The authors would like to thank Willkie counsel Bill Thomas and law clerk Imani Martinez for their contributions to this chapter.
Does your jurisdiction have an established renewable energy industry? What are the current production levels?
The United States has a highly established renewable energy industry. According to the U.S. Energy Information and Administration (EIA), in 2020, renewable energy sources (including wind, hydroelectric, solar, biomass, and geothermal energy) generated a record 834 billion kilowatt-hours (kWh) of electricity, or about 21% of all the electricity generated in the United States. Only natural gas (1,617 billion kWh) produced more electricity than renewables in the United States in 2020. Renewables surpassed both nuclear (790 billion kWh) and coal (774 billion kWh) for the first time on record.
Who are the key regulators for renewables industry in your jurisdiction? How do they impact the industry?
In the United States, jurisdiction over electricity is divided between the federal government and the states. At the national level, the Federal Energy Regulatory Commission (FERC) has authority over transmission and wholesale sales of electricity in interstate commerce. The states and territories have jurisdiction over distribution and retail sales. Each state has a public utility commission or similar body, and Puerto Rico has the United States’ largest publicly owned utility as well as a separate regulatory board.
The North American Electric Reliability Corporation (NERC) helps ensure the reliability of the North American bulk electric system, which is divided into three independent interconnections: Eastern Interconnection, Western Interconnection, and Electricity Reliability Council of Texas (ERCOT) Interconnection. FERC regulation also led to the establishment of independent, nonprofit organizations that serve as regional grid operators (i.e., the Independent System Operators (ISOs) and Regional Transmission Operators (RTOs)).
NERC assesses the system’s reliability, develops reliability standards, and has the authority to enforce standards. FERC approves proposed standards and directs NERC to develop modifications to reliability standards in an ongoing process that is designed to respond to changing market and transmission system conditions.
At the state level, the permits required and the process for obtaining permits will vary depending on the jurisdiction. Some states have a single agency or siting authority that manages the permitting process for all solar projects and other large utility infrastructure within the state. By contrast, in other states, the developers may have to obtain permits from multiple state and local agencies.
In addition to the applicable energy regulations, federal, state and local environmental and natural resources laws may also apply to projects and require analysis that can shape the development of the project and materially affect timing and cost. Certain projects may be required to prepare detailed environmental impact assessments and obtain certain environmental permits that require retaining experienced environmental consultants and counsel to lead the environmental review process. Determining which regulations apply and which agencies have jurisdiction will depend on factors including the siting of the project, protected species and other impacts, project alternatives, the type of technologies employed, and whether the project will apply for or receive government funding.
For example, the development of a renewable energy project on federal lands requires the involvement of certain federal agencies (as noted in question 3 below) and also requires the completion of a National Environmental Policy Act (NEPA) review. Projects seeking grants or loan guarantees from the U.S. Department of Energy (DOE) also require NEPA review. The location and technical details of wind and biomass projects may trigger requirements for air, noise and other environmental permits. Experienced environmental and resources counsel should be engaged early in the development process.
How are rights to explore/set up renewable energy projects, such as solar or wind farms, granted? How do these differ based on the source of energy, i.e. solar, hydropower, wind, geothermal and biomass?
In addition to the energy and environmental regulatory authorizations and permitting requirements described in question 2 above, a project developer typically starts the development of a new project by securing rights to (i) a project site and (ii) connect the project to the existing electricity grid or transmission system. The selection of the project site often is interrelated to the potential options for interconnection and those rights may be shaped by the potential options for securing long-term offtake agreements and contracts for the sale of the power or capacity (or even the sale of the project itself in the case of build-transfer agreements).
The process of securing the rights to the project site and the related transmission and interconnection infrastructure can vary depending on the location and counterparty who can grant the rights. Rights in a site are typically obtained through long-term leases, easements, rights-of-way, licenses or permits, and counterparties can range from private landowners and leaseholders to federal, state, local, and tribal government entities, agencies and other bodies. For example, when developers propose to build renewable energy projects on federal land managed by the U.S. Bureau of Land Management (BLM), the BLM, in coordination with other agencies such as the U.S. Fish and Wildlife Service and state and local authorities, is authorized to permit development of solar and other energy projects. Permits and rights-of-way are typically awarded after the completion of any NEPA review. The Bureau of Ocean Energy Management (BOEM) oversees the leasing process for offshore wind.
The process of securing interconnection agreements can vary depending on the party that owns or operates the transmission or distribution system where the project wishes to interconnect. Those parties can range from utilities to independent and regional systems operators. In any case, the developer will need to negotiate some form of interconnection agreement based on the forms used by those parties, which may be based on a form specifically used by that party and may require a certain commitment by the project to complete certain network upgrades. Those interconnection agreements may require additional approval by the relevant regulatory authority.
