More Time, Links to States Sought Under EPA Energy Incentives

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By Andrew Childers and Rebecca Kern

Nov. 7 — A federal plan to spur new renewable energy and energy efficiency programs in support of carbon dioxide reductions from the power sector will require more time and methods to link with existing state programs, state officials said.

Even supporters of the Environmental Protection Agency’s Clean Energy Efficiency Program, which rewards states for energy efficiency efforts and renewable energy investments in disadvantaged communities in 2020 and 2021, questioned how effective the program would be in comments on the proposed rule.

“If allowances were based on energy savings/generation accruing over a longer time frame (for example, from project commissioning through 2030 rather than just in 2020 and 2021), which would be demonstrated through standard protocols for modeling savings/generation, individual projects would see more compelling value in [Clean Energy Incentive Program] participation,” officials from the Massachusetts Departments of Environmental Protection, Energy Resources and Housing and Community Development said in comments on the EPA’s proposal.

The Clean Energy Incentive Program (RIN:2060-AS84) would provide states with additional credits for every megawatt-hour of electricity demand reduced through energy efficiency in low-income communities beginning Sept. 6, 2018, and for each megawatt-hour of zero emissions generation for projects that begin commercial operation after Jan. 1, 2020. The credits can be used toward compliance with the Clean Power Plan, which limits carbon dioxide emissions from the existing fleet of fossil fuel-fired power plants, The comment period on the proposed incentive program closed Nov. 1.

The additional emission rate credits would be generated for 2020 and 2021, before the Clean Power Plan, which has been stayed by the U.S. Supreme Court, is intended to take effect. State regulators argued that is not sufficient time for significant investments in renewable energy or energy efficiency programs for low-income communities, which could hamper the incentive program’s effectiveness. Several states called on the EPA to extend the period during which programs could qualify for the additional credits, including giving states credit for programs that are already in place to accomplish those goals.

“States, especially smaller ones, like West Virginia, simply cannot divert resources to developing and implementing an entirely new bureaucracy for a program that has only a two-year life and will provide relatively minor environmental benefit,” the West Virginia Department of Environmental Protection said in its comments. West Virginia has led legal challenges against the EPA’s Clean Power Plan.

More Projects, Time Sought

“Presently, there is uncertainty regarding the compliance timelines of the Clean Power Plan due to ongoing litigation. Because the Clean Energy Incentive Program is voluntary, EPA should allow all projects that commence construction after October 23, 2015, (publication date of the Clean Power Plan Rule) to qualify for inclusion in the Clean Energy Incentive Program. This flexibility promotes smooth phasing into commercial service while avoiding accumulation of projects and programs targeting a startup date of January 1, 2020,” the Florida Public Service Commission said in its comments.

In addition to more time, some states and advocacy groups urged the EPA to expand the list of zero-emissions projects eligible to receive the early action credits to include other strategies such as expanded use of nuclear generation or carbon capture technology.

“Renewable energy, such as solar, wind, geothermal, and hydro are certainly examples of zero-carbon-emitting generation critical to long term climate strategies that can commence commercial operation during the CEIP; however, they are by no means the only technologies capable of satisfying the criteria,” the Clean Air Task Force said in its comments. However, the environmental group said it would oppose including burning biomass on the list of zero-emissions strategies.

‘Payback’ Opposed

Though the Clean Energy Incentive Program rewards states for early action to reduce emissions, a requirement to “pay back” those credits in the later years of the Clean Power Plan undercuts the program’s viability, some states said.

“The proposed complication of state match and payback for the CEIP removes the incentives that EPA hopes to provide for renewable energy and energy efficiency,” the New Jersey Department of Environmental Quality said in its comments. “There is no merit in giving credits to [renewable energy] and [energy efficiency] in 2020 and 2021, and then taking those credits back between 2022 and 2024. A meaningful incentive would be to provide federal credits that do not have to be paid back.”

The Kansas City Board of Public Utilities also saw “little incentive” to pursue early emissions reductions only to see those additional credits repaid later.

“This is unfortunate because [the Board of Public Utilities] has already undertaken considerable [renewable energy] and [energy efficiency] initiatives, none of which would be recognized under the current CEIP proposal,” the board said in its comments.

Solar, Wind Defend Federal Tax Credits

The Clean Energy Incentive Program proposal was largely supported by the solar and wind industries. But one common complaint among them is they don’t want the proposal to include an approach that would exclude solar and wind projects receiving federal tax credits from the Production Tax Credit (PTC) and Investment Tax Credit (ITC).

The tax credits for wind and solar projects extend until 2020 for the PTC and until 2023 for the ITC. Because these federal credit extensions didn’t exist in the initial incentive program proposal, the EPA sought feedback as to whether it is appropriate to include a mechanism that would limit the number of early action credits available to solar and wind programs, including a consideration to limit the amount of credits according to the percentage tax credit a project receives.

The Solar Energy Industries Association, which represents the solar power companies and manufacturers, strongly urged the EPA in its comments not to restrict the credit to renewables, saying it would “counter the purpose of the CEIP to offer a mechanism that enables states to incentivize early investments in wind and solar renewable energy.”

They said the exclusion proposal is arbitrary, pointing to numerous state and federal policies that already drive energy markets, including mandatory state renewable energy standards. They said the EPA should consider the federal tax credits as complementary to current efforts to encourage early state investment.

Similarly, the American Wind Energy Association, which represents wind power companies and manufacturers, commented that there will likely be little overlap between the federal tax credit projects and the incentive program as more than 97.5 percent of the announced PTC-eligible wind projects have in-service dates prior to 2020, making them ineligible for the early action credits.

Also, the wind industry said the phase down of the PTC credits means that the EPA’s incentives will be especially important for programs that start construction in 2017, 2018 and 2019 when the PTC credits decrease.

Support To Limit Federal Tax Credits

Meanwhile, the American Council for an Energy-Efficient Economy, a non-profit advancing energy efficiency policies, said in its comments that limiting the number of credits available to solar and wind projects that also currently qualify for ITC or PTC credits would allow the remaining credits to go toward energy efficiency projects.

Ultimately, the solar industry said if EPA has to change its credit allocation, that it should move the credits to the low income portion of the program which faces higher barriers to clean energy deployment, rather than applying the exclusionary approach to wind and solar programs.

The Natural Resources Defense Council also said in comments it supports the EPA’s proposal to limit the eligibility of the Clean Enegy Incentive Program to projects that don’t receive the full value of the PTC or the ITC.

Incentive Program Should be Halted

Some states argued the EPA’s Clean Energy Incentive Program should be halted after the Supreme Court stayed implementation of the Clean Power Plan until the rule can be litigated. Despite that stay, the EPA has advanced other guidance in support of the carbon dioxide standards’ implementation, including the Clean Energy Incentive Program and model emissions trading rules that states could use as part of their compliance plans.

“This proposal and any other proposal that may be developed in support of the CPP uses significant state agency, stakeholder, and EPA resources to develop and respond to actions that will have to be revisited, and perhaps substantially revised or entirely discarded, once the legal challenges to the CPP are resolved,” the Wisconsin Public Service Commission said. Wisconsin is among the states challenging the Clean Power Plan.

To contact the reporters on this story: Andrew Childers and Rebecca Kern in Washington, D.C. at AChilders@bna.com and RKern@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

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