2012-02- US Attractiveness Indices Issue - E&Y

8/12/2019 2012-02- US Attractiveness Indices Issue - E&Y

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United Statesrenewable energyattractiveness indices

February 2012


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Table of contents 3

US highlights 5

Life after 1603 6

Production tax credit expiration 7

8

Market activity 9

All renewables index 11

13

Commentary: key states 17

IRS guidance 18

Excerpt: country

attractiveness indices

Country focus: Canada

Country focus: Mexico

Commentary: guidance notes

energy services


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United States renewable energy attractiveness indices | Issue 83

Overview of indices

provide scores for state renewable energy markets, renewable

energy infrastructures and their suitability for individual

attributes (such as unexploited wind resources, attractive power

pricing or tax climate) will score well even if that state currently has

All renewables indexThis index provides an overall score for all renewable energy

It combines individual technology indices as follows:

Individual technology indices

These indices are derived from scoring:

Renewables infrastructure index

This index is an assessment by state of the general regulatory

considers:

Technology factors

Each of the technology indices considers, on a weighted basis,

the following:

Long-term solar indexThese indices are derived from scoring:

Comments and suggestions

We welcome your comments or suggestions on any aspect of the

and/or suggestions:Mike Bernier | [email protected]

Dorian Hunt | [email protected]

Paul Naumoff | [email protected]

Gabriel Wuebben | [email protected]


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GlossaryAWEA American Wind Energy

Association

CHP Combined Heat and Power

DOE Department of Energy

GC Green CertificateGW Gigawatt (1,000 MW)

IPO Initial Public Offering

IRR Internal Rate of Return

ITC Investment Tax Credit

kWh Kilowatt Hour (1,000 Wh)

M&A Mergers and Acquisitions

MW Megawatt (1,000 kW)

MWh Megawatt hour (1,000,000 Wh)

PE Private EquityPPA Power Purchase Agreement

PTC Production Tax Credit

PV Photovoltaic

REC Renewable Energy Certificates

RPS Renewable Portfolio Stand

SREC Solar Renewable Energy

Certificate

WREGIS Western Renewable Energy

Generation Information SysUSPREF US Partnership for Renewa

Energy Finance


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US highlights

All Renewables IndexDespite uncertain macroeconomic conditions, renewables

geothermal, comprising a much smaller proportion of the US

in the All Renewable Index, thanks in part to consistent growth

Long-term Wind Index

Californias offtake prices, favorable regulatory and incentive

environment and outstanding resource quality secured its top

growth and this region represents the greatest concentration of

Long-term Solar Index

hold in current markets and expanding geographically to attractive

segment, while Solar Energy Industries Association (SEIA) projects

Biomass/Geothermal Index

As mentioned, Californias All Renewables Index performance

was not limited to solar and wind; the states geothermal and

Renewable Index standing was helped by its strong geothermal


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Life after 1603

Last year closed with the expiration of the Section 1603

Despite the expiration at the end of the year, many projects were

With the closing of the 1603 Grant, tax equity is set to reclaim a

a renewal of the 1603 Grant by congress, developers must once

equity, reintroducing a level of complexity and costs temporarily

equity providers active in the market compared with over twenty

Thus, demand for tax equity is likely to outstrip a vastly diminished

renewable energy research organization, projects that tax equity

projects were grandfathered into the 1603 program and many

on our anecdotal experience and informal feedback from client

discussions, we estimate that the amount of 1603 Grants claimed

out from the safety of the 1603 program and need to survive

companies that have not traditionally invested in tax equity

adequate and predictable tax liability to step in and augment the

supply provided by traditional tax equity providers (historically,

participation of these new entrants to dramatically change the


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Production tax creditexpiration

