In 2008, DOE released a report stating that 20 percent of America’s energy supply could be produced from wind generation by 2030, and offshore wind could produce as much as 54,000 MW by 2030.  The MOU will first target projects on the Atlantic coast.

Under the MOU, DOI’s Bureau of Ocean Energy, Management, Regulation, and Enforcement (“BOERME”) and DOE’s Office of Energy Efficiency and Renewable Energy (“EERE”) will work together to exchange information, conduct stakeholder meetings, and collaborate on research needed to prioritize wind projects along with marine and hydrokinetic (“MHK”) energy technology projects.  Interestingly, the Federal Energy Regulatory Commission (“FERC” or the “Commission”) is not part of the MOU.   Thus, it is unclear what jurisdictional issues will arise between FERC and the other agencies since the MOU specifically includes siting and permitting of the offshore wind projects.

Within 30 days of signing the MOU, the agencies must create an interagency Action Plan that will, among other things:

1. Identify potential sites for commercial scale projects; 
2. Develop attainable goals for offshore wind and MHK;
3. Develop a plan for measuring and predicting wind resources; 
4. Work to streamline Federal and State project authorization processes for permitting and siting;  
5. Create technical standards for offshore renewable technologies;
6. Develop environmental protection protocols;
7. Coordinate studies in support of research leases for OCS wind and MHK activities;
8. Coordinate with parties to ascertain models for wind, wave, tidal, and ocean currents;
9. Gather and disseminate data, baseline agency assessments of projects, and additional resources related to the projects.

The MOU is available on DOE’s webpage and here.

The Energy Policy Act of 2005 (“EPAct 2005”) required DOE to conduct a study every three years to identify areas that are transmission constrained as Congested Areas of Concern (“CAC”) in the Eastern and Western Interconnections.  Based on the study and public comments, the Secretary of Energy may designate any geographic area with congestion as a national interest electric transmission corridor. 

In the 2006 Study, DOE designated New England as a CAC because of variations in electricity pricing across the region and reliability problems in Boston, southwest Connecticut and other locations.  In the 2009 Study, DOE found that congestion problems in New England had improved due to a variety of actions.  For example, two new utility-scale and small-scale supply resources have come online in congested areas, “aggressive” demand response programs have reduced peak loads, and there is a “strong” queue of new generation projects.  DOE also notes in its 2009 Study that New England has a variety of new reliability and economics-oriented transmission projects either completed or in the queue.  Due to New England’s demand response resource growth, and new generation potential, DOE no longer identifies New England as a CAC.

In the 2006 Study, DOE also identified the Phoenix-Tucson region as a CAC because population and load growth led to transmission congestion.  In the 2009 Study, however, DOE reported that new transmission and generation projects have been approved by regulatory authorities and “appear adequate” to deal with energy reliability needs.  DOE also reported that the state’s history of transmission development through Biennial Transmission Assessment indicates that potential projects will receive swift regulatory approval.  DOE expects that most projects under development in the Phoenix-Tucson region will be ready by their scheduled dates.  As a result of the progress in dealing with congestion issues, DOE does not identify the Phoenix-Tucson area as a CAC.

A fully copy of the 2009 Report by DOE can be found at: http://congestion09.anl.gov/documents/docs/Congestion_Study_2009.pdf

March 29, 2010

The U.S. Department of Energy (DOE), Department of the Interior (DOI) through the Bureau of Reclamation (Reclamation), and Department of the Army (DOA) through the U.S. Army Corps of Engineers (USACE), announced on March 24, 2010 the signing of a Memorandum of Understanding (MOU) between the federal agencies to promote the development of hydropower.  Pursuant to the MOU, studies will be conducted over the next few years that may help industry determine which Federal dams and reservoirs would be best suited for non-Federal hydropower development.  The process will hopefully determine which sites will have the fewest roadblocks from stakeholders, including the federal dam owners themselves.  These studies may also lead to a determination of which projects can be most efficiently integrated into the grid. 

