Renewable Energy

Solyndra Takes the Fifth and Mascoma Prepares for an IPO: A Down-and-Up Day for Renewable Energy

September 26, 2011 19:50
by J. Wylie Donald
  It was a sobering moment Friday. Two executives of Solyndra LLC, after being honored by the President, receiving vast sums of money from investors, and earning kudos and accolades from industry and government,  asserted their Fifth Amendment right against self-incrimination and refused to testify before a congressional committee investigating the solar cell manufacturer's bankruptcy and potential improprieties in the procurement of loan guarantees.  We are not privy to the corporate planning but are comfortable stating that that was definitely not in the business plan. A more successful business model (for the moment anyway) appears to be that of cellulosic ethanol entrepreneur Mascoma Corporation, which on Friday filed its S-1 in anticipation of its IPO seeking $100 million in investment. As one blogger reported:  "the numbers continue to look strong, and the timelines continue to point toward commercial volumes of cellulosic ethanol in the 2013-14 time frame, at affordable prices."  We shall see.  Mascoma describes itself as follows:  "Using its proprietary consolidated bioprocessing, or CBP, technology platform, Mascoma has developed genetically-modified yeasts and other microorganisms to reduce costs and improve yields in the production of renewable fuels and chemicals."   While the holy grail is commercial success using any biomass resource, Mascoma is hedging its bets and touting application of its "bugs" to ethanol producers. It asserts that its "consolidated bioprocessing" is better than current processes and that it can help ethanol manufacturers produce more cheaply. This resort to established product lines is becoming a trend. An article in Scientific American, The False Promise of Biofuels by David Biello, reports that many in the biofuel area, where the lack of success in commercialization of biofuel applications has been discouraging, are seeking to use their proprietary technologies in other areas such as pharmaceuticals and cosmetics. Internet commentators draw parallels between Mascoma and Solyndra based on the government support each received. Frankly, we find it not much of an insight. Government support is an enticement for investors.  If you have it, it will be easier to locate private financing. If you don't, it is just the opposite.  Still, federal and state involvement is eye-opening.    Mascoma's S-1 reveals that it has yet to turn a profit over the past five years and in fact has lost almost $140 million so far. It has been able to do this with a little over $100 million in private investment, $30 million in debt and $34.5 million in revenue. Eighty-six percent of Mascoma's revenue in 2010 came from government sources, which is substantial; government grants exceed $65 million.  The Department of Energy has provided separate grants of $20 million and $4.3 million, New York's Energy Research and Development Authority and Michigan's Strategic Fund have contributed $14.8 million and $20 million, respectively, in return for facilities in each state. A few million ($6.3 MM) has come from the BioEnergy Science Center at UT-Battelle. And somehow, for less than a million dollars, the Province of Alberta has a commitment for the construction of a facility in Alberta.  We hesitate now as we write our conclusion, for fear of jinxing Mascoma. We hope and trust that the its economic trajectory is 180 degrees from that followed by Solyndra. But just in case, we offer this small bit of advice: pay close attention now to the D&O policy. The next shoe to drop for Solyndra and its officers and directors will be lawsuits alleging various forms of misfeasance as individuals and entities that were financially burned seek to shift their loss.  We could write much regarding D&O policies. It will suffice here to counsel for focusing on pursuing coverage extensions for government investigations and for a requirement of "final adjudication" in any species of fraud exclusion.  The market is reportedly soft (except for Chinese reverse mergers) and there is no time like the present to establish the most favorable coverage terms.  Stated differently, when your executives are taking the Fifth and the litigation sharks are circling is no time to be parsing your coverage.

