February 9, 2011
Dear Members of Congress:
On behalf of the nation’s counties, cities and towns, we urge Congress to support legislation that clearly affirms the right of state and local governments to exercise liens or assess special taxes or other property obligations to protect and improve housing stock for the public good, including the installation of renewable energy and energy efficiency improvements, by directing federal regulators to enforce underwriting standards that are consistent with guidelines issued by the U.S. Department of Energy for Property Assessed Clean Energy (PACE).
As you know, the health and vitality of local economies are essential for reversing the national economic downturn. Despite sizable budget shortfalls, state and local governments, in partnership with the federal government, are working to maintain and improve efficiencies in federal programs that support the services that citizens expect governments to deliver. A further challenge, however, is that traditional mechanisms for local finance and revenue, such as sales and property taxes and bond financing, remain difficult to access. As a result, local governments are developing innovative financing programs, such as PACE, that will help neighborhoods realize community and economic development goals even in challenging fiscal periods.
PACE financing programs help property owners finance renewable energy and energy efficiency improvements – such as energy efficient boilers, upgraded insulation, new windows, and solar installations – to their homes and businesses. The PACE program removes many of the barriers of renewable energy and energy efficiency retrofits that otherwise exist for residential homeowners and businesses, particularly the high upfront cost of making such an investment and the long-term ability to reap the benefits of cost savings. Twenty four states plus the District of Columbia have already passed legislation enabling cities and counties to pursue PACE programs.
PACE is not a loan, but instead is built on traditional tax assessments, which local governments have managed for over 100 years. PACE was not designed to increase the risk of homeowners, business owners, lenders, or the financial system, and operates under stringent rules to ensure a net positive benefit to all parties. When fully implemented, PACE programs can achieve significant energy savings and provide positive benefits to the environment.
Unfortunately, rather than incent original solutions such as PACE, the Federal Housing Finance Agency’s (FHFA) determination that PACE energy retrofit lending programs present “significant safety and soundness concerns” effectively shuts the door on an important avenue for financing improvements that would deliver financial and environmental benefits long into the future. This determination is out of step with our nation’s economic recovery agenda and disregards the traditional authority of local governments to utilize the tax code in the best interest of its citizens.
In response to FHFA’s specific concern about the hypothetical risk to the secondary mortgage market involved with PACE homes, as local leaders responsible for investing hundreds of billions in public funds annually, we know well that risk is an inherent part of any investment. However, local governments constantly seek to minimize that risk; in our case, to the taxpayer. We believe that the standards and best practices called for in the Administration’s “Recovery Through Retrofit” report are sufficient to minimize any potential risk posed by the PACE program to both the public and private investments in a PACE home.
The PACE program is an achievement of the intergovernmental partnership to realize national policy goals, namely, reducing energy consumption, that will positively impact the fiscal conditions of every level of government. For these reasons, we encourage you to support legislation that will allow existing PACE programs to continue and encourage additional programs throughout the country. We look forward to working with you to ensure that local governments maintain the traditional authority to utilize the tax code for public benefit.
Vermont’s Standard Offer: The Stories
We want a Vermont powered by clean, homegrown energy that doesn’t create radioactive waste or wreck our planet’s climate, and we want our energy dollars to stay in the state. The pilot round of the Standard Offer moved us towards that reality.
Now we’ve put together a booklet that highlights six of these projects – from a dairy farm in Troy to a solar farm in Ferrisburgh.
Click below to get the excellent report.
Can a state with a renewable energy mandate require green jobs to stay at home? Litigation has made states into tepid defenders of their job rights, but states have the legal ground to go great lengths to keep more of the economic development from their renewable energy industry inside their borders.
No renewable energy mandate passed a state legislature without the promise of thousands of new jobs, but many states have shared the recent experience of Massachusetts: the state’s largest solar manufacturing plant announced that it is moving production to China. Evergreen Solar is moving despite the state’s commitment of $44 million in subsidies to support the plant and its manufacturing jobs. The state is losing out on manufacturing jobs despite its citizens’ commitment to (if necessary) pay more for electricity from renewable sources.
In contrast, last week I wrote about Ontario’s clean energy program, well on its way to 5,000 megawatts of new renewable energy production and supporting over 40,000 new jobs. Over 20 new manufacturing plants have been announced. The keystone of this program is a ‘buy local’ rule that requires wind and solar power projects who want the province’s attractive power payments to be constructed with at least 60 percent of their materials ‘made in Ontario.’ Ontarians are getting cleaner electricity and significant economic development for their clean energy commitment.
U.S. states can do much more to secure the economic benefits of their clean energy mandates, even if they can’t copy Ontario’s law verbatim (see our recent report on Ontario’s program for more on the international trade controversy).
Traditionally, U.S. states have limited their economic development policy to subsidy programs, offering grants, loans, and tax breaks to manufacturers to locate within the state. Businesses let states bid against one another for scarce jobs. The result is a repeat of Massachusetts’ experience with Evergreen Solar. Manufacturers accept subsidies and then leave when it suits their bottom line.