on three occasions, decimating the industry on each occasion, only

are no illusions with respect to the impact this uncertainty will

In addition to damaging wind development, expiration of the PTC

deployed turbines, and there is reason to believe this percentage

can grow to nearly 100,000 American jobs in the next four years

Road Map to Renewal report endorsed extending the PTC for wind

energy, concluding that, aside from preserving jobs, extending

production tax credits will also promote the type of innovation and

investment America needs to diversify its generation portfolio and

more than 370 members including organizations representing

legislation also enjoys the support of the bipartisan Governors


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Normalization

retroactively amends Section 1603(f) of the American Recovery &

been required to follow the rules dealing with the recapture of the

to the utilities customers, generally over the useful life of the

method of accounting for ITCs when setting the rates they charge

customers in lower rates in the year they are realized, but must

Among other things, Section 1603 included language that applieda set of recapture rules under Section 50 to the grant program

(since the grant program was intended to replicate energy

Section 50 of the Code provides a regime for recapturingpreviously claimed investment credits in certain circumstances, but

also includes the reference to normalization requirements under

By applying this provision to the 1603 grant program, the drafters

arguably eliminated the ability of public utilities to participate in

the grant program unless the grants are subject to normalization

requirement to normalize grant proceeds There were public utilities

the application of the normalization requirement was not clear, if

a manner identical to energy investment tax credits, the amounts

they would be required to charge customers for renewable power

energy projects subject to the Section 1603 Treasury grant


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Market activity

GeneralLast year saw the United States reclaim its position as the global

leader in renewable energy investment, a position lost to China in

Investment was concentrated in the two established renewable

energy technologies, solar and wind, which both saw record

technologies was due in part to developers efforts to break

expiration of the Grants, developers will have to structure project

could result in increasing tax equity yields which, combined with

increasingly competitive PPA bidding processes, may provide

Wind

tax equity challenges, the PTC, wind powers key incentive, is set to

again rush to commence projects in time to take advantage of

may suffer a collapse similar to those experienced with previous

installations with over 500 MW commissioned at the Cedar Creek II

wind power to the nations Southeast in the coming years through

a series of at least nine contracts with Midwestern states, which

A number of massive wind developments are scheduled to come

only for its scale; it also represents major contributions from

Solar

then, global oversupply has pushed silicon spot prices down from

was installed in California, and nationwide growth can be attributed

As this model and its geographic reach expand, the residential

This is a sample of the main market activities in the renewables

sector over the past quarter.

Sources

All information relating to market activity in the sector is obtained

from publicly available sources.


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states traditionally recognized as strong solar states, are absent

own success, these states have seen the prices of SRECs fallprecipitously as developers rushed in to take advantage of high

SREC prices at the tail end of the last decade, resulting in what

are likely to see substantially reduced activity in coming years

Biomass/GeothermalAlthough solar and wind posted stellar years, biomass and

Although mentioned less than wind, biomass and geothermal

extension of the PTC would include extensions not only for wind,

Geothermal saw some legislative victories in recent months,

including Senate Energy Committee passage of the Geothermal

federal loan program for geothermal exploration drilling, and


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All renewables indexFebruary 2012

