Navigant Research Blog

Momentum Builds for Reinstatement of Wind Tax Credits

— July 24, 2015

The legislative effort to renew the expired wind energy tax credits took a big step this week in Congress as supporters of wind energy secured a 2-year extension of the wind credits. The Senate Finance Committee voted 23 to 3 to extend roughly $95 billion in 52 tax breaks for various industries and interests, including wind.

The Production Tax Credit (PTC) provides $0.023/kWh in tax credits for a 10-year duration to wind plant owners. A 30% Investment Tax Credit (ITC) is also included as an alternative. Both are comparable in value, offsetting around 30% of the installed cost of a wind plant.

The package also includes a 2-year extension of the 50% bonus depreciation, which allows an owner in a new wind plant to deduct 50% of the tax basis in wind turbine capital costs and depreciate the other 50% over the normal depreciation period. The PTC/ITC extension also includes geothermal, biomass, landfill gas, and ocean energy projects. Notably, solar energy was excluded from the package, but intense lobbying is underway from that industry to get it included.

The tax credits for wind, which expired in 2014, must be renewed to prevent the U.S. wind market from collapsing as it does from time to time when Congress fails to renew them. The wind industry is currently in a build cycle, with over 8,600 MW expected to be brought online this year of more than 13,600 MW under construction. This momentum, however, is riding on special start construction and other safe-harbor regulations provided by the Internal Revenue Service (IRS) that allows wind plants to qualify for the tax credits if construction is finished by the end of 2016.

The new 2-year extension would re-enact the PTC and ITC for a 2-year period through the end of 2016, and wind projects would have to begin construction during this 2-year window to be eligible. IRS guidance to the wind industry in recent years has allowed a 2-year window for wind plants to be built, and this is expected to be applied to this new extension. In practice, new wind plants that meet IRS guidelines for either starting construction or meeting other safe-harbor regulations will have 2 years to finalize construction. The ultimate result would be securing stable wind turbine installations in the United States from now through 2018.

Promising but Uncertain

The path forward for these tax extenders to be signed into law is promising but uncertain. It is promising because the wind industry tax credits on their own could be a hard sell in today’s polarized Congress, but when rolled into a larger package that appeases broad industry interests, Congress is more likely to approve the package. Also, the well-known but not well publicized reality in the wind industry is that most U.S. wind plants are majority owned by so-called tax equity financial firms, usually large banks, all of whom have the large tax bills necessary to fully monetize the tax credits. These companies have enormous lobbying power that can help get their interests over the finishing line.

Passage by the full Senate is required, plus a reconciliation with a House version of the bill that has yet to emerge. Importantly, lawmakers are moving ahead with this extenders package now instead of the end of the year when a last minute rush can doom even the most straight-forward and uncontentious legislation. Allowing the extender effort to fall into next year would be even worse, as the effort would become entangled and politicized by the 2016 presidential and congressional elections. All eyes in the wind industry will be on this effort going forward.

 

EPA Looks to Make EV Charging More Energy Efficient

— July 24, 2015

The U.S. Environmental Protection Agency (EPA) wants to reduce the energy consumption of electric vehicle supply equipment (EVSE) by developing its first ENERGY STAR specification for this category of products. As we know, electric vehicle (EV) chargers are idle for the majority of the day, and the specification will address the amount of power consumed while not in use.

The ENERGY STAR program will initially focus on alternating current (AC) (Level 1 and 2) charging, but the EPA is also looking at direct current (DC) charging.

According to the EPA document:

“Emerging EVSE could include features such as the ability to receive DC power from PV panels or local storage; provide DC power to other devices in a building via USB, Ethernet, or other power transmission medium; supply AC power to a building or specific appliances; coordinate power distribution with other entities in the building; include electricity storage internal to the EVSE; and enabling transmission of power from a vehicle to a home.”

Enabling DC chargers to share the incoming power via USB, AC power, Ethernet, or other media is an interesting way of getting more value out of available power. DC chargers are only used in short bursts for fast charging, so finding ways to smartly manage them as a building resource makes sense. Building in a power converter enables the charger to integrate into other stationary devices, such as using DC power from a solar panel locally instead of sending it back to the grid where its value is often less. I haven’t seen any DC chargers that can do this today, so it will be interesting to see how manufacturers develop products with these capabilities.

Paying to Park

Car Charging is looking at increasing the utility of EV chargers through a different approach. The company is assessing a fee of $0.08  per minute to EV owners who leave their vehicles plugged in but not charging for longer than 15 minutes after the charging session ends, according to PluginCars.com. The 15-minute grace period seems sensible, as many customers receive automated alerts when charging is completed. The fee is a considerable incentive for people to be conscientious about moving their cars after a completed charge, which makes them available for other (revenue-generating) charging sessions, which is critical for EVSE to become profitable.

At the EV Roadmap Conference starting July 29 in Portland, Oregon, I’ll be moderating a panel where several industry luminaries will be discussing the latest innovations in smart EV charging. Stop by and check it out, or leave a comment here with questions for the panel.