Some states have tried more. Ohio and Illinois require part of their renewable energy standard to be meet with in-state projects. Other states provide greater credit toward compliance with their renewable energy standard for in-state projects. One state, Washington, offers multipliers to a state tax credit for projects with “made in Washington” parts.
Massachusetts tried to require its utilities to sign long-term contracts with in-state renewable energy suppliers, but the state backed down in the face of a lawsuit from renewable energy supplier TransCanada.
No state has gone as far as Ontario to require local purchasing of components, partly because more robust policies to require in-state development have often been threatened with lawsuits under the Supreme Court’s Dormant Commerce Clause.
The linchpin to a commerce clause dispute is whether the law in question discriminates against out-of-state economic interests and, in particular, whether it burdens them while benefitting in-state interests. Enacted in a U.S. state, Ontario’s buy local requirement would likely trigger than discrimination clause, requiring the state to prove that the law “advances a legitimate local purpose that cannot be adequately served by reasonable nondiscriminatory alternatives.” (Source: Richard Lehfeldt, Woody N. Peterson, and David T. Schur. Commerce Clause Conflict. (Public Utilities Fortnightly, December 2010)). Success in this situation is rare, and yet clean energy economic development may meet the requirements. A recent article in Public Utilities Fortnightly magazine on the Massachusetts case highlights how states could move beyond jobs subsidies:
First, be explicit about the incentives being offered for in-state investment. In particular, “The opportunity to enter into a long-term PPA should be one of the benefits offered to successful bidders as part of the state’s development initiative, not the starting point.” In fact, the article notes, this is exactly what happens in regulated electricity markets, where the state provides a utility franchise and the exclusive right to build and rate-base new power generation. The PPA follows from the commitment to local development.
The state must also be explicit about the functional difference between a power plant developed in-state as opposed to out-of-state, with specifics about the technology and the site. For example, redeveloping a brownfield site in state is much more valuable than simply importing clean electricity.
Finally, states have legitimate environmental objectives for in-state power generation. “A state that seeks new in-state renewable power plants may increase its reserve margins, improve its air quality, displace fossil-fuel based generation, avoid transmission congestion charges that may apply, and may also avoid or defer the need to build new transmission lines.” All of these are “legitimate local purpose[s] that cannot be adequately served by reasonable nondiscriminatory alternatives.”
In other words, under the strict discrimination clause there is room for states to favor local development. But there are also several nondiscriminatory strategies that can also pass legal muster.
States that favor in-state production without placing an “excessive burden” on out-of state entities have nondiscriminatory policies. There are several illustrations of this at work. In Minnesota, an ethanol producer incentive provided 15 cents per gallon of ethanol produced in-state and nothing for out-of-state suppliers, who were still allowed to sell in Minnesota. The state of Washington provides a significant multiplier to its solar PV incentives for domestically produced inverters and solar modules.
If U.S. states fear the legal conflict over a discriminatory clean energy policy, they could instead emulate Turkey. Turkey provides renewable energy producers a standard offer, long-term CLEAN contract for anyone who builds in the country, but they provide bonus payments for renewable energy projects that are “made in Turkey.” These payments increase the per kWh contract anywhere from 32% to 146%, depending on the renewable technology.
Over thirty states have committed themselves to renewable energy and potentially higher electricity costs. In exchange, states should consider their legal authority to keep those jobs within state borders and to the economic advantage of its citizens.
Last week was a tough one for distributed solar markets in several states, as a remarkable number of renewable energy incentive programs hit their budget or capacity caps, or are shrinking in scope: San Diego Gas & Electric’s allocation of non-residential solar incentives under the California Solar Initiative ran out. The Los Angeles municipal utility solar … Read More
From page 19 of the brilliant report, Tracking the Sun III: The Installed Cost of Photovoltaics in the U.S. from 1998-2009 (large pdf).
It’s worth noting that this has nothing to do with the state’s solar resources. This is the upfront cost to install the modules. The difference in cost of solar electricity is likely even more severe since many of the least expensive states also have better sun.
The Healthy Environment Alliance of Utah just released the eUtah Blueprint illustrating how Utah could reduce carbon emissions from the electricity sector by 95% by 2050 and could meet electricity demand reliably with a combination of wind, solar, geothermal, and compressed air storage (with some natural gas backups). The report – written by Arjun Makhijani from … Read More
Yesterday Michigan governor Jennifer Granholm signed the state’s Property Assessed Clean Energy (PACE) law, making Michigan the 24th state to enable cities and counties to provide financing for on-site renewable energy and energy efficiency improvements via the property tax system. But it’s unclear how many municipalities will move ahead given the roadblocks facing residential PACE programs … Read More
We’ve talked previously about the perversity of using tax credits to incentivize renewable energy production, increasing transaction costs and reducing participation in renewable energy development. But there are other perversities in U.S. state and utility renewable energy policies, especially with upfront rebates and net metering. Let’s start with rebates. Many states and utilities offer upfront rebates … Read More