Study Indicates that the Renewable Energy Market in the U.S. is One of the Most Attractive in the World

By Margaret M. Welsh

According to Ernst and Young’s Renewable Energy Attractiveness Index, the United States has one of the most attractive renewable energy markets in the world.  In February 2012, Ernst and Young released its quarterly report and listed the renewable energy market in the United States second only to China.  The Report tracks the attractiveness of forty countries and ranks countries based on the development of their renewable energy infrastructure and their suitability for individual technologies.

China maintained the number one position; however, the Report indicates that China’s renewable energy market growth could slow down because of a reduction in solar cell company investments by foreign countries.  The Report also predicts a decrease in renewable energy markets for more developed countries, including countries in Europe.  This is spurred by Europe’s financial uncertainty.

The United States remains at the top of the renewable energy market attractiveness list.  Yet, the Report based its ranking on the assumption that the wind production tax credit would be extended beyond 2012.  The Report also indicates that state initiatives have played a large part in the U.S. renewable energy market.  States leading the pack for renewable energy, according to the Report, are Massachusetts, Colorado, Texas, Hawaii, and California.  Research and development efforts and manufacturing investments at the state level have created a strong renewable energy market for the United States.

For the complete report see Renewable Energy Country Attractiveness Indices, Ernst & Young, February 2012, http://www.ey.com/GL/en/Industries/Oil—Gas/Oil_Gas_Renewable_Energy_Attractiveness-Indices.

The Bipartisan Dash to Extend the Renewable Energy Production Tax Credit

By Margaret M. Welsh

As many are aware, the wind energy production tax credit which is set to expire at the end of this year was not extended in the payroll tax legislation as many renewable enthusiasts had hoped.  The renewable energy production tax credit was originally enacted by the Energy Policy Act of 1992 and has been extended over the years.  The production tax credit generally provides a per-kilowatt hour tax credit for electricity generated by qualified energy resources.  Qualified energy resources now include wind, closed-loop biomass, open-loop biomass, geothermal, landfill gas, municipal solid waste, some hydroelectric, and larger-scale marine and hydrokinetic power.

The credit for all the qualified energy sources listed above expires in 2013, except for wind energy which expires at the end of this year.  Currently, the wind energy production tax credit provides a 2.2 cents/kilowatt-hour tax credit for electricity generated from utility-scale wind turbines.  This credit has been instrumental in lowering the cost of electricity rates generated from wind resources in the United States.  The American Wind Energy Association (“AWEA”) reports that the credit has helped reduce electricity rates and lowered the cost of wind power by ninety percent.  Since wind energy sites take a considerable amount of time to develop and construct, there are already negative impacts of the tax credit’s impending expiration date.

AWEA is optimistic that bipartisan action can help to extend the tax credit.  Currently, there are several bipartisan actions to watch.  Last November,  House Representative Reichert (R-WA) along with Representative Blumenauer (D-OR) introduced a bill, H.R. 3307 American Renewable Energy Production Tax Credit Extension Act of 2011, proposing an extension of the tax credit until January 1, 2017 for qualified energy sources.  Currently this bill has seventy-two cosponsors and has received broad industry endorsement.

Another option to extend the production tax credit was introduced on February 15, 2012 by Senator Bennet (D-CO)  and co-sponsored by Senator Moran (R-KS) as an amendment to the Senate’s transportation bill to reauthorize federal aid for highway safety and construction programs (S. 1813).  The amendment seeks to extend only the wind energy production tax credit by one year to align with the expiration dates for the other qualified energy sources.  Further on February 24, 2012, AWEA reported that numerous U.S. Representatives and Senators signed a letter to the Leadership of the House and Senate calling for a production tax credit extension for wind energy as soon as possible.  The leaders urged that an extension is needed to provide stability for the wind industry and to help the wind industry gradually move to a market-based system.

AWEA stresses that the wind energy tax credit should be extended in the first quarter of 2012 to avoid delaying wind energy projects.  Thus, the bipartisan efforts might already be too late for a few wind energy projects, but could provide measurable stability for the other qualified renewable energy sources from either a broad-based renewable energy tax credit extension or from a lesson learned that earlier action may be needed.

Maryland Following in New Jersey’s Footsteps with the Offshore Wind Energy Act of 2012

By Margaret M. Welsh

Last month, Maryland Governor, Martin O’Malley reintroduced state legislation to promote offshore wind power in Maryland.  The Maryland Offshore Wind Energy Act of 2012 is an updated version of his 2011 bill.  This bill now establishes an offshore wind renewable energy credit (“OREC”) system, similar to the system enacted in New Jersey last summer by Governor Chris Christie.

