Monday, January 11, 2016

Shaping the Clean Power Plan's Clean Energy Incentive Program


by Sue Cowell, in Washington

Although EPA expects the U.S. Court of Appeals for the District of Columbia to rule in the coming weeks on motions to stay implementation of the Clean Power Plan, planning by states and industry continues.  One aspect of the Clean Power Plan that has drawn considerable interest from the wind and solar industries is the Clean Energy Incentive Program or CEIP.

EPA developed the CEIP to encourage early investment in eligible solar or onshore wind projects and demand-side energy efficiency measures.  Credits or allowances earned by eligible projects under the CEIP are contemplated to be sold to affected entities to use to satisfy their own Clean Power Plan compliance obligations.  States are not required to participate in the CEIP; however, a state that wishes to participate must make a non-binding statement of such intent as part of that state's implementation plan or initial submittal that is due by September 6, 2016.  States that participate in the CEIP may award early action credits or allowances to eligible projects and, as an extra incentive, the EPA will provide matching allowances or credits up to a total of 300 million short tons of CO2 emissions.    



To be eligible under EPA's proposed CEIP, solar or wind projects would have to first commence construction after a state submits its final implementation plan to comply with the Clean Power Plan, or after September 6, 2018 for states that will be subject to a federal plan and the power produced from the constructed projects must be generated in 2020 and/or 2021.

EPA solicited comments on the CEIP in a non-regulatory docket (ID #EPA-HQ-OAR-2015-0734) through December 15, 2015.  In addition to other parties, the American Wind Energy Association (AWEA) and Solar Energy Industries Association (SEIA) provided comments to help EPA shape the CEIP.     

Both AWEA and SEIA generally agreed that commencing construction for purposes of the CEIP should refer to physical construction, as opposed to pre-construction activities like engineering studies, permitting, and financing.  In addition, AWEA and SEIA also agreed that EPA's proposed timeframe to commence construction could create a strange initial disincentive for the industry.  Under EPA's proposed CEIP, construction would need to first commence after a state submits its final implementation plan.  For most states, this won't be until September 6, 2018.  As a result, both AWEA and SEIA urged the EPA to define September 6, 2016 (although SEIA also suggested that the date be as early as October 23, 2015, the date that EPA published the final rule in the Federal Register) as the date when projects can commence construction and be eligible under the program. 

Both AWEA and SEIA also suggested that the current 16-month timeframe (September 2018 to January 2020) is too brief to commence construction and start producing power.  Although AWEA acknowledged that wind projects can be constructed in a matter of months, AWEA pointed to logistical problems inherent in a rush to commence construction across the country.  SEIA largely pointed to the longer timeframes for utility-scale solar projects that are measured in years rather than months to support its concern that a 16-month timeframe is just not enough time to take full advantage of the benefits offered by the CEIP.  The comments also suggested that credits or allowances should be allowed to be generated earlier than 2020. 

AWEA and SEIA submitted their comments just days before Congress agreed to tax credit extensions for wind and solar projects.  As a result, arguments that the timing of the CEIP serves to discourage construction in the next few years may have been largely blunted.  In addition, it seems unlikely that the calculus of financing such projects would materially change based on a state's decision to participate in the CEIP signaled on September 6, 2016 before the economics of CEIP credits or allowances is known with any certainty.  

The distributed solar industry will be anxiously monitoring how EPA responds to SEIA's comments specific to that sector.  Although EPA has acknowledged that distributed solar power generation is a compliance technology under the Clean Power Plan, SEIA urged the EPA to initiate a separate stakeholder process to develop guidance on exactly how distributed solar generation can be used for Clean Power Plan compliance and how eligibility under the CEIP will be determined.  SEIA also opposed EPA's guidance requiring revenue quality meters to measure energy production for purposes of distributed solar generation.  According to SEIA, the cost of revenue quality meters ranges from about $100 for small residential systems to $10,000 or more for medium voltage commercial systems.  SEIA noted that such added costs could limit market growth.  Alternatively, if EPA doesn't agree to drop this requirement, SEIA urged EPA to adopt a lesser technical standard than proposed.  Such economic concerns may resonate more with EPA following the pullback by SolarCity and Sunrun Inc. in Nevada following changes to net metering remuneration rates that affect distributed solar generation in that state.  

EPA had proposed allocating the 300 million short tons of matching credits under the CEIP to individual states and between wind/solar and demand-side energy efficiency projects.  AWEA, however, asserted that EPA should offer, and manage the matching credits at the nationwide level on a first-come, first-served basis.  AWEA noted that nationwide management of the CEIP program would be more likely to offer more market certainty and stability, and a first-come, first-served process would help incentivize states to deploy eligible renewable and energy efficiency projects.  AWEA also urged the EPA to quickly identify credits under the CEIP that may otherwise go unused and be retired instead of being redistributed to the industry.

Although the comment period for the CEIP docket is closed, commenters still have through January 21, 2016 to submit comments on those CEIP-related issues provided in the preamble of EPA's proposed Clean Power Plan Federal plan and model rules (ID #EPA-HQ-OAR-2015-0199).