Rank StateAll renewables

index

Long-term

wind index

Long-term

solar index*

Biomass

Index

Geothermal

index

Infrastructure

index**

1 California 67 74 75 77 79 80

2 New Mexico 62 71 68 57 63 72

3 Colorado 61 72 64 55 69 65

4 Hawaii 60 64 70 65 69 61

5 Massachusetts 59 61 70 65 66 78

5 Texas 59 70 63 58 57 63

7 Illinois 58 70 56 71 69 718 Maine 57 65 56 82 75 85

8 Pennsylvania 57 68 56 66 73 74

8 New York 57 67 58 69 73 71

8 Nevada 57 61 66 53 70 65

12 Iowa 55 67 52 70 58 64

13 Oregon 54 66 52 66 66 68

14 Michigan 53 63 52 65 60 67

14 Arizona 53 55 64 56 64 53

14 Oklahoma 53 66 51 49 51 51

17 Maryland 52 58 60 60 65 6717 North Carolina 52 59 54 65 59 66

17 Montana 52 65 50 56 58 66

17 Florida 52 56 60 62 58 65

17 New Jersey 52 58 59 56 61 61

17 South Dakota 52 65 49 54 58 59

17 New Hampshire 52 56 59 64 68 54

17 Vermont 52 58 59 57 65 52

17 Kansas 52 65 50 55 52 47

* Represents the index score for large, commercial and residential solar

** Combines with each set of technology factors to generate the individual

technology indices


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Wind indices

Rank State Wind index

1 California 74

2 Colorado 72

3 New Mexico 71

4 Illinois 70

4 Texas 70

6 Pennsylvania 68

7 New York 67

7 Iowa 67

9 Oregon 66

9 Oklahoma 66

illustrates its transmission limitations, a problem that may see

Solar indices

Rank State Solar index

1 California 75

2 Hawaii 70

2 Massachusetts 70

4 New Mexico 68

5 Nevada 66

6 Colorado 64

6 Arizona 64

8 Texas 63

9 Maryland 60

9 Florida 60

Interestingly, lacking from this list are traditionally strong solar

Long-term indices asof February 2012 (top 10)


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Residential installations enjoyed uninterrupted administration

of the California Solar Initiative (CSI), a statewide program

program, the CSI has spurred huge growth, although funds for

Another program which should result in growth in distributed

generation is the Renewable Auction Mechanism (RAM), a

RPS Program by reducing transaction costs and providing a

a streamlined contracting mechanism and utilizes a standard

intends to generate 1,000 MW in distributed generation through

utilities to sell the electricity produced by small renewable energy

Commentary:high-scoring states

California

Category Ranking


Long-term wind index 1

Long-term solar index 1

California stands alone as the renewable energy capital of thenation, leading the wind, solar and geothermal indices and holding

blessed with enviable resource quality in all technologies under

from attractive offtake prices, generous state policies and a

Although Texas stands alone as the king of wind installed base

each with nearly 1 GW more installed base than the tertiary states

recently, California has seen its total wind capacity expand through

across all markets, particularly within the residential and utility


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New Mexico

Category Ranking




opportunity for renewable energy in its stellar portfolio of potential

has seen substantial growth with the commissioning of the

favorable regulatory environment, as well as housing what is to be

the countrys preeminent interconnection hub in the Tres Amigas

Groundbreaking for the Tres Amigas SuperStation is expected for

enabling the buying and selling of electricity throughout various

Colorado

Category Ranking




Like other leading states, Colorado enhances its bounty ofoutstanding natural resources with favorable policy and effective

the only national laboratory solely dedicated to advancing


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In solar development, Colorado saw the installation of a major

residential segment of the solar market may cool in response to

approaching this benchmark, there is some concern that solar

Hawaii

Category Ranking




renewables investment, due in great part to its extremely high

power offtake prices and abundant wind, solar and geothermal

installed on each of Molokai and Lanai islands and connected to

solar were responsible for performing a study demonstrating the

For more details on the USAI and previous issues,

please visit:

www.ey.com/USAI


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Massachusetts

Category Ranking




Although not necessarily a powerhouse wind state, Massachusetts

There are indications that this lure may draw developers from

Like Colorado, Massachusetts has positioned itself as a hub of

global shakeout of less competitive solar manufacturers, asEvergreen Solar shuttered its Danvers manufacturing facility in the

