Energy Law Update

Jonathan Klavens

February 4, 2016

© 2016 Klavens Law Group, P.C.

Klavens Law Group, P.C.• Small Boston law firm focused on clean energy ventures and projects

• Represents companies, investors, public entities and nonprofits (including sellers and buyers in power purchase agreement matters)

• Provides start-up, outside general counsel, transactional, project development and regulatory services

• Brings critical interdisciplinary approach by drawing on experience in corporate, energy, land use, environmental, municipal and nonprofit law

Topics• Federal Renewable Energy Tax Credit Extension

• MA Net Metering & Solar Incentives Update

• Other Developmentso Section 25D residential solar tax credit – application to community solar

o Falmouth wind energy facility – not exempt from special permit

o Local BOH jurisdiction over wind energy facility in neighboring town

oMunicipal aggregation

Federal Tax Credit Extension

• Legislation signed into law 12/18/15

• Full 30% Investment Tax Credit (ITC) under IRC § 48 for commercial solar facilities and IRS § 25D for residential solar facilities extended for 3 years through 2019, followed by phase-out period

• Production Tax Credit (PTC) under IRC § 45 of $0.023/kWh for wind energy facility extended through 2016, followed by phase-out period

• Broader use of “begun construction” standard for qualification

The Basics

Federal Tax Credit Extension

• Through 12/31/19 – Full 30% ITC for commercial and residential solar

• Through 12/31/20 – 26% ITC for commercial and residential solar

• Through 12/31/21 – 22% ITC for commercial and residential solar

• 1/1/22 and after – 10% ITC for commercial; no ITC for residential

• BUT larger ITC level available for commercial solar facilities if construction begins before applicable deadline and equipment placed in service by 12/31/23

ITC Details

Federal Tax Credit Extension

• Through 12/31/16 – Full PTC of $0.023/kWh for wind energy facilities

• Through 12/31/17 – 80% of PTC

• Through 12/31/18 – 60% of PTC

• Through 12/31/19 – 40% of PTC

• In each case a facility qualifies for PTC if construction begins before deadline (no placed in service deadline)

PTC Details

Federal Tax Credit Extension

• ITC extension predicted to result in more than 20 GW/year by 2020 (20 GW total through 2014) and employment of 420,000 workers (increase of 220,000) (SEIA)

• PTC extension predicted to lead to another 19 GW of wind capacity installed between now and 2021 (Bloomberg New Energy Finance)

• Continued reliance on “tax equity” – unhealthy delay in shift to broader sources of capital?

Potential Impacts

Net Metering & Solar Incentives

• MA net metering and solar renewable energy certificate (SREC) programs originated in the MA Green Communities Act of 2008

• Both are “production incentive” programs that encourage installation and operation of distributed renewable energy facilities

• Net metering program allows “host customer” to run its meter backward, receiving roughly the same value for excess production that it would pay for power delivered to its utility meter

• SREC program creates regulatory market where retail electricity sellers must buy a certain number of SRECs although, subject to a price ceiling, the market determines the price

Background

Net Metering & Solar Incentives

• Net metering cap already hit (in March 2015) in National Grid territory, which covers 170 MA communities

• SREC statewide program cap of 1600 MW DC may soon be hit

• Final report of Net Metering and Solar Task Force (established by legislature in 2014) issued in April 2015 indicates net metering/solar incentive program options would provide net benefits to the Commonwealth but Task Force failed to agree on compelling policy recommendations

Policy Challenge

Net Metering & Solar Incentives

• Solar industry and environmental advocates believe solar is not being compensated for full value provided to other ratepayers and the state as a whole and have invited formal “value of solar” study to determine appropriate “compensation”; focus on investment, jobs and municipal benefits in MA

• Utilities and Baker Administration maintain that solar is being overcompensated and “subsidies” should be slashed; re-focus on achieving climate change goals through payments for out-of-state hydro and wind

Policy Challenge

Net Metering & Solar Incentives

• Would raise net metering caps by 2% for private and public projects (likely only enough to clear NGRID waiting list)

• Solar net metering facilities that qualify for net metering after 1600 MW of solar installed would get credit for net excess generation at variable monthly wholesale price

• Previously qualified projects would be exempt from changes only for 20 years from interconnection date

• Would allow distribution companies to propose fixed monthly charges on net metering customers

• Would require DOER to lower solar incentives for solar facilities that become operational after 1600 MW of solar installed

Current Proposals – House Bill (H. 3854)

Net Metering & Solar Incentives

• Would change existing public/private net metering caps of 5%/4% to single cap of 1600 MW for solar net metering facilities (also provides a section to take effect in future to have no cap for solar net metering)

• After 1600 MW goal is reached, solar net metering facilities that serve an onsite load of at least 67% of their output would continue under current net metering system

• Solar net metering facilities without such load would get credit for net excess generation at solar net metering credit rate with same components as current rate but DPU allowed to adjust portion of credit from distribution charge

