1 / 33

Presented by Stuart Caplan December 14, 2005

Presentation to the American Bar Association: Renewable Energy Development: The Interplay Among State Programs, FERC and ISO/RTO Markets. Presented by Stuart Caplan December 14, 2005. Table of Contents. Introduction to Renewable Energy in NY RPS, RECs and Tax Credits for NY

ziya
Download Presentation

Presented by Stuart Caplan December 14, 2005

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Presentation to the American Bar Association:Renewable Energy Development: The Interplay Among State Programs, FERC and ISO/RTO Markets Presented by Stuart Caplan December 14, 2005

  2. Table of Contents • Introduction to Renewable Energy in NY • RPS, RECs and Tax Credits for NY 2.1NYSDPS Renewable Portfolio Standards (RPS) 2.2Sources for Meeting Future Standards for Renewable Power 2.3 Wind Energy: A Key Source for Meeting NY’s RPS 2.4 RECs Are Key to Meeting RPS Policy Goals 2.5 Production Tax Credits (PTC) for Wind Energy • Key Regulatory Proposals & Initiatives 3.1NYISO- & NYSERDA - Commissioned Joint Study 3.2 FERC Order 888 - Permitted Imbalance Charges 3.3 “Phase 2” Report Findings Regarding FERC Order 888 3.4 FERC NOPR on Imbalance Provisions for Intermittent Resources 3.5 Interconnection for Wind Energy (FERC Orders) 3.6 NYISO Proposals 3.7 Initiatives of WPNY • Potomac Economics’ Analysis of RPS Market Impacts & Rate Structures 4.1Methodology 4.2 RPS Effects in New York 4.3 Qualitative Evaluation of Alternative Procurement Methods • Financing Environment for Wind-Turbine Projects • PPA Contract Issues & Considerations • Additional Resources 8. White & Case LLP Credentials 8.1 White & Case Around the World 8.2 About Your Presenter: Stuart A. Caplan 8.3 About White & Case 8.4 Our Approach 8.5 Recognition

  3. Presentation to ABA Section 1- Introduction to Renewable Energy in NY

  4. 1. Introduction to Renewable Energy in NY In New York State, forms of energy classified as renewable are: • Wind • Solar • Biomass/biogas • Hydro, wave and tidal facilities

  5. Presentation to ABA Section 2: RPS, RECs and Tax Credits for NY

  6. 2.1 NYSDPS Renewable Portfolio Standards (RPS) • RPS for New York State include: • New York State Department of Public Service (NYSDPS) Order on September 24, 2004: 25% of energy consumed in NY should be produced from eligible renewable resources by 2013 (effective 01/01/06) • Current level is about 19.5% counting existing major hydro projects (Niagra Falls and St. Lawrence Projects) Renewable Portfolio Standards (RPS) are state-level, top-down policies that require a certain percentage of a utility’s overall or new generating capacity or energy sales to be derived from renewable resources.

  7. 2.2 Sources for Meeting Future Standards for Renewable Power RPS estimates: The need to achieve the 25% RPS goal is expected to be met by: * * Includes 250 MW of wind in PJM. MW

  8. 2.3 Wind Energy: A Key Source for Meeting NY’s RPS • A key source for renewable power, wind energy technology is: • The fastest-growing energy technology in the world • A rapidly growing industry in the U.S. • Expected to be responsible for a significant level of electricity generation in the near future The number of wind energy projects in NYS totaled 48 in early 2005.

  9. 2.4 RECs Are Key to Meeting RPS Policy Goals Renewable Energy Credit/Certificates (RECs): Designed to promote increased reliance on renewable energy resources, typically premised on promoting policy goals (e.g., improved air and water quality). 1 REC (tradable certificate) generally = environmental attributes of 1 MWh electricity from a renewable generation source Renewable Energy • NY’s Renewable Portfolio Standard (RPS) includes: • Initial REC awards made to 7 renewable facilities • 820,000 MWh contracted for 2006 • First-year payments estimated at roughly $18 million Unbundled environmental “green” attributes Commodity electricity

  10. 2.5 Production Tax Credits (PTC) for Wind Energy The PTC provides a 1.9-cent per kilowatt-hour credit (adjusted periodically for inflation) during the first 10 years of operation for wind power facilities placed in service before 12/31/07. The PTC is important for financing wind projects.