Under the MOU, the agencies will work together to identify federal facilities and United States- controlled lands that are well-suited for sustainable hydropower development.  The agencies will promote increasing generation, including pumped storage,  at existing facilities and dams, and the agencies will work together to study the effects of adding capacity to unpowered federal dams or constructed waterways.  The MOU states that the agencies shall also prioritize and balance the environmental impacts of any new power facilities at such existing dams.  The MOU also commits the agencies to help facilitate federal authorizations to build new electric generation facilities at existing sites.  In addition, the agencies will share information on renewable energy research and development, including hydropower.  The MOU also notes that hydropower may be developed to help integrate other renewable energy into the grid. 

The USACE and DOI are the two largest hydropower dam owners in the United States, and their combined hydro generation facilities represent about half of the country’s hydropower capacity — approximately 34,000 megawatts.  Thus, the synergy in collaborating on hydropower with DOE seems logical.  However, the MOU does not mention the Federal Energy Regulatory Commission (FERC).  ERC is responsible for licensing non-federally authorized hydropower projects, even if constructed on federal land. It is unclear how the MOU will fully impact non-federal hydropower growth.  Since two of the listed MOU goals are to coordinate research and expedite the permitting process on federal lands, FERC’s role is crucial to any efforts to make hydropower project development more efficient.  Even though DOI seems to be working through the Bureau of Reclamation, DOI has other subordinate agencies that are responsible for federal review of significant environmental resources such as the Fish and Wildlife Service.  If DOI’s role in this MOU will consider all its subordinate agencies’ interests in a coordinated way, this could help non-federal hydropower get licensed or other renewables acted on expeditiously.  The named federal agencies will also work with a variety of other agencies and stakeholders in their studies.

In addition to identifying federal facilities for potential projects and coordinating research and development efforts, the MOU states the agencies will seek to identify existing facilities eligible for retrofitting/upgrading existing facilities with new technologies.  The objective is to increase hydropower generation through low-impact and environmentally sustainable approaches.  Also, the MOU specifically lists in-river hydrokinetic projects as a possible option, and those projects will be developed through the newly created Federal Inland Hydropower Working Group that will develop river and streams projects.

The MOU will also create a basin-scale approach to hydropower development.  The basin-scale approach will emphasize sustainable, low impact or small renewable projects that can increase generation while improving biodiversity.  The basin studies will lead to a workshop in May 2010 that will eventually create a feasibility report on the pilot studies.  

Several action items are also enumerated in the MOU for the upcoming year.  One of the first action items in the MOU is for USACE and the Bureau of Reclamation to produce, by October 2010, the list of federal sites best suited for upgrades, or other projects to increase generation.  The agencies must also explore options to jointly fund or solicit projects at both USACE and Reclamation sites, and those final proposals are also due by October 2010.  The agencies will also submit a report to the Congress by April 2011 on the impact of climate change on hydropower.

The MOU also includes initiatives that could enhance renewable energy development generally across the United States.  Several goals address increasing the deliverability of renewable energy and using hydropower to help integrate other renewable energy into the grid.  The scope and statement of work for increasing hydropower transmission and storage, especially pumped storage, is due June 2010, and it will include an assessment of the amount and distribution of energy storage needed to effectively integrate renewables into the transmission grid.  DOE will also champion the certification of sustainable and environmentally friendly hydropower projects, and those projects may then be eligible for state or national renewable portfolio standards or be given some type of credit for producing clean energy.  The certification process meetings and planning must be initiated in fiscal year 2010.  Thus, although the MOU targets hydropower, it will affect all renewable development in the future.  The lists of targeted projects and consolidated research data alone may streamline renewable development nationally.  However, the role of FERC in any new development remains to be seen, especially with regard to licensing new projects.