Renewable Energy | Solar Energy

The Sun No Longer Shines on Solar Panel Maker Solyndra LLC - Bankruptcy and the FBI

September 9, 2011 07:36
by J. Wylie Donald
Well, it was only a matter of time before renewable energy hit the mainstream. By which we mean that the bloom comes off the road as the rubber hits the rose.  Yesterday the FBI raided the headquarters of bankrupt Solyndra LLC, which formerly "led the way to a brighter future", to quote President Obama (4:00).  It seems that some questions have arisen over its bankruptcy filing and whether it misled the government in the procurement of loan guarantees. Those questions are the focus of a criminal investigation. What is the taxpayers' share?  Potentially over half a billion dollars. Solyndra is not the only clean energy darling to fail. Evergreen Solar, Inc. has gone under.  As has Spectrawatt.  (We could add wind, biomass and others.)  A niche legal practice is building somewhere. What practitioners should take from all this, and a central feature of our perspective, is that the new risks and opportunities in the climate change and renewable energy space, are ineluctably accompanied by the old risks and opportunities. The art and craft of what we as lawyers do is the melding of the old with the new. To focus on solar, a key feature of a solar project is the renewable energy credit or REC. Lawyers on both sides should be focusing on where those will end up in a bankruptcy and who will have claims to them.  Is it just another asset, or do its features merit special consideration.  If a REC is an executory contract, perhaps the ostensible owner owns very little after a bankruptcy filing.  Another key feature, will be the tax credit. How will that be treated?  Who gets paid by the loan guarantee (such as in Solyndra's case)? And we advise against just muddling through. We were on a wind farm deal where the other side proposed to include climate change (i.e., a change that would result in less wind) as a force majeure. A good idea, unless you understand how a force majeure clause works:  upon the occurrence of the force majeure event, one has to give notice in a specified period declaring the event.  Counsel obviously had never thought how the client would discern that climate change had occurred such that notice should be given. Because that moment cannot be precisely determined, inevitably such notice will be deemed late or premature and the defense to performance avoided. We point all this out as a caution.  Contracts, like roses and like roads, need to be tended to.  A failure to understand the subject matter fully may result in something undesirable (like a mixing of metaphors), or even harmful (like the loss of a valuable asset).

Renewable Energy | Solar Energy

The Debt Ceiling Furor Will Change the Climate of Climate Change Responses

July 27, 2011 19:12
by J. Wylie Donald
We hope you don't come to this blog for stock tips but it doesn't take John Bogle to know that the debt ceiling impasse and the budget furor do not bode well for renewable energy stocks.  Citing the debt crises and oversupply, here is how one report put it:  "One of the biggest losers on the day was the PowerShares WilderHill Clean Energy Portfolio (PBW) which slumped by 1.4% to open up the week."  So where else is the national obsession on the nation's debt going to take a bite out of responses to climate change.  We tracked down a few subjects. Carbon Dioxide Regulation - Efforts by House Republicans to defund USEPA's steps to regulate carbon dioxide resulted most recently in H.R. 2584, the proposed Department of the Interior, Environment, and Related Agencies Appropriations Act of 2012.  Section 453 provides, among other things, that "None of the funds made available under this Act shall be used--(1) to prepare, propose, promulgate, finalize, implement, or enforce any regulation pursuant to section 202 of the Clean Air Act (42 U.S.C. 7521) regarding the regulation of any greenhouse gas emissions from new motor vehicles or new motor vehicle engines that are maufactured after model year 2016 to address climate change; ..."   This is not a new tactic.  It is probably fair to say that what is in the works now at EPA is not what will be the final word. Tax Credits - Under § 1603 of the American Recovery and Reinvestment Tax Act renewable energy project developers may take cash payments in lieu of the investment tax credits.  The Treasury reports over 7000 projects funded to the tune of $6.4 billion, resulting in total investment of $21.6 billion.  Although the credits do not expire until October 2012, some think they are under the gun right now.  Ethanol - The most subsidized part of the renewable energy mix, ethanol producers and corn farmers received a stern message on June 16 when Senator Dianne Feinstein obtained a symbolic vote (73-27) in favor of ending ethanol subsidies on July 1.  The White House promised a veto and the proposal has not gone anywhere in the House. Energy Efficiency - Congress can't figure out the debt ceiling mess but remains expert at creative bill naming.  H.R. 2417, the Better Use of Light Bulbs (BULB) Act, passed overwhelmingly, but didn't take effect because of the procedural rule adopted to permit a vote, which required a supermajority.  The bill would have repealed certain provisions of the Energy Independence and Security Act of 2007 that prescribed energy efficiency standards for incandescent lamps (among other things). We are sure there are others.  Notwithstanding that the Energy Independence and Security Act of 2007 passed both houses of Congress by wide margins, the winds of change are now blowing hard and furiously.  Where all these programs will be when the furor over the debt ceiling subsides is unknown, but no one can dispute that the climate has changed.