  11. Presentation to ABA Section 3: Key Regulatory Proposals & Initiatives

  12. 3.1 NYISO & NYSERDA - Commissioned Joint Study Conclusions of Phase 2* of the two-part study: • Wind generation can be held accountable to similar standards as conventional generation in terms of meeting day-ahead forecasts. • Exception: Imbalance penalties should not be imposed on wind generation. Source: “Phase 2” refers to the system performance evaluation report, “The Effects of Integrating Wind Power on Transmission System Planning Reliability and Operations” (03/04/05). Prepared for: The New York State Energy Research And Development Authority Prepared by: GE Energy Energy Consulting

  13. 3.2 FERC Order 888 – Permitted Imbalance Charges Order 888 from the Federal Energy Regulatory Commission (FERC): Allows imbalance penalties to be applied to generators that operate outside of their schedule. As applied in NY, any overgeneration can be accepted without payment, and any undergeneration is priced at the greater of 150% of the spot price or $100/MWh. Source: Phase 2 report, “The Effects of Integrating Wind Power on Transmission System Planning Reliability and Operations” (03/04/05)

  14. 3.3 “Phase 2” Report Findings Regarding FERC Order 888 According to the conclusions of the Phase 2 report:* Any imbalance penalties for undergeneration would tend to encourage underbidding the day-ahead forecast to the detriment of the entire system. Market for wind generation should be structured to: • Reward the accuracy of wind-generation forecasts. • Encourage wind generators to curtail production during periods of light load and excessive generation. • Provide clear financial incentive to reduce output when energy spot prices are very low (or negative). * Source: Phase 2 report, “The Effects of Integrating Wind Power on Transmission System Planning Reliability and Operations”

  15. 3.4 FERC NOPR on Imbalance Provisions for Intermittent Resources FERC Notice of Proposed Rulemaking (NOPR) on Imbalance Provisions for Intermittent Resources: • On April 14, 2005 (Docket No. RM05-10), FERC recognized the need to update Order 888 imbalance provisions as they relate to intermittent resources, such as wind resources. The NOPR proposed the following: • + / - 1.5 % hourly deviation band (2 MW minimum) • Deviations within + / -1.5% bandwidth, generator/transmission customer shall either: • Return-in-kind within 30 days, or • Pay 100% of incremental/decremental costs for underdeliveries/overdeliveries. • Deviations outside the + / -1.5% bandwidth: • Generator/transmission customer to pay the greater of $100/MWh or 110% of the system incremental costs for underdeliveries. • Transmission provider to pay 90% of its system decremental costs for overdeliveries. FERC has yet to issue a final rule.

  16. 3.5 Interconnection for Wind Energy (FERC Orders) Federal Energy Regulatory Commission (FERC) Order No. 661 issued June 2, 2005: • Requires transmission providers to append new provisions to their standard agreement and procedures for interconnecting large generating facilities, which are required under their open-access transmission tariffs (OATT), in order to address technical requirements and procedures for integrating large (>20 MW) wind power facilities into their transmission systems. FERC Order No. 2006 issued May 12, 2005:    • Requires transmission providers to amend their Order No. 888 OATTs to offer non-discriminatory, standardized interconnection service for small generators (<20 MWs).  The amendments involve inclusion of Small Generator Interconnection Procedures and a Small Generator Interconnection Agreement."

  17. 3.6 NYISO Proposals The New York Independent System Operator (NYISO) is developing straw proposals addressing numerous market-related issues: • Centralized wind-forecasting system • Interim market rules clarification of 500 MW limit • End-state market rules

  18. 3.7 Initiatives of WPNY Legislative goals of Wind Power of New York (WPNY): • Increase public funding for renewable energy projects. • Expand NY’s existing net metering and tax credits to include wind. • Enact legislation requiring that a percentage of electric power purchased for state agencies, universities and buildings come from renewable technologies, like wind.

  19. Presentation to ABA Section 4: Potomac Economics’ Analysis of RPS Market Impacts & Rate Structures

  20. 4.1 Methodology Potomac Report issued in June 2005 focused on two economic issues: • Effects of RPS on energy and capacity markets over the short run (2008) and long run (2013). • Impact of alternative procurement methods [renewable energy credit (REC) payment structures] – fixed versus variable RECs.

  21. 4.2 RPS Effects in New York Short-Run RPS Effects in New York: • RPS causes energy prices to decrease. • Capacity prices (UCAP market) in NYCA decrease by 16%. • In the short-run, load payments decrease significantly. Long-Run RPS Effects on Energy and UCAP Prices: • Energy prices decrease by 3.5% (in NYC) to 6.1 % (in the West); decrease varies per location. • Capacity prices increase by 14.5% in the rest-of-the-state area.

  22. 4.3 Qualitative Evaluation of Alternative Procurement Methods Qualitative Evaluation of Alternative Procurement Methods: Findings in the Potomac Report Favor Fixed RECs: • Fixed REC structure (resource earns constant $/MWh REC): • Provides more efficient investment incentives. • Includes incentives that reflect both installed cost and value of energy and capacity. • Provides more efficient dispatch incentive in the short-run. • Variable REC structure (REC payment varies such that the REC + energy revenue figure is constant): • LBMP has no effect on supplier’s revenues. • Favors investment at low installed-cost locations. • Allocates future market risk to load.

