Renewable Energy Project Investors Receive IRS Clarification on Use of Section 45 Tax Credits
May 3, 2006
Opportunity Summary
A new Department of Energy (DOE) initiative to designate transmission corridors for high priority development offers tremendous and immediate opportunity to renewable energy project developers, utility and other investment owners of renewable energy operations, and independent transmission companies.?
The initiative creates, for the first time in the history of the electric industry, federal eminent domain for the construction of power transmission lines in designated National Interest Electric Transmission Corridors (NIETC).
In thus providing a viable mechanism for project siting, NIETC designation can remove a major obstacle to the cost-effective transmission of electricity generated by wind and renewable energy projects.
Regulatory Background
The Energy Policy Act of 2005 contains a provision, which Bracewell & Giuliani worked on since its origin, that permits DOE to apply NIETC designation to corridors for high-priority power transmission development. As a prelude to the NIETC initiative, the Act directs DOE? ?to issue a public report on electric transmission congestion nationwide. The congestion study will inventory geographic areas where significant electric power transmission congestion exists. DOE will publish the congestion study by August 8, 2006, and seek further public comment at that time. We expect that the report will identify potential NIETCs, and we are working closely with DOE and the Federal Energy Regulatory Commission (FERC) as they develop implementing regulations.
NIETC Qualification
DOE will evaluate potential NIETCs based on certain criteria, some of which DOE has identified and offered for comment, including whether there is a "clear need" to remedy reliability problems, and whether NIETC designation would enhance U.S. energy independence. NIETC designation will allow FERC to issue permits for construction of electric transmission facilities in the corridor. FERC must determine that a proposed transmission project will serve the public interest and that the state where it would be located cannot or will not issue a permit.
Competitive Opportunity
We believe that the NIETC initiative will enable FERC to further its policy goal of unbundling the traditional vertical integration of electric power production, transmission and marketing. For example, Independent transmission companies, (Transcos) in contrast to vertically integrated utilities?might be empowered by the NIETC initiative to the extent it allows Transcos to avoid state-imposed obstacles. We believe this creates particular competitive opportunity for independent transmission companies to construct power lines for their revenue generating potential, thereby creating substantial new marketing opportunities for the sale of electric power generated by wind energy sites.
Recommended Action
DOE has already begun its NIETC designation effort on standard and fast tracks. Bracewell & Giuliani's intimate involvement with the history of this effort, and our close working relationship with DOE and FERC officials, give us in-depth knowledge on the subect. We welcome inquiries from companies wishing to take advantage of what NIETC designation offers to the renewable energy industry.