Carbon Emissions | Climate Change | Legislation | Renewable Energy

Anticipated Cooling Tower Rulemaking: Preserving Aquatic Life at the Expense of Increased Carbon Emissions?

February 2, 2011 12:19
We’ve previously written in this blog concerning regulatory uncertainty and its impact on investment or growth of renewable energy.  One example of how this has recently played out is in the early retirement of Exelon’s Oyster Creek nuclear facility in New Jersey.  Setting aside any philosophical debate with regard to whether nuclear is a form of energy that should be lauded as a resource that generates no carbon dioxide emissions, we focus here on the issue of regulatory uncertainty, the dilemma that arises when an agency leans toward choosing one means of technology as a panacea to a potential harm to the environment, and the unintended impact of such regulation on another area of environmental concern.  Regulatory uncertainty and the potential increased environmental compliance costs of anticipated state and federal regulation forced the owners of Oyster Creek to agree to shut down the 645 MW nuclear facility in 2019, ten years before its renewed license to operate expires.  In April 2009, Exelon won a 20-year license extension for Oyster Creek.  Not all power plants are required to use cooling towers, let alone particular types of cooling towers.  Cooling tower regulations are currently being considered by the EPA and NJ DEP as a way to protect aquatic species in the rivers, oceans and lakes that provide cooling water to power plants.  A component cited by Exelon in its decision to close the plant early was the NJ DEP’s attempt to compel construction and operation of a cooling tower at Oyster Creek within seven years, which Exelon said would be cost prohibitive.  To what extent should a regulatory agency dictate the means or methods to be employed in achieving certain environmental results?  With regard to the federal scheme, rule 316(b) of the Clean Water Act has allowed power plant operators to use what is the “best technology available” to capture water for plant cooling purposes.  EPA’s rulemaking is expected to set significant new national technology-based performance standards to minimize adverse environmental impact.  Although the proposed rule has not yet been issued (it is expected in February 2011, to be followed by a final rule in July 2012), the EPA’s anticipated rule, coupled with the inability of plant operators to consider other factors (such as climate change, impact on water use, land use, and cost) may have unintended consequences.  After all, while requiring particular kinds of cooling towers on all existing power plants may benefit some aquatic life, the forced early retirement of multiple nuclear plants will also result in increased carbon emissions.  And, if predictions are true, rising sea levels associated with increased carbon dioxide levels will likely harm far more aquatic life as rivers become more saline, wetlands are drowned, and abandoned infrastructure falls into the sea.

Carbon Emissions | Regulation | Renewable Energy

A Welcome Holiday Present: One Year Extension of the Solar Energy Tax Grant in Lieu of Credit

December 23, 2010 07:39
The renewable energy industry got a nice holiday present this year. On December 17, 2010, President Obama signed into law H.R. 4853, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the "Tax Relief Act"). Included among the panoply of tax cuts is a tax grant extension cheered by the renewable energy industry. Section 707 of the Tax Relief Act extends by one year the deadline for commencing construction of specified energy property, such as solar facilities, to be eligible to receive a grant of 30% of the cost of the property from the U.S. Treasury under Section 1603 of the American Recovery and Reinvestment Act of 2009. The property will be eligible for the grant if it is placed in service during 2009, 2010, or 2011, or if it is placed in service after 2011 and before the energy credit termination date (January 1, 2017, for solar facilities) if construction began before January 1, 2012. The extension of the tax grant in lieu of credit will allow those interested in developing solar facilities to continue to take advantage of the grant for another full year rather than work to beat the clock to demonstrate compliance by the end of 2010. Projects now under way that are expected to be placed in service in 2011 no longer have to meet Treasury's safe harbor for commencement of construction (demonstrating 5% of construction) by December 31, 2010. The safe harbor and its requirements, however, will be relevant in 2011 for projects expected to be placed in service after 2011. As participants in solar transactions plan their activities for 2011, they should be mindful of the steps that need to be taken by December 31, 2011, to document and maintain eligibility for any projects expected to be placed in service between 2012 and 2017, by either commencing construction or meeting the 5% safe harbor. Due to the sluggish credit markets and economy in 2009, the grant in lieu of credit program was not as great a stimulus to the development of renewable energy projects as some had initially expected. This grant extension brings welcome news to the solar industry and to any large energy user that may want to reduce its energy costs by developing and installing a solar facility. It evidences Congress' continued commitment to the development of alternative energy projects and should result in the development of many more viable projects and the creation of jobs related to the construction and installation of solar energy facilities.  

