Advanced Energy Perspectives

FEDERAL: Wind, Biofuels, Efficiency Benefits Set to Expire

Posted by Tom Carlson

Dec 5, 2013 3:29:00 PM

    

energytaxreformWith the start of December, we are now inside the 30-day window before several tax provisions critical to advanced energy growth are set to expire – yet there is little talk in Washington of extensions. Despite much discussion this year of comprehensive tax reform – and earnest behind-the-scenes efforts, with AEE involved – Congress now seems on the verge of making tax law by inertia.

 

Just a year ago, the production tax credit (PTC), the life’s blood of wind energy development, got an 11th-hour extension prior to its scheduled expiration, though only for one year. This year was supposed to be different: With leaders of both parties in both houses of Congress vowing to bring comprehensive reform to the tax code, the boom-and-bust cycle that comes from arbitrary deadlines suddenly extended – or not – was supposed to be over.

 

As the year has worn on, however, comprehensive tax reform has been derailed by budget showdowns. So now, as the end of 2013 approaches, wind energy developers, manufacturers, and installers gird themselves for growth-killing tax increases that will occur without Congress even taking a vote. Meanwhile, the tax sweeteners for conventional energy development, which have no expiration dates, continue on unmolested.

 

Within industry, outcry has been muted to date because of language included in the last PTC extension that allows projects to qualify as long as they are under construction by the December 31 deadline, rather placed into service. That just means the development pipeline won’t dry up immediately after December 31, but rather a few months later.

 

What’s more, the PTC is not the only rug that will be pulled out from under entrepreneurs and investors on January 1. According to the Congressional Research Service, also due to expire are:

  • Investment Tax Credit (ITC) for offshore wind – just as Cape Wind is poised to put steel in the waters off Massachusetts, Maryland has legislated an RPS requirement for offshore wind, and the federal government has begun auctioning leases to offshore wind sites;
  • Production Credit for cellulosic biofuels – just as the first commercial-scale refineries for non-food crop based biofuels are due to come online;
  • Credit for biodiesel production; and
  • A host of energy efficiency tax provisions, including those for appliances, commercial buildings, and new homes.

 

Time is short for Congress to avoid making these damaging tax code changes by doing nothing at all. Still, the full impact of lapses in advanced energy tax credits can be avoided if a retroactive tax extenders bill is passed early next year.

 

On the Hill

After years of threatening to act on stalled nominations, Senate Democrats have all but eliminated the threat of filibuster for most presidential nominations by lowering the threshold for limiting debate on confirmations from 60 votes to a simple majority. While potentially breaking the logjam of nominations, the move has angered Senate Republicans, including moderates like Sen. Susan Collins (R-ME), who warned that bipartisan cooperation on the Shaheen-Portman energy efficiency bill is now in jeopardy. After the Senate returns from recess on December 9, there will only be two weeks before the Christmas recess begins for action. The bill will need to share the calendar with other important pieces of legislation, including the National Defense Authorization Act.

 

Also in the Senate, Finance Committee Chair Max Baucus (D-MT) began releasing sections of his vision of tax reform; they include changes to international tax, tax administration, and cost recovery and accounting. The discussion draft of the cost recovery section would eliminate accelerated depreciation for most investments, including those for renewable energy, and replace it with a cost recovery system that is intended to approximate economic appreciation. This change would be significant because accelerated depreciation is a long-standing tax benefit enjoyed by conventional energy companies.The committee is seeking comment on the draft by January 17. Committee staff stressed that they will be issuing additional materials related to energy provision, but its unclear the timing of that draft.

 

In the Agencies

On November 26, the Administration released a regulatory agenda with timelines for several important rulemakings over the coming year. The agenda does not set a new release date for the most widely anticipated regulatory action for 2014, the EPA’s proposal for existing source greenhouse gas standards. However, it does provide new release dates for many rulemakings that are relevant to advanced energy at the Departments of Energy, the Interior, and Agriculture.

 

The Department of Energy has one of the busiest plans, with more than 25 energy efficiency standards covering a variety of appliances, consumer devices, and industrial equipment up for consideration. Among the most significant is a proposed rule for electric motors, which the DOE claims will shave 1 percent off industrial electricity use nationally and save at least $1 billion per year from energy bills. The proposed rule is open for comment until January 13 and a final rule is anticipated in May 2014.

 

At the Department of the Interior, the Bureau of Land Management plans to release a proposed rule in May to change the way it makes land available for solar and wind projects. The rule would end a first-to-apply process and replace it with competitive bidding. BLM describes the rule as part of an effort to increase the number of renewable projects using DOI land by making the application process more transparent and fair.

 

The Department of Agriculture’s Rural Utilities Service (RUS) plans to release a final rule establishing an energy efficiency loan program for rural electric cooperatives. The rule was slated for release in November 2013, according to the Administration’s agenda, but has just been published. The new loan program creates significant opportunities for advanced energy companies by providing rural electric cooperatives, for the first time, with a permanent loan facility from RUS devoted to efficiency and renewable energy projects.  Previously, the RUS was only able to provide limited funds for energy efficiency on the margin of other loan programs. The new rule will place advanced energy on equal footing with other RUS-supported investments.

 

Last Friday, November 29, a 60-day comment period was kicked off for EPA's 2014 Renewable Fuels Standard (RFS). As noted in our last federal update, the proposal to lower the requirement is being fought by the biofuels industry. The Senate Environment and Public Works Committee is planning a hearing on the biofuels mandate the week of Dec. 9, an aide said. The hearing would follow a D.C.-area public forum on the proposed cutback that EPA is hosting Dec. 5.

 

Meanwhile, at the Federal Energy Regulatory Commission, small generators and distributed storage got a boost from revisions to the Small Generator Interconnection Procedures (SGIP). The Commission released an order modifying the SGIP Fast Track process to enable higher-capacity generators, up to 5 MW under certain circumstances, to connect to public transmission utilities using a streamlined interconnection process. In areas with a lot of distributed generation, the order will allow more generators to use the Fast Track process and avoid costly interconnection studies. These revisions will potentially double the number of solar generators that qualify for the cost-saving fast track procedures. The Commission, joining states like California in helping storage shape its evolving role on the grid, explicitly added storage to the definition of a small generating facility, making it eligible for fast track interconnections. These new interconnection procedures, combined with another recent order that requires utilities to compensate storage for the speed and accuracy of its ancillary services, point to significant momentum for storage at FERC.

 

In other FERC news, Chairman Jon Wellinghoff’s last day was November 22. Commissioner Cheryl LaFleur has taken over as Acting Chairman until a successor is named and able to successfully navigate the confirmation process.

 

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Topics: Federal Policy Update

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