 

Compliance Strategies for Satisfying Clean Power Plan Requirements

— July 23, 2015

Next month, the U.S. Environmental Protection Agency (EPA) is expected to release the final Clean Power Plan (CPP) rule, which regulates carbon dioxide emissions from existing power plants. While states may comply independently or work together to achieve CPP goals, Navigant Consulting has found that states can substantially reduce compliance costs by banding into trading blocs, and we have focused on regional trading in our modeling. The proposed rule is modeled in Navigant Consulting’s recent white paper,  Anticipating Compliance: Strategies and Forecasts for Satisfying Clean Power Plan Requirements, and highlights our finding that focusing on energy efficiency (EE), coal retirements, and targeted renewable expansion represents the least-cost compliance option.

Energy Efficiency

EE represents the lowest-cost compliance option in almost all areas, but it cannot single-handedly achieve compliance.  Expanding EE programs also helps ease interim compliance targets because EE can be rolled out more rapidly than new generators, reducing the near-term need to build large amounts of new low-carbon capacity. Navigant Consulting found that the expansion of EE programs in response to the CPP can save nearly $250 billion above business-as-usual EE through 2030.

Coal Retirements

The Northeastern, Southeastern, and Midwestern United States are expected to rely heavily on coal retirements for compliance. Since EE and renewables are less carbon-intensive than gas generation, higher penetration of these technologies helps keep more coal generators online.

Regional Least-Cost Compliance Options

(Source: Navigant Consulting)

Natural Gas

New gas generation plays an important role in compliance, and it is necessary to help maintain capacity and energy resource adequacy after coal retirements.  The Northeast and Southeast, in particular, will likely rely heavily on new natural gas combined-cycle plants to supplement EE in replacing retiring coal plants, and building these plants will be a large portion of their compliance costs.  The central and western United States will also rely heavily on gas to maintain capacity margins, but will likely see more simple-cycle peaking gas plants than the Northeast and Southeast due to a high rate of renewable expansion as well as EE growth.

Renewables

Adding renewables is a cost-effective compliance option where renewable potential is high, especially in the central and western United States.  Navigant found wind expansion to be economic throughout the western and central United States, and it plays a particularly important role in compliance in Texas, the Southwest Power Pool (SPP), and Midcontinent Independent System Operator (MISO).  California, which has little coal left to retire, has to rely on EE and renewable resources almost exclusively for compliance. Solar and wind both play critical roles in ensuring low-emission generation in California.  Navigant Consulting found that areas that rely more heavily on renewables tend to need to spend less on replacing capacity than other areas, but also tend to see higher carbon allowance prices (which help make large-scale renewable buildout economic).

Glide Path

Many commenters to the EPA focused on the difficulty of meeting near-term interim targets.  Navigant Consulting’s analysis has shown that the implementation of a glide path with less stringent initial targets results in savings of over $200 billion when compared to a non-glide path scenario.

 

For EV Range, 200 Miles Changes Things

— July 23, 2015

The rapid growth of plug-in electric vehicle (PEV) sales in the last 4 years has slowed in the United States as of late. Low gasoline and diesel prices have likely had an effect, but more likely, the slowdown is coming from a lag between the introduction of next-generation models and the clearing of first-generation inventories. Notably, second-generation PEV development is focused on significant range increases at lower costs, which will greatly impact the PEV market as well as create interesting implications for infrastructure developers and electricity providers.

The most near-term second-generation introduction is the Chevrolet Volt, which is slated to enter production in August. Besides the significant redesign of the vehicle body, the Volt’s all-electric range has been extended by 12 miles and the price starts around $34,000. This is $7,000 less than the original 2011 Volt. Further afield, Nissan has announced its intention to increase range of the next-generation LEAF beyond 200 miles. The second-generation LEAF is not likely to be introduced for quite some time, however, it is rumored that some of the battery technology designed to achieve this 200-plus mile range will feed into the 2016 LEAF, assisting that vehicle in breaking the 100-plus mile all-electric range mark.

When the second-generation LEAF is finally introduced, it won’t be alone. 200-plus mile all-electric range introductions are expected from Tesla and Chevrolet at price points from $30,000-$40,000. Similarly, some premium brands, specifically Audi, are likely to introduce 200-plus all-electric range vehicles to compete against Tesla’s large sedan and SUV platforms. The introduction of these vehicles makes all-electric drive a more viable option for a larger population. However, it also drastically changes things for electric vehicle service providers by increasing demand on a per-vehicle basis and expanding that demand to intra-city locations.

Longer Range = More Use

Most battery electric vehicles (BEVs), aside from the Model S (which already has a 200-plus mile range), are acquired as the second vehicle in households with two or more vehicles, and use is limited by vehicle range. Initial studies on average annual vehicle miles traveled (VMT) for BEVs have indicated that these limited-range BEVs travel around 9,650 miles a year. Meanwhile, light duty vehicles average around 11,250 miles.

However, for the Model S, average annual VMT is higher than for the average BEV. Last month, Tesla was the first automaker to announce that drivers of the Model S have surpassed 1 billion all-electric miles, with 68% of those miles being driven in North America. This equates to roughly 13,200 miles per Model S sold in the United States and Canada through May 2015. Given estimates on Tesla’s U.S. monthly sales, the average Model S has been in service for over 1.3 years. This means average annual mileage is around 10,400 (or 7% more than other BEVs).

Granted, Model S owners have great incentives to drive often, as the Supercharger network makes long-distance travel fuel costs free. Yet, these drivers also have the benefit of a vehicle that can get them to the network stations. Soon enough, owners of non-Tesla’s will, too, and these vehicles will need their own networks.

 

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