Climate Change | Legislation | Renewable Energy | Solar Energy

Revisions to the Green Guides: Part III - Insurance Coverage for the Claim

October 24, 2010 16:10
by J. Wylie Donald
If you have been following along with the last two posts, you are now aware of the several ways one can trip up as one attempts to use "green" climate change attributes (specifically, claims regarding renewable energy, carbon offsets or carbon neutrality) to win customers or sell products. And the universe is bigger than simply climate change. The Green Guides promulgated by the Federal Trade Commission, address general environmental benefit claims; biodegrable, recyclable, compostable, refillable and recycled content claims; "ozone-friendly" claims; and claims about source reduction. See 16 C.F.R. § 260.7. There are numerous perils and you would like to think that a misstep in this area would not be without succor. And you would be right (in some circumstances). Included in the general liability policies with which we are all familiar, is coverage for Advertising Injury. As its name implies, it can be a source of coverage for a marketing misstep. Typical insuring language provides that the insurer "will pay those sums that the insured becomes legally obligated to pay as damages because of 'personal and advertising injury' to which this insurance applies." ISO CG 00 01 12 07. These policies often also require the insurer to defend the insured against claims asserting advertising injury.   Advertising injury coverage is not triggered by the commonly known "occurrence." Instead, the operative event is an "offense" committed by the insured. These offenses are specifically enumerated in the definition of "personal and advertising injury." Pertinent here is the following offense set forth in the definition: "oral or written publication, in any manner, of material that slanders or libels a person or organization or disparages a person's or organization's goods, products or services." It is easy to understand "oral or written publication," but is a misleading advertisement that does not even mention a competitor's name, a slander, a libel or a disparagement? In a case of first impression in California in 2007, a court of appeals panel found that it could be. Tosoh Set v. Hartford Fire Ins. Co., slip op. (Cal. Ct. App., April 30, 2007) Click here . The court found that the "duty to defend was triggered by an allegation that [the insured] falsely claimed it alone had developed the detailed specifications and tolerances required for certain replacement component parts used in semiconductor manufacturing equipment, a statement that disparaged its competitors' products and services by implying they were measurably inferior." It does not require much ingenuity to imagine a claim that a certain item "made with renewable energy" constitutes disparagement of other manufacturers' products that are not so made. Likewise, a claim that a service was carbon neutral, might disparage services that were not. So coverage seems possible.

Climate Change | Renewable Energy

Revisions to the Green Guides: Part II - Carbon Offset Claims

October 21, 2010 06:23
by J. Wylie Donald
We wrote last about the Federal Trade Commission's proposed revisions to the Green Guides (Proposed Revisions to the Green Guides (Oct. 6, 2010 ) click here) and the Guides' proposed new guidance on renewable energy. Today we will address how the Guides intend to treat marketing claims regarding carbon offsets.

