competition for oil in the transportation sector.

But with a world-wide oil glut that shows no signs of easing, observers including Sklar think lifting the export ban won’t have much effect in the near term. The extension of the renewable energy tax credits, on the other hand, will help push clean energy pricing to a point where wind and solar dominate the market for new electricity generation. According to an analysis by the Council on Foreign Relations, “Extension of the tax credits will do far more to reduce carbon dioxide emissions over the next five years than lifting the export ban will do to increase them.”

So it’s easy to see coal as the biggest loser here, but Big Oil shouldn’t feel too smug. As battery storage becomes more affordable and electric cars gain market share, wind and solar will begin to displace oil, too. The future, my friends, belongs to clean energy.

Here’s to 2016!

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*The astute reader may wonder how the Governor persuaded Dominion to allow it to buy electricity from third-party providers in spite of Dominion’s tireless defense of its monopoly on electricity sales and its reluctance to allow other customers to use PPAs outside the narrow confines of a pilot program. Unlike most of us, the state purchases power from Dominion under a contract, rather than under a tariff overseen by the State Corporation Commission. So allowing the state to use PPAs required negotiating a change to the contract but does not have immediate ramifications for lesser folk. But still: at some point, doesn’t it become obvious that restrictions on PPAs are simply holding the market back?

And even all you astute readers may not have thought to ask: when the state buys solar electricity from Dominion or third parties, who will own the RECs? After all, it is not the guy with the solar system on his roof who can legally claim to be using solar energy, but the guy holding the renewable energy certificates (RECs) associated with that energy. If the state wants to brag about meeting its new goal of 8% of its electricity from solar, it had better hold the RECs to prove it—and not, for example, allow Dominion to sell the RECs to a Pennsylvania utility or to the voluntary participants of its Green Power Program. When I asked Deputy Secretary of Commerce Hayes Framme about this, however, he said the question of who will own the RECs “has yet to be determined.”

Dominion Virginia Power ordered to refund $19.7 million to customers, but gets to keep a billion in future overcharges

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"Keep counting, Mr. Farrell. There's a billion more where this came from." Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

“Keep counting, Mr. Farrell. There’s a billion more where this came from.” Photo courtesy of Wikimedia Commons Valdemar-Melanko-1965 public domain.

The State Corporation Commission has ordered Dominion Virginia Power to refund $19.7 million to customers, reflecting excess earnings during 2013 and 2014. But according to the November 23 order, the company will not have to lower its rates going forward, due to its success last winter in getting a bill passed that freezes base rates and eliminates rate reviews until 2022.*

That legislation, SB 1349, was widely criticized (including by me) as a handout to Dominion. How big a handout is now clear: “over a billion dollars,” according to the calculation of Judge James Dimitri, one of the three SCC commissioners.

Writing in a partial dissent, Judge Dimitri called SB 1349 unconstitutional, noting that Article IX, Section 2 of Virginia’s Constitution explicitly assigns rate-setting authority to the SCC. Thus, said Dimitri, the SCC should give no credence to SB 1349, and consequently should order a refund covering 2013 and 2014, and follow normal procedure to lower base rates going forward.

A rate decrease is appropriate, according to Dimitri, because “The record in this case and other biennial review proceedings demonstrate that, when conventional rate standards are applied, there have been, and are projected to continue to be, excessive base rates that are being paid by Dominion customers. “

And again: “The trend of current rates producing revenues over cost and a fair return has been continuing. For 2015, the Commission Staff projects revenues over a fair return of $301 million, and $299 million for 2016. . . The current rate levels, which the Commission has not been authorized to adjust, are designed to produce and have been producing annual excess revenues of hundreds of millions of dollars.”

As a result, concludes Judge Dimitri, “If base rates are fixed at current levels for at least the next seven years, earnings over and above the Company’s cost of service and a fair return have the potential to reach well over a billion dollars, at customer expense.”