Although not included in our scoring, it is worth noting that Cape

Texas

Category Ranking




Texas holds a commanding lead in national installed capacity

and resource quality, although the states solar attributes are

Despite enviable solar intensity, Texas has lagged behind its

neighboring southwestern states in solar development, likely due

to the states concentration on wind power and the aforementioned

connect Garland, Texas, to the southeast through Louisiana and


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Commentary:key states

New Jersey and Pennsylvania

states overbuilt and are currently dealing with hangovers in which

amount of SRECs utilities are required to purchase and closes off

out in the states RPS in order to boost SREC prices and stabilize

to vote on a bill that would have performed this, and thus awaits

For more details on the USAI and previous issues,please visit

www.ey.com/USAI


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IRS provides guidanceon federal energy tax

credits

Private letter rulings generallyapplicable to tax credits

Solar facility In US possession

a domestic partnership with domestic corporations for partners,

tax credit availability for projects in US possessions that technically

applies to eligible corporations to partnerships composed of

determination for a wind farm located in a US possession in PLR

The taxpayer is a wholly owned domestic limited liability company

taxpayers primary business is to construct, own and operate

The Service ruled that since all of the partners will be taxable

domestic corporations or US citizens (none of which has made an

election under Sections 936, 931 or 936), the partnership is a US

each partner will be entitled to its share of the energy credit to the

Energy Storage Devices

The wind farm will be owned by a limited liability company

subsidiary of a large power company headquartered in the United

The storage device will enable the wind farm to provide regulation

consumption of electricity over time periods ranging from seconds

The storage device is used expressly to store for later use electricity

The Service ruled that the storage device is not transmission

redacted, the exact nature of the system is otherwise not

components, the Service concluded that the components are

credit except for that portion of the system that performs the

normal functions of a roof such as protection from rain, snow,

wind, sun, hot or cold temperatures, or that provides structural


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ARRA Section 1603 Grant developments

property between the time the property is acquired for use in a

are related and the property is used for the same project, then the

paid or incurred, at the same time as the transferor, the costs that

test is used to determine whether the transferor and transferee

applicants generally in the business of developing energy projects

that the transferor incurred with respect to the property into

limitation does not apply to a sale/leaseback arrangement if the

other requirements are met, the purchaser of the facility would be

before the property is placed in service, eligibility is not affected if

eligible Section 1603 applicant and the entity being sold must

have commenced development of a project as evidenced by

obtaining permits and licenses, entering into a power purchase

agreement, entering into an interconnection agreement, and

contracting with an Engineering, Procurement and Construction

may not rely on costs paid or incurred to acquire that equipment in


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Excerpt: Country attractiveness indices (CAI)February 2012

Rank1 CountryAll

renewables

Wind

index

Onshore

wind

Offshore

wind

Solar

index

Solar

PV

Solar

CSP

Biomass/

otherGeothermal Infrastructure

1 (1) China 70 76 79 69 61 66 46 58 51 74

2 (2) USA3 68 67 71 57 74 74 75 63 69 65

3 (3) Germany 66 70 67 80 51 70 0 67 58 74

4 (4) India 63 64 71 43 65 69 54 60 45 67

5 (6) UK 59 66 61 80 34 48 0 58 36 66

6 (5) Italy 57 58 61 50 57 63 42 53 62 58

7 (7) France 56 58 59 55 49 56 29 57 34 56

8 (8) Canada 54 61 67 46 33 46 0 50 36 65

9 (10) Sweden 50 54 55 53 31 42 0 56 35 55

10 (10) Brazil 49 51 56 40 42 46 32 51 23 49

11 (12) Australia 48 47 51 37 53 53 54 42 57 46

11 (9) Spain 48 47 51 36 55 53 60 43 27 38

13 (13) Romania 47 52 56 39 33 45 0 44 41 4614 (13) Poland 46 52 56 41 30 42 0 42 22 47

