A clear theme emerged from the Administration’s fiscal year 2016 (FY 2016) budget - a focus on an American clean energy economy. Both the Department of Energy (DOE) and White House budget proposals call on Congress for increased funding to continue modernizing the nation’s energy infrastructure with a focus on technology, resiliency, national security, and reducing emissions.
Department of Energy Budget Proposal
This month, DOE released its budget for fiscal year 2016 (DOE FY 2016), highlighting the agency’s goal of bringing clean technology innovation to market. The primary clean-technology arm of the DOE, the Office of Energy Efficiency and Renewable Energy (EERE), looks to invest $2.7 billion to grow the domestic clean energy industry, increase energy productivity for American businesses, and expand access to renewable energy and alternative-fuel vehicles.
In particular, EERE requests $337 million for solar energy to increase generation cost-competitiveness, reduce costs of solar installations, and promote the manufacturing of panels. Wind energy is also on the agenda calling for $146 million for advanced offshore-wind projects and activities related to grid modernization. Moreover, EERE stresses the potential for hydro ($67 million) and geothermal energy ($96 million).
Bio-fuels also receive considerable treatment. The EERE proposal allocates $444 million to support research and development of efficient and alternative fuel vehicle technologies. Further, the budget provides $246 million to emphasize the development of innovative processes to convert cellulosic and algae-based feedstocks to bio-based gasoline, diesel, and jet fuel at a target cost of $3.00 per gallon of traditional fossil-fuel gasoline equivalent.
White House Budget Proposal
The DOE budget proposal is but part of President Obama’s larger 2016 fiscal budget (WH FY 2016), which devotes an appreciable portion to clean and renewable energy. Drawing substantially from the goals outlined in the President’s Climate Action Plan, the new budget provides support for the Plan, as well as the new 2025 plan to cut methane emissions by 40-45% of their 2012 totals. Overall, the budget proposes an increase for clean energy technologies from $6.9 billion to $7.4 billion.
Renewable Market Incentives
The budget looks to tackle the major sectors that contribute to green house gas emissions while committing to a clean energy economy. Specifically, the budget permanently extends the renewable electricity production tax credit and investment tax credit, ensuring security for renewable energy investment and project development and certainty for business planning. Additionally, the Administration would allow the credit to be refundable to developers, allowing project sponsors to directly monetize the credits. Under the current paradigm, many renewable developers have insufficient income tax liability to claim the renewable electricity production tax credits and must enter into joint ventures or other financing transactions with other firms to take advantage of them.
The White House plan also seeks to promote energy-efficiency technologies by permanently extending the deduction for energy-efficient commercial building properties. Moreover, the proposal would retroactively extend the expired second generation bio-fuels tax credit for blending cellulosic fuel at $1.01 per gallon through December 31, 2020, and would then reduce the amount of the credit by 20.2 cents per gallon in each subsequent year, so that the credit would expire after December 31, 2024. Maintaining its methane emissions capture focus, the Administration advances a $2 billion refundable allocable investment tax credit for carbon capture and storage property.
Agencies Called to Renewable Action
The President intends not only to provide market incentives, but also to fund renewable programs within the various federal agencies. For example, the Department of the Interior is set to receive $100 million in core renewable energy development programs on federal water and lands to help realize the Climate Action Plan goal of “22 gigawatts of renewable energy capacity and related transmission infrastructure by 2020.” Further, $15 million was allotted to the DOE’s Federal Energy Efficiency Fund to leverage federal capital investments and escalate the use of renewable energy and reduce energy consumption across the government.
On a more research-based level, the budget allocated $100.3 million to the Environmental Protection Agency, a 9% increase in funding, for various research programs including energy. Included in the budget is a $4 billion fund to assist states in limiting power plant pollution and $2.3 billion for state clean drinking water programs. Further, under the purview of the DOE, Basic Energy Sciences and Biological and Environmental Research were allotted $1.8 billion and $612 million, respectively.
Insights for the Renewable Investor/Developer
The proposed extension of credits and increase in funding demonstrates the Administration’s commitment to a new energy economy and indicates that developments in the renewable industry are on the horizon. Nevertheless, it is important to note the obstacles presented since the budget now faces a Republic majority in both houses of Congress. Last year’s fiscal budget called for $6.9 billion in funding for clean and renewable energy technologies, which was eventually reduced to $6.4 billion by a Democratic Senate. An even steeper cut from the proposed to enacted funds for renewable energy will most likely be the case this year, since many prominent Republicans have already condemned the White House budget.
If you have any questions please contact any of the members of Sullivan’s Energy Finance practice.
.jpg?width=220&name=Sullivan%204c(B2402503).jpg "Sullivan")