Under the OREC model, one renewable energy credit is equivalent to a certain amount of kilowatt hours of clean electricity generated.  The credits are then sold in advance to electricity suppliers to help them meet the renewable energy portfolio requirements of the state.  The OREC system potentially establishes a commodities market for wind farm electricity to be sold at competitive prices.  Industry specialists suggest that a credit could be contracted for approximately $300, similar to the price for a solar energy credit.

In 2008, Maryland committed to a Renewable Portfolio Standard which required twenty percent of electricity purchased by suppliers to be from renewable energy sources by 2022.  The OREC system established in the Maryland Offshore Wind Energy Act of 2012 creates a carve-out within Maryland’s existing Renewable Portfolio Standard.  Thus, electricity supplies could buy a specific number of ORECs annually to meet Maryland’s required portion of renewable energy.

The OREC model provides upfront capital for offshore wind.  Thus, proponents of the 2012 Act suggest that the OREC system could help to facilitate new offshore wind turbine construction and create jobs.   Stay tuned for our upcoming series on renewable energy initiatives of states in the MidAtlantic Region.

Foreign Competition Has Spoiled Some Clean Tech Investments, But It Has Not Had the Same Impact on U.S. Patent Grants

On January 26, 2012, Ener1 Inc., an owner of EnerDel—a battery manufacturer located inIndianawhich received $118.5 million in federal stimulus dollars—filed Chapter 11 bankruptcy.  Recently we posted a blog regarding President Obama’s call for more federal funding for clean technology companies to helpAmericacompete with foreign countries.  Skeptics of federal funding for clean technologies suggest that Ener1 Inc.’s bankruptcy filing is similar to the Solyndra collapse (the bankruptcy of a solar energy company after receiving federal grant money).  On the other hand, some battery industry experts note that Ener1 is not a complete failure because the technology and knowledge base of Ener1 is still secure.  The value of the federal government’s investment in Ener1 will likely unfold as the company tries to restructure its debt and climb out of bankruptcy.

Regardless, Ener1 officers recognize that a contributing factor to the company’s bankruptcy filing was fierce competition from Asian firms that had lower manufacturing costs.  Solar industry experts also cited foreign competition and an influx of cheaper foreign products as a reason for Solyndra’s failure.  Thus, we were curious whether clean technology companies in theU.S., such as Ener1 and Solyndra, are failing to compete with foreign companies because of a lack of innovation or because of other market factors, such as lower manufacturing, construction, and production costs.  To help shed light on this question we analyzed the percentage of patents issued in the Unites States based on an applicant’s nationality for photovoltaic technologies and electric vehicle batteries.

Our rough analysis indicates that while some foreign countries have a sizable share of the market for clean technology patents in theU.S., theU.S.holds a growing market share ofU.S.patents issued for electrical vehicle batteries and solar panel technologies.  The graphs below show the percentage ofU.S.patents issued by applicant’s nationality for electric vehicle batteries and photovoltaic technologies based on a search in the USPTO database.  The graphs on the left show the percentage of patents issued from 1976 to today and the graphs on the right show the percentage of patents issued in the last five years.  Viewed in a very broad context, these graphs suggest that the failure of these clean technology companies may not necessarily be from a lack of innovation.  Other market factors are contributing to these companies failing to compete with foreign firms and those factors should be considered when investing federal dollars.

Note: We have not analyzed the scope of claim coverage of these patents nor factored in the effect of the benefits of being one of the earlier developers in these technologies to gaining market share and acquiring pioneering patents which can be used to discourage new entries into the market and acquire higher levels of royalties or a larger number of patents.

Will the European Union Emissions Trade Scheme Fly?

By Margaret M. Welsh

On January 1, 2012, the European Union Emissions Trade Scheme (“ETS”) went into effect which requires airlines flying in and out of the European Union to buy carbon emission allowances.  Recently, the Civil Aviation Administration of China issued a directive banning all Chinese domestic airlines from complying with the European Union ETS.  China’s opposition is supported by other countries worldwide, including the United States where strong objections have come from Congress and officials in the Obama Administration.

In December, the U.S.’s Air Transport Association of America and the International Air Transport Association unsuccessfully challenged the legality of ETS in the Court of Justice of the European Union (CJEU).  In response to this failure, Congress is expected to pass a bill formally opposing this charge on aircraft carbon emissions.  In October 2011, the U.S. House of Representatives passed a billed titled, the European Union Emissions Trading Scheme Prohibition Act of 2011 (H.R. 2594) which prohibits U.S. carriers from participating in the ETS.  A compromised version of this bill will likely pass in both the House and the Senate in the next couple of weeks.  The legislation will put the EU on notice of the U.S.’s opposition to the Emissions Trading Scheme.