Carbon Emissions | Climate Change | Renewable Energy

Revisions to the Green Guides: Part I - Renewable Energy Claims

October 20, 2010 17:58
by J. Wylie Donald
The Federal Trade Commission proposed revisions to its "Green Guides" at the beginning of this month. Proposed Revisions to the Green Guides (Oct. 6, 2010) Click here. The comment period runs through December 10, 2010. Most interesting for readers of this blog are the two new proposed guides directed to renewable energy and carbon offsets, which we discuss below. For those unfamiliar with the Green Guides, they are the guidance provided by the FTC for marketers to assist them in avoiding making misleading environmental claims. First published in 1992, and updated in 1996 and 1998, the Guides provide "1) general principles that apply to all environmental marketing claims; 2) how consumers are likely to interpret particular claims and how marketers can substantiate these claims; and 3) how marketers can qualify their claims to avoid deceiving consumers." FTC Press Release (Oct. 6, 2010) Click here. Although the Green Guides are not law, the FTC uses them to determine when to bring enforcement actions. As stated in the regulations: "These guides specifically address the application of Section 5 of the FTC Act to environmental advertising and marketing practices. They provide the basis for voluntary compliance with such laws by members of industry. Conduct inconsistent with the positions articulated in these guides may result in corrective action by the Commission under Section 5 if, after investigation, the Commission has reason to believe that the behavior falls within the scope of conduct declared unlawful by the statute." 16 C.F.R. § 260.1 test ttt

Climate Change | Renewable Energy

CT’s Field of Dreams: If We Build It, Electric Vehicles Will Come to the State

September 2, 2010 08:39
A panel of Connecticut’s energy, environmental, transportation and economic development leaders reached consensus this week on a road map for supporting the next generation of plug in electric vehicles. The initiatives identified in the report, state officials said, promise to create incentives for electric car consumers and send clear signals to the automobile industry and trade allies that Connecticut should be high on the deployment list for the next generation of clean cars.  Officials also promised that the efforts would help the state to reduce greenhouse gas emissions and promote energy independence and security. The Electric Vehicles Infrastructure Council, which was formed last November in response to an executive order issued by Gov. M. Jodi Rell, issued its Final Report Wednesday, identifying strategic priorities intended to pave the way for improvements like a network of public and in-home charging stations and legislative priorities that would offer tax incentives to help consumers avoid sticker shock. Council members emphasized in the final report that Connecticut’s goal is to gain early access to the first wave of mass-produced electric cars, vehicles promising to promote green jobs and smart grid features while reducing carbon dioxide, a key contributor to global climate change. Two automobile manufacturers with next generation electric cars in development, General Motors and Nissan, have already informed the state government that, especially given the interest and industry support demonstrated by the work of the Council, they plan to include Connecticut in their first wave of product roll-outs this fall.  While welcome news, that also puts pressure on the state’s electric utility industry, building officials, transportation officials, utility regulators and others to work together to develop public electric vehicle charging stations and facilitate the deployment of affordable home charging stations so that electric vehicles can charge in garages overnight. Only 24 Connecticut motorists have registered plug-in electric vehicles in the state so far, but the Council’s Final Report sets a goal of 25,000 by 2020.  To achieve that goal, officials agreed they need to work together to streamline regulatory and permitting processes, encouraging overnight charging with favorable “time-of-use” electric rates, and build public-private partnerships to develop a network of convenient charging stations across the state to ease so-called “range anxiety,” the fear that a motorist might not be able to find charging stations on the road.  Rapid installation of home charging stations is also critical, officials said, to ensure that electric vehicle buyers can get the home equipment installed promptly after purchasing the new vehicles from auto dealer showrooms. The Council concluded that addressing these infrastructure concerns and enacting tax incentives and other laws that streamline approvals for electric vehicles will induce consumer interest in buying the vehicles and attract the industry to prioritize the upcoming product releases in Connecticut. Many of the more than 30 recommendations of the Council are underway already, as officials form implementation teams to begin to tackle the challenges of the industry. Author’s Note: The author is a member of the Council, having been appointed by Gov. Rell to serve as a representative from the private sector member of the electric energy industry.  All documents and presentations assembled by the Council can be viewed by copying the following URL into your browser: http://www.ct.gov/dpuc/cwp/view.asp?a=3856&q=452086