  23. Presentation to ABA Section 5: Financing Environment for Wind-Turbine Projects

  24. 5. Financing Environment for Wind-Turbine Projects The financing environment for wind-turbine projects has improved over recent years, although new challenges are prevalent: Pros: • Many projects have proven to be good investments, which has resulted in capital infusions into projects. • Availability of power-purchase agreements has improved. • The technology offers benefits over other sources of energy, including reduction in carbon intensity, economic growth potential to NY municipalities, declining costs as an energy source, while fossil fuel costs are high. Challenges: • Turbine supply is tight as developers act to lock in supply (favoring larger developers). • Turbine suppliers are requiring that deposits be paid to secure turbine contracts. • Some investors are unwilling to take the risk to invest in new plants with the uncertainty created by the short-term extensions of the federal wind energy production tax credit eligibility period.

  25. Presentation to ABA Section 6: PPA Contract Issues & Considerations

  26. 6. PPA Contract Issues & Considerations Power Purchase Agreements (PPAs) Issues to keep in mind: • PPA is the primary source of revenues for the project. • Some power purchasers have standard contracts that are not well tailored for renewables. • A creditworthy power purchase is important for structuring financing of the projects. • Evaluate quantity. The PPA must be clear as to what is being sold. • Energy payment terms for PPAs may include: • Tariffs • Inclusion of environmental credits • Adjustments for: • PTCs (if the latter are not available) • Capacity factor or output (penalties) • Changes in law/capital expenses • Force Majeure • Damages for failure to perform can include delay liquidated damages & penalties for failure to deliver/accept delivery. • Transmission and scheduling: Historic approach left buyer with transmission risks. The trend is to push transmission-related risks and costs on to the seller.

  27. Presentation to ABA Section 7: Additional Resources

  28. 7. Additional Resources More information is available at: • The American Wind Energy Association (www.awea.org) • The New York Energy Research & Development Administration (www.nyserda.com) • The New York Independent System Operator (www.nyiso.com) • The New York State Department of Public Service (www.dps.ny.us)

  29. Presentation to ABA Section 8: White & Case LLP Credentials

  30. 8.1 About Your Presenter: Stuart A. Caplan Stuart A. Caplan Partner, New York, Washington D.C. Stuart Caplan has 20 years of experience in the energy industry, including extensive experience in natural gas, electric industry restructuring and the regulatory aspects of mergers and acquisitions.  Practice Experience: Prior to joining White & Case in 2004, Stuart Caplan was the lead counsel in developing the NYISO Tariff, he chaired the Energy Regulatory Department of energy boutique Huber Lawrence & Abell and served as the Chair of the Federal Energy Bar Association Committee on Electric Utility Regulation, among other leadership positions. He is a member of the Board of Directors of the Energy Bar Association ("EBA") and will serve through 2008. Mr. Caplan was Chair of the EBA Committee on Electric Utility Regulation in 2001.  He was Vice Chair in 2000 and was Chair of the Committee on Energy of the Association of the Bar of the City of New York (1995-97). 

  31. White & Case LLP is a leading global law firm with nearly1,900 lawyers in 38 offices in 25 countries. Our clients value both the breadth of our network and depth of our US, English and local law capabilities in each of our offices and rely on us for their complex cross-border commercial and financial transactions and for international arbitration and litigation. Whether in established or emerging markets, the hallmark of White & Case is our complete dedication to the business priorities and legal needs of our clients. 8.2 About White & Case

  32. Leading industry publications consistently recognize White & Case for exemplary work, including: “US Law Firm of the Year 2005” — The Lawyer “Banking and Finance Team of the Year 2005” — Legal Business “Infrastructure Team of the Year 2005” — The Lawyer “Insolvency Law Firm of the Year 2004” — Asian Legal Business “Best Restructuring Lawyers 2004” — The Asset “Best Firm for Oil & Gas Financings and Petrochemicals Financings 2005” — Project Finance “Ranked in first tier for international arbitration”— Chambers USA “Ranked in second tier for international trade”— Chambers USA “Ranked in second tier for project finance”— Chambers USA “Ranked second worldwide in 2004 in number of completed M&A deals”— Thomson Financial “Ranked sixth worldwide in 2004 for antitrust” — Global Competition Review 8.3 Recognition

  33. Worldwide. For Our Clients. www.whitecase.com White & Case, a New York State registered limited liability partnership, is engaged in the practice of law directly and through entities compliant with regulations regarding the practice of law in the countries and jurisdictions in which we have offices.

More Related