Report: Distributed Generation and Cogeneration Roadmap

This March 2007 report, Full Report: Report: Distributed Generation and Cogeneration Policy Roadmap for California, from the California Energy Commission provides a nice state-based, how-to perspective on policy options to increase the use of small scale DG along with larger combined heat and power projects. California's roadmap is designed to increase the penetration rate of CHP and DG from 17 percent of 2004 peak capacity (56,435 MW) to over 25 percent by 2020 (expected peak demand of 70,776 MW).

To reach the goals oulined in the table above, the report recommends a three-pronged approach:

• Support Incentives in the Near-Term.
  
• Transition to New Market Mechanisms.
  
• Reduce Remaining Institutional Barriers.

The near term incentives will support DG and CHP but the incentives are envisioned as disappearing as regulatory changes are implemented that result in a level playing field for cleaner and more efficient technologies compared to traditional power generation.

The CEC proposes and interesting array of new and more common market mechanisms to enhance DG projects. These include, promoting development of renewable and CHP/DG through portfolio standards, transformation of rate structures to internalize location, temporal and environmental benefits, and development of emissions markets that include and appropriately value DG and cogeneration.

California has made tremendous strides in the past several years in removing barriers to DG and cogeneration. The last strategic thrust would address remaining barriers:

• Institute an analytical framework for DG and cogeneration for assessing costs and benefits.
  
• Enable DG and cogeneration to be effectively integrated into the electric power system by addressing rate design.
  
• Promote DG through rules and standards development.
  
• Institute a permitting process that is environmentally responsible.

More

IRS Issues Application Guidance on $400 Million Round of Clean Renewable Energy Bonds

On April 2nd, the Internal Revenue Service issued a notice soliciting applicants for the next round of Clean Renewable Energy Bonds allocations. The CREBs program provides governmental entities, municipal and cooperatively owned utilities an incentive to develop renewable energy projects. Ultimately, an interest free financing tool, CREBs are a substitute for renewable energy production tax incentives that these entities are not able to use because of their tax exempt status. Applications must be filed by July 13, 2007.

The IRS notice provides guidance on the following: (1) eligibility requirements that a project must meet to be considered ; (2) application requirements and the application form; (3) the method (generally, a “smallest-to-largest” method) that the Internal Revenue Service (“IRS”) and the Treasury Department will use to allocate the CREBs authority.

The Energy Tax Incentives Act of 2005 (Pub. Law No. 109-58), originally provided for a total national volume cap of $800 million for CREBs to finance eligible clean renewable energy projects with no more than $500 million of that amount going to qualified borrowers which were governmental bodies (with the balance to be allocated to qualified borrowers which were cooperative electric companies).

See this previous story in Democratic Energy that reports on the first round of successful applicants.

The Tax Relief and Health Care Act of 2006 (Pub. L. No. 109-432), amended the CREBs program in three respects. First, the 2006 Act increased the total national volume cap for CREBs from $800 million to $1.2 billion. Second, the 2006 Act extended the expiration date for the issuance of CREBs under the total authorized national volume cap of $1.2 billion from December 31, 2007, to December 31, 2008. Third, the 2006 Act increased the maximum allocations or reallocations to qualified borrowers which are governmental bodies from $500 million to $750 million (with the balance to be allocated to cooperative electric companies).

More

Federal Legislation Would Modify and Extend Clean Renewable Energy Bond Program

Rep. Jim McDermott, D-Wash., recently introduced the Clean Renewable Energy for Public Power Act (H.R. 1821), which would extend and reform the Clean Renewable Energy Bond program authorizing government entities, rural cooperatives and municipally-owned electric systems to issue tax-credit bonds for renewable energy projects, as a counterpart to the production tax credit available to investor-owned utilities and other renewable energy project developers.

The American Public Power Association has come out in support of the legislation. According to APPA, the bill “will greatly enhance the ability of community- and state owned electric utilities to invest in renewable generation projects,” said Joe Nipper, APPA senior vice president of government relations. “Implementation of the CREB program revealed some problems, and the result was that public power has only limited access to the tax credit bonds ... Rep. McDermott’s bill would extend and improve the CREB program, enabling public power systems to develop a much needed new generation of renewable generation to serve their communities.”

The original CREBs program in 2005 provided for a total volume cap of $800 million to finance eligible clean renewable energy projects. The program was expanded last year by an additional $400 million.

The program further constrained the issuance so that no more than $500 million (of the original $800 million) could go to qualified borrowers that were governmental bodies - such as those with municipally owned utilities (with the balance to be allocated to cooperative electric utilities). APPA is concerned that future CREB issuance will be follow the trend illustrated in the first batch of projects where APPA estimates that only $66 million of the $500 million available to governmental entities were approved for municipal public power entities. The proposed legislation would set the stage for future modifications that would ensure that a larger percentage of the governmental portion of CREB issuance goes to public power entities.

We here at Democratic Energy are very much in favor of the extension and expansion of the CREBs program but would question any legislative approach that would eliminate the current hierarchy of providing authorization and distribution of CREBs authority to smaller projects before larger projects. Despite our support of the municipally ownecd Our sense is that it is these smaller projects that have the greatest need for this innovative financing tool.

Rep. McDermott's office says that the CREBs program was meant to provide interest-free borrowing by public power systems as a way to promote investments in renewable projects, but the law was written in a way that made it very difficult for public power utilities to take advantage of the program, and the bonding authority was extremely limited. These bonds are necessary because public power utilities could not take advantage of the tax credits available in the Internal Revenue Code because these utilities were already exempt from federal tax.

The CREBs program allows tax credit bonds to be issued to fund wind, open-loop and closed-loop biomass, geothermal, solar energy, small irrigation power, landfill gas, trash combustion, refined coal production, and certain incremental hydro power facilities.

The Clean Renewable Energy for Public Power Act would institute a number of reforms:

• Removes the existing cap of $400 million per year.

• Provides a new definition of "public power entity" as a qualified CREB issuer and borrower that would give larger public power systems with an obligation to serve a larger percentage of CREB benefits if a volume cap were to be put in place in the future.

• Extends the CREB program for five years and makes some other technical corrections to the program to improve its efficiency and ability to attract public entities to invest in renewable energy projects.

More