The two other judges, Mark Christie and Judith Jagdmann, don’t address the constitutionality issue in their opinion for the majority. Indeed, it appears that none of the parties in the case raised the constitutional question in the proceedings, nor did any of the judges request briefing of the issue later, as sometimes happens.

Taking a cue from Judge Dimitri, however, on December 11 the Virginia Committee for Fair Utility Rates, one of the parties to the rate case, filed a Petition for Rehearing or Reconsideration, objecting to the commission’s order for failing to rule explicitly on the issue. The Committee asked for a hearing on the constitutional issue and asking for an order finding the provisions of SB 1349 unconstitutional.

Three days later, however, the SCC denied the petition in a second order, noting that the constitutional argument had not been raised during the rate case. Dmitri again dissented, saying he would grant reconsideration.

What happens now? Ordinarily any decision issued by the SCC can be appealed to the Virginia Supreme Court; but then, ordinarily you have to raise an issue during a proceeding before you can appeal it. It’s not clear whether the Court will agree to hear an appeal of these two orders if the Virginia Committee for Fair Utility Rates decides to pursue it.

With a billion dollars at stake, this is not an argument that should be ignored merely because it wasn’t raised in time. But there is also a reason the claim wasn’t raised earlier in the case: it’s a rate case looking backwards, not forwards, so the SCC didn’t actually have to address SB 1349.

Legal experts tell me that the Virginia Committee for Fair Utility Rates—or anyone else for that matter—can still challenge the constitutionality of SB 1349 by filing a new and separate case seeking a declaratory judgment from the SCC. A new case, with new arguments, yielding a decision on the merits, would most certainly be appealable to the Court.

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*The case is PUE-2015-00027. Links to documents on the SCC website work only some of the time. That counts as an improvement.

Getting the policy right could mean massive investments in solar for Virginia

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There’s more where this came from–but will it come to Virginia? Photo credit Christoffer Reimer/Wikimedia

Virginia is poised to see hundreds of megawatts of new solar built in 2016, an enormous acceleration from today’s 20-or-so. Some of this is the result of recent utility commitments, but the rest represents demand from the private market. And there’s a catch: many of these projects could be tripped up or squelched altogether by unnecessary policy barriers.

The list of projects shows just how broad the appeal of solar has become, and how all parts of the Commonwealth will benefit. On the utility side, Dominion Virginia Power’s solar plans include the 20 MW Remington project, another 56 MW from three projects it plans to buy from developers, and 47 MW worth of power purchase agreements with third-party developers.* Old Dominion Electric Cooperative is building two projects totaling 30 MW to serve its member cooperatives, and Appalachian Power has put out a request for proposals for 10 MW of solar.

Projects not initiated by utilities include Amazon’s 80 MW solar farm in Accomack County, which has now been purchased by Dominion’s parent company, Dominion Resources, along with with the contract for the sale of the power. (Dominion Resources will own the project through its “merchant” arm, so it will not come under the banner of Dominion Virginia Power.)

More recently, the Council of Independent Colleges of Virginia (CICV) issued a request for proposals for up to 38 MW of solar spread among its fourteen members statewide.

Beyond these projects, grid operator PJM Interconnection lists hundreds of MW of Virginia solar in its “queue”—projects mostly still on the drawing board, but reflecting the desire of developers to build and sell solar in Virginia.

The new-found popularity of Virginia solar is not limited to multi-megawatt projects like these. Residential solar is also growing rapidly, in part due to the discount “solarize” programs popping up all across the state. In addition, projects on low-income housing and on schools in Albermarle, Lexington, Arlington and elsewhere have turned civic leaders into proponents.

While customers like the social and environmental benefits of solar, virtue isn’t bankable; the real driving force here is economics. The price of solar panels has declined so much that Dominion Power touted savings on electric bills as the reason residents should support its plans for a Louisa County solar farm.

Yet what’s holding back the market is a list of policies in place because Virginia utilities opposed the growth of solar for so long. At first utilities said they wanted to protect the grid from the unknown effects of intermittent generation. Now, having gotten into the act themselves, they are more concerned with protecting their monopolies from the known effects of competition. The result is years of projects going to other states, and a very damaging level of market uncertainty today.