• Previously qualified projects would be exempt from changes

• Directs DOER to develop solar incentive program for solar facilities that become operational after 1600 MW of solar installed taking into account specific economic and environmental factors

Current Proposals – Senate Bill (S. 1979)

Net Metering & Solar Incentives

• Conference committee has authority to work out compromise legislation; legislative session ends 7/31/16

• While House bill passed overwhelmingly, many affirmative votes were apparently cast as a procedural tactic or without realization of impacts

• Given unexpected end in sight for 1600 MW SREC program, solution must go beyond modest net metering cap increase and focus on 1600 MW of solar

• Policy solutions exist that can provide stability and healthy economic & environmental benefits at reasonable cost – will politics get in the way?

Potential Outcomes

Net Metering & Solar Incentives

• 12/23/15 Nevada PUC decision radically changed net metering framework for solar facilities

• Over 4 years, compensation for net excess generation will decrease from retail rate (currently ~ $0.124/kWh) to wholesale rate (currently ~ $0.02/kWh)

• Adds fixed $40/month service charge for most net-metered solar customers – wiping out average monthly savings for typical residential solar customer

• Applies retroactively to customers that relied on the existing rate and incentive framework – unique in the US and very troubling

• Major solar companies have laid off workers and pulled out of Nevada

Will what happens in Nevada stay in Nevada?

Other Developments• Application of residential ITC under IRC § 25D to community solar – IRS PLR

201536017 (July 28, 2015) allows taxpayer to claim residential solar tax credit for portion of offsite community solar facility directly and wholly owned by taxpayer (i.e., particular solar panels) as well as common infrastructure directly and partially owned by taxpayer (e.g., racking, inverter)

• MA solar/wind property tax exemption – KTT, LLC v. Board of Assessors of the Town of Swansea – On 6/11/15, MA ATB granted abatement to solar facility owner; yet-to-be-issued written decision expected to confirm that net metering facility is exempt even where net metering credits are sold to unrelated third parties

Other Developments• Falmouth wind energy facility required special permit – Drummey, et al. v.

Town of Falmouth, et al. (Mass. App. Ct. Feb. 26, 2015) – One of Town’s wind energy facilities required special use permit under zoning bylaw – operation of a facility was not a municipal purpose allowed as of right

• Local board of health jurisdiction over wind energy facility in neighboring town – Bourne BOH currently seeking to regulate wind energy facility in Plymouth, contrary to jurisdictional limitations in statute, caselaw and BOH’s own regulations

• Municipal aggregation – Surge in municipalities seeking to create municipal aggregation programs

Resources• Federal Renewable Energy Tax Credit Extension

o Consolidated Appropriations Act, 2016

o SEIA - Impacts of Solar Investment Tax Credit Extension

o North American Windpower – Congress Passes Omnibus Bill With Five-Year Wind PTC Extension

Resources• MA Net Metering & Solar Incentives

o Massachusetts Net Metering and Solar Task Force – Final Report to the Legislature (Apr. 30, 2015)

o House Bill 3854

o Senate Bill 1979

o Mass Solar Blog – Senate saves solar from House bill, but net metering caps remain in place

o Greentech Media – Nevada Regulators Eliminate Retail Rate Net Metering for New and Existing Solar Customers

o Greentech Media – What If Nevada’s Solar Regulators Came to Massachusetts?

Resources• IRC § 25D Residential Solar Tax Credit – Application to Community Solar

o Clean Energy States Alliance resource package

o IRS PLR 201536017 (July 28, 2015)

• MA Solar/Wind Property Tax Exemptiono MGL c. 59, § 5, Forty-fifth

o Forrestall Enterprises, Inc. v. Board of Assessors of the Town of Westborough (MA Appellate Tax Board 12/4/14)

o KTT, LLC v. Board of Assessors of the Town of Swansea (MA Appellate Tax Board) [watch for decision on ATB webpage]

• Falmouth Wind Energy Facilityo Drummey, et al. v. Town of Falmouth, et al. (Mass. App. Ct. Feb. 26, 2015)

Resources• Local Boards of Health – Limitations on Jurisdiction Outside Municipality

o MGL c. 111, § 122

o MGL c. 111, § 131

o Stone v. Heath, 175 Mass. 385 (1901)

o Bourne Board of Health Wind Energy Conversion System Regulations

• Municipal Aggregationo MA DPU – Municipal Aggregation Dockets

Contact

Jonathan Klavens

Klavens Law Group, P.C.

420 Boylston Street, Suite 610

Boston, MA 02116

(617) 502-6281

jklavens@klavenslawgroup.com

http://www.klavenslawgroup.com

Disclaimer

This document, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal or other professional advice by Klavens Law Group, P.C. or its attorneys. Please seek the services of a competent professional if you need legal or other professional assistance.