An announcement of the MOU can be found on the DOE’s website at:  http://www.energy.gov/news/8793.htm. ]]> http://www.troutmansandersenergyreport.com/2010/03/doe-doi-and-army-corps-sign-mou-on-hydropower/feed/ 0 http://www.troutmansandersenergyreport.com/2010/03/irs-will-not-assert-that-grants-made-by-doe-under-smart-grid-investment-matching-grant-program-are-taxable/ http://www.troutmansandersenergyreport.com/2010/03/irs-will-not-assert-that-grants-made-by-doe-under-smart-grid-investment-matching-grant-program-are-taxable/#comments Fri, 12 Mar 2010 19:48:55 +0000 Troutman Sanders LLP http://www.troutmansandersenergyreport.com/?p=952 On March 9, 2010, the Internal Revenue Service (“IRS”) ruled that Smart Grid Investment Matching Grants given by the Department of Energy (“DOE”) will not be taxable income.

The IRS has released Revenue Procedure 2010-20, which provides a safe harbor under section 118(a) of the Internal Revenue Code for the treatment of a Smart Grid Investment Grant (“SGIG”) made by DOE to a corporation for qualifying investments under the Smart Grid Investment Matching Grant Program.  The revenue procedure applies to corporate taxpayers that receive an SGIG under 42 U.S.C. 17386 from DOE.  The revenue procedure does not apply to (1) non-corporate taxpayers, or (2) to grants under 42 U.S.C. 17384 (Smart Grid technology research, development, and demonstration).

Under the revenue procedure, the IRS will not challenge a corporation’s treatment of an SGIG made by DOE to the corporation as a nontaxable non-shareholder contribution to the capital of the corporation under section 118(a) if the corporation properly reduces the basis of its property under section 362(c)(2) and the regulations thereunder.  This means that the IRS will not assert that SGIGs are taxable to the taxpayer as long as the taxpayer does not attempt to claim depreciation deductions with respect to the portion of the smart grid property funded by the SGIG rather than its own investment.

The revenue procedure is effective March 10, 2010.  The full guidance is available on DOE’s website at: http://www.energy.gov/news/8755.htm.

The Berkeley Lab study was conducted as part of the Western Renewable Energy Zones (“WREZ”) initiative, which was co-managed by the Western Governors’ Association (“WGA”) and the DOE.  The Berkeley Lab said their findings were not a stand-alone model; instead, the Berkeley Lab calls their report a screening tool for identifying areas to research in order to reach the 33% annual load from renewable energy by 2029.  The analysis examines how decisions about which renewable sources are chosen and how transmission lines are expanded are affected by changes in policies and several other uncertainties like bus-bar costs and renewable energy credit allocation.

The Berkeley Lab found that wind energy was the largest source for renewable energy procured, representing 38%-65% of all renewable energy.  While solar energy was usually the second largest source of energy procured at 14%-41%, there were times when solar energy exceeded wind when solar thermal energy was used to reduce costs in relation to other resources.  The analysis also noted that policy and economic decisions, particularly how tax credits are applied, greatly influence how wind and solar will develop.  Meanwhile, biomass, geothermal, and hydropower were found to represent only 16%-23% of renewable resources.

While wind was often the cheapest available resource, it also had the lowest capacity value on average.  Solar had the highest capacity value, and the Berkeley Lab concluded that an increase in solar energy would alleviate transmission demand.  In general, costs in the Southwest were moderate due to the abundance of high-quality solar power and select areas of high-quality wind.   The lowest cost for renewables in the West was located in the northern Rocky Mountain regions, while the Pacific area produced the highest cost for renewables.

In terms of transmission, the Berkeley Lab noted that while there are some transmission lines over 800 miles, most are relatively short.  The average transmission line ranges from 230-315 miles.  The report found that the availability of high-voltage, direct-current lines is one of the large factors affecting renewable resources.  Additionally, the longest lines are more prevalent if they are low-cost, 500-kV HVDC lines, rather than alternating current wires.
 
The Berkeley Lab’s full analysis on estimated costs for renewable transmission in the West is available at http://eetd.lbl.gov/EA/EMP/reports/lbnl-3077e.pdf.