In addition, certain types of renewable energy projects also require special licensing, authorizations and permits related to their development, construction and operation which can turn on the location of the project. Geothermal projects may require special permits to use the geothermal resources. For example, the State of California requires a geothermal resources prospecting permit. Non-federal hydropower projects require specific licensing and permitting from the FERC under the Federal Power Act and certifications and authorizations from other government agencies pursuant to other statutes regulating hydropower, including, but not limited to, NEPA, the Clean Water Act, the Coastal Zone Management Act, the Endangered Species Act, the Fish and Wildlife Coordination Act, and the National Historic Preservation Act. Again, the siting of the hydropower project impacts which agencies, statutes and requirements may apply.
What does the energy split look like in your jurisdiction and how is this changing as a result of the green energy transition?
According to the EIA, in 2021, about 61% of U.S. utility-scale electricity generation was produced from fossil fuels (coal, natural gas, and petroleum), about 19% was from nuclear energy, and about 20% was from renewable energy resources.
The percentage shares of utility-scale electricity generation by major energy sources in 2021 were:
- Natural Gas – 38.3%
- Coal – 21.8%
- Renewables (Total) – 20.1%
- Wind – 9.2%
- Hydropower – 6.3%
- Solar (Total) – 2.8%
- Nuclear – 18.9%
- Non-Hydroelectric Renewables – 13.8%
- Petroleum and Other – 0.9%
Is the government directly involved with the renewables industry? Is there a government-owned renewables company?
The federal government owns and operates significant hydropower assets. At the state level, some local governments (typically cities) operate utilities. Otherwise, while federal, state and local governments have enacted policies to encourage the renewables sector for decades, there is no direct involvement through a government-owned renewables company.
However, a number of offices within the DOE focus specifically supporting grant, loan and financing programs for the renewables sector, including for research and development. The DOE’s Office of Energy Efficiency and Renewable Energy (EERE) supports the clean energy transition with a number of initiatives, as well as the newly created Office of Clean Energy Demonstrations, described below. The DOE has established the Office of Clean Energy Demonstrations to support large-scale pilot projects for clean hydrogen production, carbon capture, grid-scale energy storage, and advanced nuclear reactors. The office has been allocated over $20 billion under the recent Infrastructure Investment and Jobs Act to create regional production hubs and to promote the scaling of new technologies.
In addition to grants and financing supporting research and development, the DOE has a Loan Programs Office (LPO) which has $2.5 billion in loan guarantee authority for Innovative Clean Energy Projects under the Title 17 Innovative Clean Energy Loan Guarantee Program (Title 17), authorized by the Energy Policy Act of 2005. To be eligible for the LPO projects must:
- deploy new or significantly improved technologies compared to commercial technologies in service in the United States;
- avoid, reduce or sequester greenhouse gas emissions or air pollutants;
- be located in the United States or its territories (foreign ownership or sponsorship is allowed); and
- have a reasonable prospect of repayment.
The DOE loan guarantee and direct lending facilities may be attractive financing options for borrowers who are developing infrastructure and innovative energy-related technologies and projects, such as offshore wind, transmission, hydrogen, carbon capture and critical minerals.
What are the government’s plans and strategies in terms of the renewables industry? Please also provide a brief overview of key legislation in the renewable energy sector?
According to a recent report issued by BloombergNEF, the $1.2 trillion Infrastructure Investment and Jobs Act that was passed in late 2021 could inject at least $80 billion in new spending to promote decarbonization of the country’s economy over the next decade.
The law contains more than $37 billion in support for developing grid infrastructure and nuclear energy, as well as almost $20 billion for developing technologies such as carbon capture, utilization and storage (CCUS) and hydrogen.
At the state level, 31 states and the District of Columbia have adopted renewable or clean energy portfolio standards (RPS) that require that a specified percentage of the electricity that utilities sell comes from renewable resources, which continue to support robust state-level and regional Renewable Energy Credit (and carbon offset) markets. While some states have allowed their RPS to expire, nationwide efforts continue to drive the expansion of these types of mandates. State and municipal governments have also been implementing mandates requiring renewable and energy efficiency technologies to be incorporated in the transportation sector (including electric vehicles), construction and building standards and other infrastructure areas.
Are there any government incentive schemes promoting renewable energy? For example, are there any special tax deductions or incentives offered?
Governmental policies promoting renewable energy and the transition from fossil fuels have provided significant support to the industry’s expansion in the United States.
