QUICK NEWS, March 12, 2013: IRS SOON TO DEFINE ‘IN CONSTRUCTION’ FOR WIND; THE VALUE OF SOLAR; HOW ENERGY STORAGE WILL GROW

IRS SOON TO DEFINE ‘IN CONSTRUCTION’ FOR WIND Insider: Clarity On PTC 'Begin Construction' Language Expected Soon

Mark Del Franco, 5 March 2013 (Nrth American Windpower)

“…[The Internal Revenue Service (IRS)] has imposed an internal deadline of March 31 to clarify what it means for a wind project to be considered under construction, per the ‘begin construction’ language included in the [version of the production tax credit (PTC) signed into law in January]…[T]he IRS [repotedly] recognizes the urgency…to resolve the issues and release the guidance to wind energy developers.

“Historically, the IRS has taken up to a year - or even longer - to resolve such discrepancies. However, the wind industry does not have the luxury of time…The PTC extension included a change in language that requires projects to begin construction before Jan. 14, 2014, in order to qualify for the PTC, rather than the ‘placed in service’ deadline included in previous versions of the PTC.”

“Without further guidance, developers, suppliers and financiers are more hesitant to move forward with projects…[O]ne of the biggest challenges for the IRS will be to establish a rule that is fair to all the technologies mentioned in Section 45 of the Internal Revenue Code, which includes electricity produced from certain renewable resources,’ such as wind, solar, geothermal, municipal solid waste and qualifying hydropower…

“…The IRS released a similar ‘begin construction’ clarification in July 2010, after the issuance of the U.S. Department of the Treasury’s Section 1603 cash-grant program. The American Wind Energy Association has been encouraging the IRS and the Treasury to consider similar rules for the PTC, as the industry is already familiar with that guidance…[Less likely] is that rules pertaining to bonus depreciation - which also includes a ‘begin construction’ component - could be applied to PTC. However, bonus depreciation applies broadly to all businesses…”

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THE VALUE OF SOLAR Austin Energy’s Value of Solar Tariff: Could It Work Anywhere Else? Austin’s solar policy framework may just be too weird to duplicate.

Anne Lappe, March 8, 2013 (Greentech Media)

“Last fall, Austin Energy become the first utility in the U.S. to offer a ‘Value of Solar Tariff’ (VOST) to its residential electricity customers…[It is] an alternative to net metering, the bill credit mechanism that has driven most customer adoption of solar in the U.S…[U]tilities elsewhere…are looking to ditch net metering and jump on the VOST bandwagon…Here’s how the Austin VOST works: …[A] residential customer…is automatically signed up…[and pays] a monthly energy bill based on how many kilowatt-hours of electricity [are consumed and credited for every kilowatt-hour generated. That credit is subtracted…[from the] monthly electricity bill…

“…[T]he VOST rate is set up to more fairly reward solar system operators for the energy they produce…[It] is calculated using a value of solar algorithm…updated annually…[that accounts for]…Avoided fuel costs…Avoided capital cost of installing new power generation…Avoided transmission and distribution expenses…Line loss savings…Fuel price hedge value…[and] Environmental benefits…[Solar advocates in Austin say that they hope to add to the list of benefits, perhaps including a value for the economic development benefits of building inherently local energy infrastructure. These are] the same value elements that are examined when looking at the cost and benefit balance under net metering for residential and commercial customers…[F]rom 2006 through 2011, the calculated value of solar fluctuated from 10.3 cents per kWh to 16.4 cents per kWh for a fixed system. In October 2012, when the VOST was actually implemented, the value was set at 12.8 cents per kWh…”

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“…[T]here are a few issues unique to Austin Energy, and Austin, which make it unlikely that a VOST would look the same if it were replicated by utilities elsewhere…[especially in the Value of Energy, Environmental Benefits, and Fuel Price Hedge Value calculations]...In a utility service area where leasing is allowed, and is the preferred option for customers, a VOST becomes more complicated…In Austin…the City Council acts as the regulatory backstop to VOST decisions. A Public Utility Commission’s (PUC) main mission…is to keep costs low for ratepayers. City councils have much wider missions, which includes protecting the public welfare…

“One of net metering’s strongest virtues is its simplicity…VOSTs [should] initially be introduced as an option, not a replacement for NEM. Retain NEM for on-site generation, and develop a VOST as a voluntary alternative option for customers…See how it works before ditching the thing that does. Unless you are dealing with a solar champion like Austin Energy, the one-to-one retail net-metering credit keeps the conversation simple and fair for consumers, and limits the opportunities…to undervalue distributed solar.”

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HOW ENERGY STORAGE WILL GROW Energy Storage Systems for Ancillary Services; Frequency Regulation, Voltage Support, Spinning Reserves, Electric Supply Reserve Capacity, and Load Following: Global Market Analysis and Forecasts

1Q 2013 (Pike Research/Navigant)

“Ancillary services are…required to maintain safe, reliable, and secure transmission of energy on the grid. Designed to respond to the technical challenges of generating, transmitting and distributing electricity, these services…balance the grid regardless of the structure of the electricity market…

“It can be challenging for a new technology – such as energy storage systems (ESSs) – to make a compelling business case…even if on a technical level energy storage provides a compelling and competitive solution.”

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“Energy storage, however, is poised to take advantage of several global trends in this market. Demand for energy will continue to grow at a rapid pace, leading to more deregulation of the electricity market as well as more instability on the grid system as renewables penetration will also grow…

“…ESSs offer, in many cases, better quality ancillary services in addition to an alternative to using traditional generation assets. Pike Research forecasts that worldwide annual installed capacity of energy storage systems for ancillary services will reach 3,500 MW by 2023…”

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