Climate Change | Green Marketing | Renewable Energy

Tilting at Windmills: Cape Wind PPA Pending Review at MA DPU

August 20, 2010 04:26
Its been 10 years since Cape Wind Associates, LLC originally proposed developing 130 wind turbines in Nantucket Sound and, after navigating successfully through a labyrinth of federal, state and local permitting and siting challenges and fending off the perfect storm of litigation, the winds may finally be blowing in Cape Wind’s direction. (Check out this link for a good history of Cape Wind, details on the project, and legal challenges and the controversies surrounding it: http://en.wikipedia.org/wiki/Cape_Wind). Even though now fully permitted for construction, however, the challenges for the nation’s first offshore wind project are far from over as utility regulators consider whether to approve the power purchase agreement (PPA) and public debate in Massachusetts continues to question the wisdom of allowing governmental support for a private project.  Cape Wind still needs to complete the project financing arrangements, estimated at $1 to $2 billion, and an approved PPA is a crucial foundation for commercial financing. According to National Grid’s May 10, 2010 filing with the Massachusetts Department of Public Utilities (DPU), in which it submitted the PPA documents requesting approval of the power purchase arrangements, the utility subsidiaries of National Grid, Massachusetts Electric Company and Nantucket Electric Company plan to buy about 50% of Cape Wind’s power output at 20.7 cents per kilowatt hour over 15 years, which would represent approximately 3.5% of National Grid’s electric distribution load in Massachusetts and exceed its mandate under the state’s renewable portfolio standard obligation, as set forth in the Green Communities Act.  National Grid further stated that the average residential homeowner using 500 kWh per month would see an increase of $1.59 per month in 2013, equal to 2.2% increase on the bill at today’s energy commodity prices. And so, now that the tough environmental and siting decisions have been made in Cape Wind’s favor, the issue has been joined at the DPU on the project’s economics and whether the public (in the form of Massachusetts ratepayers) should support the project.  Just this week, an Op-Ed writer in the Boston Globe criticized the administration of Massachusetts Gov. Deval Patrick’s alleged lack of transparency, political support for the high energy cost of the PPA and the price risk contingencies in the contract.  (The energy cost can go up or down depending on certain market conditions and there is a limited sharing of risk in the PPA related to the project’s power output and qualification for tax credits.  The actual costs presented to the DPU are based on forecasts, but there are uncertainties and risks as well.) This might be a good time to comment on what I like to call the renewable energy economic facts of life.  It’s a fact that renewable energy costs more than energy generated with fossil fuel sources, such as coal or natural gas.  There’s simply no way around that fact. Whether a project is solar, biomass, fuel cell, wind powered or some other renewable source, the cost of the technology and project development is simply higher and sometimes far more expensive than fossil generation.  When it comes to market forces, therefore, generators of renewable power cannot sell the energy economically into a functioning market without substantial price supports or other subsidies. One such subsidy is the federal government’s 30% investment tax credit and the production tax credit, but these tax credits are not enough to help renewable projects to clear the hurdle.  They still need a long-term PPA with a credit-worthy energy buyer and a vibrant market for the renewable energy certificates (RECs) generated by the project.  (Just yesterday, New Jersey's governor signed into law a measure that would create ocean RECs or ORECs to support such projects.  See blog post below.)  Depending on deal terms that include who (buyer or seller) acquires the ownership rights to the RECs, the per-kilowatt-hour energy cost can increase or decrease. In Cape Wind’s case, the PPA buyer is acquiring all of the environmental attributes of the wind power, including the RECs, and capacity rights in addition to the energy itself.  That means that National Grid will have the right to sell the RECs in the market and credit the ratepayers for revenues generated in the marketplace as a result.  The net energy cost, therefore, will likely be less than the 20.7 cents per kWh specified in the PPA. Ultimately, the question for Massachusetts regulators and the public will be whether the renewable energy, which promises clean renewable energy that reduces greenhouse gas emissions and global climate change, is worth the cost.  If we really want to diversify our power supply with clean renewable energy and reduce our reliance on coal and natural gas fired generation, projects like Cape Wind deserve public support and contracts like the ones pending before the DPU merit serious consideration.

Climate Change | Renewable Energy | Solar Energy | Weather

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