This legislation, banning U.S. airlines from participating in the ETS, is even more likely to pass now that China has barred its domestic fights from participating.  China is one of the biggest sources of carbon emissions worldwide and the U.S. is continually calling for China to be held accountable for its carbon emissions.[1]  International followers of the ETS are concerned that this could spiral into a global trade dispute.


[1] One of the reasons that the U.S. has long opposed the Kyoto Protocol is because the treaty would require the U.S. to set greenhouse gas emissions reduction targets, but developing countries, such as China, would not be required to set targets.

Are Federally Funded Clean Technology Investments Built to Last?

By Margaret M. Welsh and Michael D. Stein

During President Obama’s 2012 State of the Union Address—An America Built to Last, Mr. President addressed the need for continued federal investments in clean energy technologies in the United States.  He alluded to the infamous Solyndra loan controversy by declaring:

[P]ayoffs on these public investments don’t always come right away. Some technologies don’t pan out; some companies fail.  But I will not walk away from the promise of clean energy. . . . I will not cede the wind or solar or battery industry to China or Germany because we refuse to make the same commitment here.

As most people know by now, Solyndra, a solar energy start-up, received $535 million in loan guarantees from the federal government.  On September 1, 2011, Solyndra declared bankruptcy.  One reason speculated for Solyndra’s failure was the decrease in price and market infiltration from China of a solar panel technology not manufactured by Solyndra.

Solyndra’s failure raises larger concerns about the U.S.’s ability to compete with foreign countries for clean technology market share. In fact, studies have shown that China’s market share of the world’s solar cells have increased from six percent in 2005 to more than fifty percent today.  The U.S.’s drop in market share of world solar cells to five percent rightfully concerns energy policy leaders because the solar power industry is expected to produce a quarter of the world’s electricity within four decades.  This could lead to about $3 trillion in lost opportunities to manufacture domestic solar panels if theU.S.cannot remain competitive with foreign countries.

In Mr. President’s State of the Union Address, he analogized the long-term federal investment and the recent decreased price in natural gas to the clean technology industry.  He suggested that similar long-term government support would help to keep America’s clean technology industry competing with foreign countries.

And by the way, it was public research dollars, over the course of thirty years that helped develop the technologies to extract all this natural gas out of shale rock—reminding us that Government support is critical in helping businesses get new energy ideas off the ground.

While natural gas extraction from shale (including practices of hydraulic fracturing) remains controversial, currently the U.S. is one of the world’s largest natural gas suppliers.  In addition, the price of natural gas in the U.S. has dropped to $3 dollars per thousand cubic feet compared to approximately $13 dollars per thousand cubic feet in 2008.

Proponents of federal funding for renewable energy investments argue that similar long-term funding is needed to remain competitive with foreign companies.  It is no coincidence thatChina’s solar cell market share increased after the Chinese government extended a $30 billion line of credit to domestic solar manufacturers.  In addition, proponents suggest that incentives are needed to attract solar manufacturers to the United States.  Without incentives and federal investments, solar companies might build plants in other foreign countries like Germany and China which often provide tax, finance, and construction support.  Further, they suggest that one company’s failure should not taint the federal loan guarantees for clean technology companies, such as it did with SolarCity where the Department of Energy withdrew its $275 million loan guarantee in September 2011.

However, critics are skeptical that federal renewable investments will be beneficial long-term.  Not only will the U.S. potentially not match the federal support of other countries, but they suggest that the renewable energy industry cannot compete with the natural gas industry in the United States.  Skeptics argue that the long-term federal investment in natural gas that Mr. President noted in his State of the Union Address might have actually decreased the price of natural gas to a point where the financial incentives to invest in renewables have dwindled.

Thus, President Obama’s State of the Union raised an interesting paradox.  Will the domestic renewable energy industry benefit in the same way as the natural gas industry from federal investments or has previous federal funding in the natural gas industry reduced the incentives to invest in renewable energy?  We don’t have an answer for this question today.  But, if the global clean technology industry continues to grow as expected, energy policy leaders in the U.S. are right to try to find some way to throw America’s hat in the rink to compete for trillions of dollars in market share.

Stay tuned for more blog posts on this issue and other renewable energy law topics.

Sources:

Juliet Eilperin, Why the Clean Tech Boom Went Bust, Wired, Jan. 20, 2012, http://www.wired.com/magazine/2012/01/ff_solyndra/all/1.

Andy Kerr, Solyndra & the Fate of Clean-Energy Loans, Home Power, Feb.–Mar. 2012, at 14–15, http://www.homepower.com/article/?file=HP147_pg14_NewsandNotes.

 

Key Facts: Solyndra Solar, U.S. Dep’t of Energy, http://energy.gov/key-facts-solyndra-solar (last visited Jan. 27, 2012).