Practitioner's Corner

Renewables (wind, solar, geothermal) – Clean Energy with Reliability and Cost Challenges.  

Due to the current budget climate, long-term threats to favorable tax treatment, as part of an overhaul of the tax code, are probably the greatest threats to the renewables industry.  The current tax incentives for renewable energy Production Tax Credits (PTCs) (for wind, solar, etc.) have either expired (in the case of the Section 1603 program for Treasury payments in lieu of tax credits) or are set to expire at the end of this year (in the case of the PTC for wind energy).  The Administration has signaled a willingness to phase out the tax incentives, at least for wind, because it is increasingly cost competitive and may no longer need the support. There is also an effort to enact a Federal Renewable Energy Standard (RES) or Clean Energy Standard (CES) that would mandate that utilities derive an increasing percentage of their power generation from clean sources of energy like wind, solar and geothermal for a RES, along with nuclear energy and hydroelectric power for a CES.  The major challenges to the industry, though, are from plentiful and cheap supplies of natural gas and also from concerns that wind and solar, at least, are intermittent power sources that are hard to couple with energy demand.  The concept of renewables remains popular with the public.  So they will continue to be part of the conversation but need to be worried about being used as a “pay for” as their tax incentives may be reclaimed for other spending priorities.

 

Biofuels – “Home Grown” Energy But How Best to Use It?  The main issue for the biofuels industry is protection of the Renewable Fuel Standard, which requires increasing quantities of renewable fuel as part of the transportation fuel supply.  Secondary issues include continued funding for bioenergy programs as part of the Farm bill and annual funding programs at USDA, DOE and Defense.  Also, the industry is seeking to expand the availability of higher ethanol blends through increasing the percentage of ethanol allowed in all fuel sold by allowing substitution of E15 (a fuel containing 15% ethanol) for the current E-10, as proposed by the EPA.   This alarms auto and small engine manufacturers that say their older cars, boats and chain saws will have trouble with blends containing more than 10% ethanol.  Another option advanced by the ethanol industry is to increase the availability of E-85 fuel or blender pumps to allow flex fueled vehicles to purchase fuel with much higher ethanol content.   Given the power of the farm lobby and the economic impact this issue has on the Midwest, policies affecting biofuels will continue to be a major debate within any comprehensive energy bill and have the potential to spill over into other must pass bills, like the Farm bill.

 

Energy Speculation – Energy Traders as Part of the Blame Game for High Fuel Costs.  Some elements of the energy and transportation industries, consumer groups, and others have argued that much of the blame for high gasoline prices lies at the feet of oil speculators who buy and sell oil with no intent to actually use it.  These oil speculators are accused of cashing in on higher and higher prices.  Critics argue that this speculation contributes significantly to higher prices.  Recently over 100 Democratic Members of Congress wrote to the House Appropriations leadership urging them to fully fund the Commodities Future Trading Commission (CFTC), the agency empowered to investigate speculation in commodities trading, as a way to curb energy speculation.  Others have pressed for legislation to limit speculation in oil trading.  Free market advocates argue that speculation can lower prices as easily as it can drive prices up and that the real cause of high prices is not speculation but supply and demand.  Given the political popularity of finding a “boogey man” to blame for high gas prices, we can expect to see the speculation issue get attention as energy policy is debated in Congress.