The New Tax Equity
David F. Levy, Sean Shimamoto, and Nickolas P. Gianou
With a shifting policy climate, equity financing for renewable energy projects is becoming more scarce. Real estate investment trusts (REIT) offer an alternative vehicle for bringing in capital from investors who aren’t seeking tax incentives. But restrictions and requirements make REITs a tricky way to finance power projects.
Rational estimates lead to reasonable valuations.
When regulators grant changes to utility rates of return, they estimate growth on the basis of gross domestic product (GDP). But do utilities have any chance of growing at the same pace as GDP? The answer is no — with huge consequences for utilities and their consumers. With equity costs outpacing allowed rates of return, utilities aren’t being valued correctly. As a result, the industry risks falling behind other sectors in terms of infrastructure investments and technology innovation.
Prospects for clean energy legislation in 2011.
With budget battles heating up in Washington, Congress and the Obama administration are squaring off to debate energy policy legislation. While Democratic leadership favors a clean energy standard, Republican lawmakers are focused on blocking administration initiatives to regulate greenhouse gas emissions. A compromise approach might bring substantial changes to America’s national energy strategy.
Why reserve margins aren’t just about keeping the lights on.
Kevin Carden, Johannes Pfeifenberger, and Nick Wintermantel
While it’s theoretically possible to keep the lights on with a much smaller reserve than the U.S. utility industry historically has maintained, the costs of doing so might be higher than some analyses suggest. As demand response plays a growing role on the grid—and as system planners reconsider reserve margins and reliability standards—quantitative risk analysis will guide resource adequacy decisions.
Valuing risk reduction for renewables and DSM.
Gary Dorris and Mark Germer
Resource planners are faced with complex choices for developing cost-effective and robust energy supply portfolios. These choices are complicated by uncertainties inherent in future fuel and emissions costs. In the summer of 2008, retail energy providers with supply primarily from wind generation had a substantial cost advantage over gas-fired generation. In the summer of 2009, though, gas prices plummeted in the wake of the recession. Reversing the previous trend, this shift causes wind generation to appear more costly relative to gas-fired generation.
Volatile markets call for alternative financial models.
Anant Kumar and Elliot Roseman
Should the power industry adapt its approach to capital markets in this environment? The answer, of course, is yes. Multiple frameworks are necessary to establish a power company’s or project’s current cost of capital, especially under volatile capital market conditions. The analyses reveal that in today’s capital markets, it is critical to balance or combine the alternative approaches to the cost of capital in order to develop a long-term view.
Effective metrics give solar its due credit.
Photovoltaic (PV) power generation is an intermittent, non-dispatchable resource generally considered as energy-only with no capacity credit. However, there is ample evidence that solar energy reliably is available at peak demand time when loads are driven by day-time commercial air conditioning, and can contribute effectively to increasing the capacity available on a regional grid.
Accumulated provisions for depreciation belong on the right side of the balance sheet.
The time has come to revisit where the accumulated provision for depreciation belongs. Utilities objected—some 50 years ago—when it was moved from the right side of the balance sheet to the left side, with good reason. Consistency, comparability, reliability and relevance all demand an end to this strange accounting practice.
A look at due diligence for energy transactions, and at what’s driving them.
By the end of last year, much was being made of the failed attempts at multibillion-dollar mergers by FPL with Constellation, Exelon with PSEG, and Southern Co. with Progress Energy. In spite of the repeal of the Public Utility Holding Company Act, these mega-mergers still required regulatory approvals from multiple state and federal agencies, and their high profiles attracted attention and resistance from a vast array of special interests.
Discordant global-warming solutions may end up burning utilities.
Richard Stavros, Executive Editor
How will utilities in the next 10 years manage a multi-billion-dollar infrastructure buildout, higher interest rates/cost of capital, diminishing free cash flows, state renewable mandates, and political pressures to keep rates or power prices low, all while complying with carbon emissions programs that emphasize higher-cost fuels? Meeting the challenges may depend on whether a national carbon program that regulates carbon emissions is established.