For example, some of the CICV members won’t be able to proceed unless the State Corporation Commission rejects the utilities’ contention that third party power purchase agreements (PPAs) violate Virginia law outside the narrow confines of a pilot project Dominion negotiated in 2013, or the General Assembly acts to bring clarity to the law. And all of the colleges are constrained by legal limits on the size of the projects they can install.

In addition, Virginia limits the size of net-metered renewable energy projects to 1 megawatt (up from 500 kilowatts last year, but still below the 2 MW limit that the industry sought), and places an overall cap on these projects of 1% of a utility’s overall sales. Residential projects are limited to 20 kilowatts, with systems sized between 10 and 20 kW subject to punitive standby charges. Commercial and residential projects are limited to just the size required to meet a customer’s demand based on the previous year’s electricity usage, unfairly constraining customers who plan to expand or buy electric vehicles.

With so much interest in the Virginia solar market, these barriers only hurt the state in its efforts to attract new businesses and development. Even two years ago, more than 60% of Fortune 100 companies had adopted renewable energy procurement and greenhouse gas reduction goals. Household names like Walmart, Johnson & Johnson, Proctor & Gamble and Goldman Sachs have pledged to source 100% of their electricity from renewable energy. More companies are expected to join them, creating opportunities in states that want to accommodate them.

Yet the only reason Amazon could proceed with its Virginia project was because the developer arranged to sell the power into the grid in Maryland, beyond Dominion’s reach. The fact that Dominion’s parent corporation then bought the project and the PPA for its own investment portfolio underscores the hypocrisy of our utilities in opposing other companies’ right to enter PPAs.

Writing last week, energy consultant and developer Francis Hodsoll argues that Dominion Virginia Power actually needs a thriving private market to help it establish the market price of solar, which it can use to justify its own projects to regulators.

Utility-owned solar and private investments are not an either/or proposition. Virginia is at the bare beginning of the clean energy transition, and there are plenty of opportunities for all—if our leaders will take down the walls.

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*The State Corporation Commission’s rejection of Dominion’s plan to build and own the Remington plant means a cloud still hangs over plans for that project as well as the three projects making up the 56 MW package. But apparently the clever legal minds at Dominion have a plan. The gist of it is that they will use pricing from the 47 MW of PPA solar to demonstrate the company isn’t overspending, which will meet the requirement that the company consider market alternatives. Now all that remains is to get the blessing of the IRS to allow them to use the federal tax credits as effectively as a third-party developer could.

I seem to be the only one to regard that last detail as a hitch. Other than that, though, I’m impressed. Dominion ratepayers can be proud that their money pays the salaries of people so skilled in manipulating energy laws and tax codes. Just imagine what could be achieved if all that talent were put to work improving Dominion’s abysmal record on energy efficiency and renewable energy.

 

 

Is a Green Power program worth your money?

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Photo credit: Neep at the English Language Wikipedia.

Photo credit: Neep at the English Language Wikipedia, via Wikimedia Commons.

Most people who install renewable energy systems on their property do so at least partly to save money on their electricity bill. Yet more than 30,000 Virginians have shown they will pay more on their electricity bills for a product labeled as green energy, with no hope of ever recovering their investment. These are the participants in Dominion Virginia Power’s voluntary Green Power Program. The size and growth rate of this program don’t mean it’s a good option (it’s not), but it does demonstrate the huge consumer appetite for wind and solar in a state that offers little of it.

In the last couple of years, other companies have created their own renewable energy products to compete with Dominion’s and other utility programs. They typically offer 100% wind power (Arcadia Power and Groundswell) or a mix of wind and other renewables (e.g., 3Degrees, which is Dominion’s broker, but which also sells RECs directly). The companies often partner with environmental groups that help recruit residential customers in return for a donation. Recently the Sierra Club announced it had entered into a partnership with Arcadia.