At the federal level, agencies and departments including the DOE and the Departments of Agriculture (USDA), Commerce, Defense, Treasury, and the Interior implement a slew of renewable energy-related initiatives that benefit investors, project developers and energy producers. At the state level, several jurisdictions have imposed renewable energy portfolio standards, including targets to reach 100% renewable generation, that have encouraged project development and created robust state and regional markets for renewable energy credits.
Key federal initiatives include:
- Federal Income Tax Credits. The production tax credit (PTC) and the investment tax credit (ITC) reduce the tax liability of renewable project owners. Legislation extending the existing PTC and ITC and expanding their availability was introduced in late 2021 with the support of President Biden, but has stalled in Congress for the moment although various efforts are being made to extend those tax credits. This legislation, the Build Back Better Act, would create a cash grant alternative and add standalone storage projects and other technologies and applications as facilities that qualify for the tax credits, among many other new green energy-related policies. Note that under current law, new onshore wind projects do not qualify for either the PTC or ITC and new solar projects do not qualify for the PTC.
- Loan Guarantees. The DOE has a loan guarantee program for renewable energy projects as well as carbon capture and efficiency applications, and recently granted the first guarantee in several years to the ACES project, discussed below. The USDA loan guarantee program is available for the development of biofuels, renewable chemicals, and bio-based products.
- Research and Development. Federal agencies, including the DOE, issue grants and other support for research efforts focused on renewable technologies and applications. Recent legislation significantly increased funding available for R&D, including through the creation of the new Office of Clean Energy Demonstrations, as described above.
How have private companies outside of the renewable energy sector responded to the renewables industry? Have you seen more companies set net-zero and/or science-based targets?
An increasing number of businesses in the United States are embracing sustainable practices as the country experiences the impact of climate change. We have seen companies outside the energy sector shifting to renewable energy, and even getting involved with development, particularly now with the volatility of the global fuel markets. Virtual power purchase agreements and other corporate power sourcing instruments are increasingly common.
Many of the big tech companies have also adopted climate change plans to identify their carbon footprint and the corporate actions and policies necessary to mitigate it, such as committing to power 100% of their operations with renewable energy.
Private Equity (PE) firms in the United States are also adopting net-zero initiatives. Many of them have signed up to the Initiative Climat International (iCI), a climate initiative for private equity, supported by the Principles for Responsible Investment (PRI) that has the objective to accelerate the PE industry’s drive on climate action.
What are the key contracts you typically expect to see in a new-build renewable energy contract?
- Construction Contracts (e.g., EPC (engineering, procurement and construction) and BOP (balance-of-plant) contracts)
- Equipment Supply Contracts (e.g., turbines, modules or panels)
- Off-take Agreements (e.g., power purchase agreements, power hedges, and sale agreements for Renewable Energy Certificates (RECs), carbon offsets and similar environmental attribute instruments)
- Interconnection and Transmission Contracts and Energy Management/Scheduling Services Agreements
- Investment documentation (e.g., tax equity investment agreements, including equity contribution agreements and LLC agreements; joint venture agreements; parent guaranties and other credit support)
- Leases, easements and other site control instruments
- Asset Management, Operation and Maintenance and other operating-stage services agreements
Are there any restrictions on the export of renewable energy, local content obligations or domestic supply obligations?
The $1.2 trillion Infrastructure Investment and Jobs Act, signed into law by President Biden on November 15, 2021, does include major domestic procurement requirements for infrastructure materials. The law permits federal funding for infrastructure only if the iron and steel, manufactured products, and construction materials used in the project are produced in the United States, though there are several exceptions, such as: where the inclusion of domestic products would increase the overall cost of the project by more than 25%.
Further, President Biden authorized the use of the Defense Production Act (DPA) to accelerate domestic production of clean energy technologies. Specifically, the President authorized the DOE to use the DPA to rapidly expand American manufacturing of five critical clean energy technologies:
- Solar panel parts like photovoltaic modules and module components;
- Building insulation;
- Heat pumps, which heat and cool buildings more efficiently;
- Equipment for making and using clean electricity-generated fuels (such as green hydrogen), including electrolyzers, fuel cells, and related platinum group metals; and
- Critical power grid infrastructure like transformers.
On June 6, 2022, the Biden administration instituted a two-year hiatus in the countervailing, antidumping or other duties being imposed on solar cell and module imports from Cambodia, Malaysia, Thailand, and Vietnam. The declaration temporarily ended contentious trade disputes brought to protect domestic producers from alleged unfair trade practices. Together with the limit on tariffs, President Biden authorized the DOE to assist the solar industry with scaling up manufacturing, employment and deployment of solar technology across the United States.