14 (15) South Korea 46 48 46 53 44 50 29 41 36 43

16 (15) Japan 45 46 48 39 52 61 27 38 46 52

16 (15) Belgium 45 51 49 58 30 42 0 38 27 50

16 (23) South Africa 45 47 52 36 43 41 50 37 34 48

19 (15) Ireland 44 52 52 50 22 30 0 43 23 48

19 (19) Denmark 44 48 44 58 29 40 0 45 33 52

21 (19) Portugal 43 45 48 34 44 47 36 39 25 38

21 (21) Netherlands 43 49 49 49 30 42 0 36 21 41

21 (21) Greece 43 44 48 33 46 51 33 34 25 32

24 (23) Mexico 42 43 45 39 42 43 40 38 54 38

24 (23) Norway 42 48 48 46 21 29 0 45 30 51

26 (26) Finland 41 45 48 39 20 28 0 52 26 47

27 (27) New Zealand 40 46 49 36 22 31 0 34 51 46

27 (27) Egypt 40 41 45 32 41 39 45 35 25 34

27 (27) Taiwan 40 43 45 38 32 44 0 35 38 43

30 (30) Morocco 39 38 42 26 49 47 54 36 21 42

30 (30) Turkey 39 41 43 32 37 40 28 34 41 37

32 (32) Ukraine 38 37 41 27 33 46 0 43 32 41

33 (33) Austria4 36 32 40 0 36 50 0 48 33 50

34 (34) Tunisia 34 35 38 27 45 44 48 19 27 41

34 (34) Bulgaria 34 35 39 24 31 42 0 33 34 39

34 (34) Argentina 34 35 40 22 31 36 17 31 27 34

37 (37) Israel 33 31 37 14 44 46 38 25 28 38

38 (39) Chile 32 34 38 23 30 34 19 27 36 39

39 (38) Hungary4 31 31 38 0 26 36 0 41 39 37

40 (40) Czech Republic4 30 31 38 0 26 36 0 30 23 46

1

3

For more details on the CAI and

previous issues,please visit

www.ey.com/CAI


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Canada

Renewables buoyed by Ontarioelection result5

Ranking Issue 32 Issue 31

All renewables index 8 8

Wind index 6 6

Solar index 23 25

Policy

renewable energy policies were a key political battleground,

with the main opposition party promising to revoke supporting

industry, the incumbent Liberal party retained leadership and were

provide strong support for the industry through programs such as

and was recognized among the renewables industry to ensure

Proponent Technology MW

Colchester-Cumberland

Wind Field

Onshore

wind

0.1

Watts Wind Energy Onshore

wind

4.0

Northumberland Wind Field Onshore

wind

0.1

Municipality of the District

of Chester

Onshore

wind

2.3

Fundy Tidal Tidal flow 2.0

study and complete federal and environmental impact assessments

and the market is eagerly awaiting the recommencement of project

5


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Country focus

Onshore wind

the past quarter with Kruger Energysecuring construction

Boralex Inc.,the renewable independent power producer (IPP),

and utility, Gaz Mtro,

KFW Group,

TransCanada Corp.,

of the wider Cartier Wind Energy Project being developed by

TransCanada

power will be sold to Hydro-Quebec

SolarRecurrent Energy,

owned by Sharp Corp., revolving credit facility from Mizuho Financial Group Inc. to fund

Wave and tidal

The province of British Columbia has awarded Carnegie Wave

Energy Ltd.,a producer of wave power technology, a grant of

The company, which also has backing fromElectricite de France

SA (EDF),

Contacts

Ernst & Young LLP (Canada)

Mark Porter

Cynthia Orr


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Mexicos prospects for a clean energytransition6

Ranking Issue 32 Issue 31

All renewables index 24 23

Wind index 27 28

Solar index 17 16

Policy

department responsible for energy production and regulation,

A recently issued Study on prospects for renewable energy

Currently, the country is close to meeting a number of national

renewable energy targets across a range of technologies including

increase the share of clean technologies supplying power to the

are being provided by Germany to work in collaboration with the

developing renewable energy initiatives as well as other measures

and wind power projects with total renewable electricity generation

of around 1GW, going some way to meeting Mexicos ambitious

Onshore windMexicos Electric Power Research Institute has conducted studies

area is potentially viable for the installation of wind farms due to

feasibility of wind generation, the wind energy potential resource

are naturally the most attractive from a generation point of view,

under the nuances of the Mexican electricity market, plants with

Mexico is privileged to have one of the worlds best wind resources

representing one of the largest wind farms in Latin America

Marea

Renovables Capital.