I’ve been skeptical of the value of voluntary REC products offered to Virginia consumers. I’d rather see people install their own solar; or if they can’t do that, to contribute directly to a solar installation on a local church, school or low-income housing unit, or use their influence as alumni donors to goad their alma maters into installing renewable energy on campus. But with the numbers of green power participants growing, and my own favorite environmental group now promoting one of them, it seems like a good time to revisit the question: is it worth spending your money on a green power program?

Arcadia and other programs share certain elements with Dominion’s Green Power Program: you continue to buy the same conventional “brown” power you always have, but in addition you are billed a premium that goes to buy renewable energy certificates (RECs), as well as pay the broker. The RECs represent renewable energy generated—and used—somewhere else, often not in the same state or even the same region.

In other states, green power programs often sell RECs “bundled” with the underlying power. But in Virginia, only your own utility will sell you power, and for reasons I can’t fathom, our utilities don’t offer renewable energy. So the best you can do is buy RECs.

Buying RECs is supposed to give you a claim to the renewable energy they represent. Obviously, that’s a stretch if you live in Virginia and the RECs you buy come from a wind farm in Indiana, or if you’re buying RECs from solar panels installed on someone else’s roof. Participating in a green power program can require a certain suspension of disbelief.

At best, buying RECs through a green power program supports a market for renewable energy. Ideally, the money would incentivize new projects, but it doesn’t always work that way. A developer can’t count income from RECs when it looks for project financing unless it has a long-term contract with a buyer for the RECs; so for new projects to go forward without such long-term contracts, they have to make financial sense without the RECs. In that case, the REC sales are simply a nice addition to the bottom line.

Arcadia says it hopes to grow to a point where it can contract with a wind developer for the RECs from a new wind farm, but meanwhile it buys RECs from existing projects.

This is not a problem in states that have good Renewable Portfolio Standards (RPS). Those laws create REC markets that support new renewable energy development within their borders (and occasionally from other states). RECs in RPS states command higher prices in long-term contracts.*

As it happens, though, the best wind is often in conservative western or Midwestern states that lack RPS laws or have weak goals. So these green power programs can be seen as a way for good-hearted liberals to send money to red states. Admittedly, that may not be quite what they intended.

Even if they know all this, some people sign up for these programs anyway—either to send a message to their utility that they want cleaner electricity and are willing to pay for it, or for the psychological value of offsetting their fossil fuel consumption. For these people, there are reasons to prefer the Arcadia or Groundswell program to Dominion’s:

  • Arcadia uses 100% wind power. Dominion uses a mix of resources, including 29% biomass. The web site is not clear about what this means; it references landfill gas and agricultural biogas, neither of which are usually considered biomass. Environmentalists have concerns about using biomass (specially grown crops or, more commonly, wood from trees) for a number of reasons that include pollution and sustainability issues.
  • Dominion’s program costs subscribers 1.3 cents/kWh. At least in past years, approximately half of the money collected was spent on overhead and promotion. Arcadia’s program costs subscribers 1.2 cents/kWh. I have been unable to determine how much of that goes for program costs.
  • When you sign up for Arcadia, the company takes over your billing from Dominion. You receive bills directly from Arcadia. That sends a signal to Dominion that its customers want renewable energy, but don’t want to participate in Dominion’s greenwashing.

Of course, these programs only exist because our utilities have been so slow to incorporate wind and solar into Virginia’s energy mix. The solution is to let consumers buy wind and solar directly from producers anywhere in the state—a choice that is forbidden to them now—and ultimately, to create a 21st century energy economy based on sustainable and renewable energy.

The climate crisis makes that an urgent priority for everyone. We won’t achieve it if we merely rely only on volunteers.

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*An interesting question is what will happen to the voluntary REC market when the Clean Power Plan kicks in. Electricity from new renewable energy projects will acquire a higher value when coal-heavy states have to start buying Emission Rate Credits (ERCs). The EPA stresses that ERCs are not the same as RECs, but most of us would say that if one buyer holds the ERC and another the REC from the same unit of energy, something has gone very wrong.