Does the regulatory regime include any specific decommissioning obligations? How do these obligations differ across solar, hydropower, wind, geothermal and biomass?
Could you provide a brief overview of the major projects that are currently happening in your jurisdiction?
While there are hundreds of significant projects under development or recently completed, a few stand out to show general trends in the United States.
One of the largest renewable generation projects in the United States, the Western Spirit Wind project, recently commenced operations in New Mexico.
Offshore wind project development continues to expand in parallel with efforts to accommodate the interconnection and transmission infrastructure that will be required for such build-out. New auctions of offshore development rights along the Atlantic coast continued earlier this year, bringing in record bids from mostly European-based energy companies. The auctions are a part of the Biden administration’s target to add 30 gigawatts of offshore capacity by 2030. The nation’s first operating commercial offshore wind project, the Block Island Wind Farm, is expected to be joined by several projects commencing operations in 2023, including the South Fork Wind and Vineyard Wind projects.
With respect to green hydrogen and the transition from conventional fuels, the over $1 billion Advanced Clean Energy Storage (ACES) project in Utah was launched in 2019 and recently received a half-billion dollar loan guaranty from the DOE. The project will generate green hydrogen for storage in salt caverns capable of holding 5,500 metric tons of hydrogen and will complement the planned transition of a nearby power plant from coal to natural gas and green hydrogen.
Who are the key players that are driving the green renewable energy transition in your jurisdiction?
Private developers, utilities, sponsors, investors and lenders have been driving the expansion of renewables in the United States for decades. On the project side, a small group of large domestic and foreign-based players dominate the space, particularly in the construction and operation phases, while newer, smaller companies continue to drive early-stage development. The latter group has been attracting investment from larger players earlier and earlier as the market for asset pipeline becomes increasingly competitive. The primary sources of funding in this sector continue to be: traditional domestic and foreign bank lending; tax equity investment from large financial institutions; corporates, particularly in the technology sector; asset managers and developers; and private equity investments in the form of debt, equity or a combination of both.
In addition, utilities and corporates, driven by the need to meet their carbon emission reduction goals, have contributed significantly to the energy transition in the United States by bolstering the construction, investment, and financing of new renewable energy projects through various types of agreements and arrangements for the purchase of power, capacity and environmental attributes generated by those projects and through the acquisition of completed and operating projects. Those agreements and arrangements have included, among others, bilateral and open requests for proposals for power purchase agreements, virtual power purchase agreements, agreements to purchase renewable energy credits (RECs) and other credits, and build-transfer agreements. Given that these utilities and corporates often have investment grade credit ratings, developers and sponsors have been able to leverage these agreements and arrangements to obtain favorable construction financing and long-term tax equity investment and debt financing which has been key to supporting the development.
Government policies, including tax and other financial incentives, state carbon markets and renewable portfolio standards, and power market and interconnection regulations, also continue to be key drivers in this space. As the sector has matured, a number of trade associations (e.g., ACORE, ACPA, SEIA, AWEA) and political coalitions, nonprofits, think-tanks and watchdog groups (e.g., the Electrification Caucus in Congress and the Sunrise Movement) have emerged to promote and deliberate the execution of an equitable green energy transition.
Please can you give a summary of the key renewable projects in the pipeline in your jurisdiction?
In light of its vast and varied geography and abundant renewable resources, the United States has seen the development of a wide range of significant projects using solar, wind, biofuels and other renewable technologies. A recent study by Lawrence Berkeley National Laboratory showed that in the United States, projects with more than 1,400 gigawatts (GW) of aggregate renewable generation and storage capacity are actively seeking connection to the grid. This represents over 90% of all new interconnection requests. Energy storage projects like the ACES project discussed above and others are seeing growing investment, but many are dealing with backlogged interconnection queues. Efforts to address these issues and the long interconnection queues faced by new projects are under way but will require coordination among the country’s grid operators, utilities, FERC, and state regulators.
What are the key issues facing the renewables industry in your jurisdiction across solar, hydropower, wind, geothermal and biomass?
One of the most important issues is a lack of transmission, which, in turn, has resulted in a large backlog in generator interconnection queues. At present, there are more than 1000 GW of generation and 400 GW of storage in queues across the United States. FERC is in the process of launching a series of rulemakings to improve transmission and interconnection policy, and the DOE has billions of dollars in funding for grid-related projects.
How has the consequences of the Covid-19 pandemic particularly impacted the renewables industry?