Country focusCanadaMexico

23

6


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The project will reduce annual carbon dioxide emissions by 1m

tons and supply energy to subsidiaries of Fomento Econmico

Mexicano, S.A.B. de C.V. (FEMSA)and Heineken,reducing the

Solar

Risen

Energy Co.signed an agreement with the government of the

Currently, Mexico has no operational solar CSP plants, however,

there is a project underway to develop a hybrid system consisting

Small hydro

and owned by the Mexican government with responsibility for

Contacts

Mancera S.C.

Roberto Cuaron

David Escalante


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Commentary:guidance notes

Long-term index

combine to generate the all renewables index, are made up

as follows:

These guidance notes provide further details on the renewables

Renewables infrastructure index

The renewables infrastructure index is an assessment by state of

weighted basis, the index considers:

upon the immediacy of the target deadlines, the amount of

renewable energy that needs to be developed to meet the

target, penalties if the target is missed and the presence of a

scoring is based on the ease of obtaining a grid connection in

This generic renewables infrastructure index is combined

with each set of technology factors to provide the individual

Technology factors

assessments for each state, namely:

Each of the technology indices considers, on aweighted basis, the following factors:

1

the price received (including proceeds from RECsales and other major incentive programs such as

state production tax credits) per kWh of electricity

2Tax climate (8%)

that stimulate renewable energy generation can

incentives and structures are direct renewable energy

tax breaks, sales tax abatements for equipment,

real estate tax abatements and accelerated tax

3Grant or soft loan availability (8%)

available at local and/or regional levels, and typically

tend to be more prevalent in immature markets or

4Market growth potential (26%)

a holistic approach to estimating a states projected

account information contained in other categories, as

well as information gathered but not included in one

5Current installed base (8%)

demonstrate that the state has an established

infrastructure and supply chain in place, which will

also indicative of the acceptance for such projects,

and the lack of public support can make planning and

6Resource quality (18%)

of resources available; for example, wind speeds and

For more details on the USAI and previous issues,

please visit

www.ey.com/USAI


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Ernst & Youngrenewable energy

services

Team overview

Advisory Services (TCIAS) helps take advantage of the

opportunities and address the risks associated with renewable

Members of the group, supported by a network of experienced

services in the following areas:

Tax credit monetization

Strategic planning

Transaction structuring

Investment due diligence

In addition to TCIAS, our Indirect Tax and Business Tax Services

Group provides a wide variety of tax advisory services to the

Renewable Energy Group

renewable energy country attractiveness indices and the biofuels

areas:

Asset valuation

Transaction support

PPA tendering

go to www.ey.com/renewables

Strategic Growth Markets

companies sustains our dominant competitive position in key

markets, including our Assurance and Advisory services share

experience in convening the experts who shape the business

climate, and advising policy makers on the issues affecting these

in their real and personal property projects, including helping to

Washington Council Ernst & Young (WCEY)

represents a wide variety of renewable energy technologies and

Business incentives and credit services

clients utilize economic development incentives offered by US

state and local governments, including cash grants, tax credits,

information on our services, and for future copies of the indices,

Contacts

Ernst & Young LLP

Michael Bernier

Dorian Hunt

Paul Naumoff

Gabriel Wuebben


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Assurance | Tax | Transactions | Advisory

About Ernst & Young

We make a difference by helping our people,

our clients and our wider communities achieve

limited by guarantee, does not provide services

member firm serving clients in Canada and

This publication contains information in

summary form and is therefore intended for

be a substitute for detailed research or the

any responsibility for loss occasioned to any

person acting or refraining from action as a

specific matter, reference should be made to the

2012-02- US Attractiveness Indices Issue - E&Y

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