Restrictions on business activities, travel and border closures temporarily reduced energy demand in transport and industry, decreasing the consumption of bioenergy and other renewables. More notably, social‑distancing guidelines and lockdown measures caused widespread supply chain disruption, workforce dislocations and delays in project construction, which has had a direct impact on the commissioning of renewable electricity projects, biofuel facilities and other investments in renewables. While the challenges currently being experienced may lead to additional commercial and governmental efforts to bring renewable energy production and supply chains to the United States (see our response to question 10), delays are expected to persist in the short term.
Federal COVID-19 legislation granted relief to renewables projects facing construction delays by extending the qualification periods for the income tax credits, with offshore wind securing investment tax credit (ITC) eligibility through 2025, and solar projects receiving a two-year hiatus in the step-down of the ITC amount.
How do you think the impact of foreign investment and changes in regulation will affect investment in the renewables industry?
Foreign investment and changes in regulation has and will continue to incentivize increased investment in renewables in the United States. Some of the largest European renewables developers are already very active in the United States, especially with respect to offshore wind. East Asian strategics and investment firms have also been actively investing and searching for investment opportunities in the sector. Recent executive orders by the Biden administration and changes in regulation across the federal government at the DOE, the Department of the Interior, and FERC are also spurring development and investment in renewable energy projects.
How has your jurisdiction performed against its commitments as part of the Paris Agreement?
The United States had been on track to meet its commitment of reducing carbon emissions by 25% below 2005 levels by 2025 when the Trump administration withdrew the United States from the Paris Agreement. The Trump administration further reversed carbon reduction efforts by rolling back limits on vehicle and power plant emissions and encouraging domestic fossil fuel investments. In response to these actions, eight states, the District of Columbia, Puerto Rico, and 183 cities individually committed to achieving 100% clean energy. Regardless, the United States is expected to only reduce emissions by 17% by 2025.
The Biden administration rejoined the Paris Agreement in early 2021 and has made aggressive efforts to fulfil its Paris Agreement commitments through COP26. However, the recent U.S. Supreme Court decision in West Virginia v. Environmental Protection Agency has raised some questions about the Biden administration’s ability to rely on federal agencies to advance its carbon reduction policy goals and objectives in the absence of new federal legislation. It also underscores the importance of continued separate carbon reduction efforts by U.S. states, municipalities and private companies.
How has the government used COP26 as an opportunity to drive the green energy transition?
The Biden administration used COP26 to announce three new plans to reduce greenhouse gas emissions by at least 50% below 2005 levels by 2030: (1) Build Back Better; (2) Bipartisan Infrastructure Deal; and (3) President’s Emergency Plan for Adaptation and Resilience (PREPARE).
Build Back Better will reduce greenhouse gas pollution by at least one gigaton by 2030 through the following: tax credits and rebates that encourage the shift to clean energy and electrification; incentives to build a domestic supply chain for renewable energy; advancements of environmental justice; jobs centered around reducing the effects of climate change; and investments in coastal, forest, and soil restoration and management programs. However, as noted above, the Build Back Better bill is currently stalled in Congress in both its original form and in more modest, scaled-down alternatives.
The Bipartisan Infrastructure Deal will make significant investments in public transportation, build a national network of electric vehicle charging stations, electrify school buses, reduce emissions in airports, ports, and waterways, increase resiliency against climate disasters, improve the quality of drinking water, clean superfund sites, which mostly affect communities of color, and upgrade transmission line infrastructure.
PREPARE will provide $3 billion in adaptation finance per year to help developing countries adapt to climate risks.
How is the government stepping up its commitment as a part of the COP26 agreement?
The Biden administration has implemented a “whole-of-government” approach to addressing the climate crisis, including the launch of a National Climate Task Force of industry experts and the issuance of the Executive Order on Catalyzing Clean Energy Industries and Jobs. In order to meet its commitments under the COP26 agreement, the United States has engaged in numerous activities both domestically and internationally. Here are a few examples of such activities:
- The United States and European Union will lead the Global Methane Pledge, which aims to reduce methane emissions by 20% below 2020 levels by 2030.
- The United States and China will establish a “Working Group on Enhancing Climate Action in the 2020s” that will meet regularly to reaffirm and foster their cooperation in addressing the climate crisis.
- The United States has launched the First Movers Coalition, a platform that brings companies together to expedite the commercialization of clean energy technologies that are not commercially available or competitive in industries such as steel, trucking, shipping, and aviation.
- The United States has announced two initiatives to preserve forests. The first initiative, the Plan to Conserve Global Forests, is a $9 billion 10-year whole-of-government plan that will use a range of diplomatic, policy, and financing tools to conserve and restore carbon sinks. The second initiative, the Forest Investor Club, will gather public and private financial institutions and investors to increase and expedite sustainable investments in the land sector.