The European Commission Presents its 2030 Clean Energy Package

Last week the European Commission presented an extensive package of legislative proposals (“Clean Energy Package”) that are intended to achieve and implement the European Union’s climate change and clean energy targets for 2030: a 40% cut of CO2 emissions, a share of 27% for renewable energies, and energy savings of 30%.

The package presents both opportunities and challenges for energy-related industries as well as for information technology companies whose products will help to achieve Europe’s energy efficiency objectives.  According to the Commission, its proposals should mobilize up to 177 billion Euros of public and private investment per year from 2021, and generate up to a 1% increase in GDP over the next decade.

The Commission’s proposals are a first step of a legislative process in the European Parliament and Council that is likely to last at least 18 months, and will provide industry with opportunities to influence the legislation on renewable energies and energy efficiency that will apply in the EU as of 2021.

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FERC Proposes Requiring New Generators to Provide A Grid Support Service

One factor driving the grid of the future is the change in the nation’s electric generator resource mix, such as the retirement of traditional baseload generation and an increasing proportion of variable energy resources, such as wind and solar.  This evolution has raised concern that the capability to provide “primary frequency response,” a critical grid support service, is declining.  FERC, concerned with potential grid reliability problems, issued a Notice of Proposed Rulemaking (NOPR) that would require new generators to have the equipment to provide the service and to provide it when needed. The North American Electric Reliability Corporation, the group responsible for developing and administering reliability standards, said that “[f]requency response is among the essential reliability services critical to the reliability of the bulk power system.  The NOPR recognizes the importance of frequency response as the generation resource mix undergoes rapid change.” Continue Reading

FERC Proposes Rules to Remove Barriers to Electric Storage and Other Distributed Resources

Electricity storage resources are shaping the grid of the future.  Large-scale batteries and flywheels are now able to provide services to grid operators to help keep the bulk power system in balance.  Electric storage resources’ ability to absorb and discharge electricity provides them with significant operational flexibility, and they can be designed to provide a variety of grid services.  FERC has jurisdiction over the terms and conditions of services on the U.S. interstate transmission grid, and, as described recently on this blog, the Commission has been addressing issues to facilitate the integration of storage resources into grid operations.

At its public meeting on November 17, the Commission approved a Notice of Proposed Rulemaking (NOPR) to remove barriers to the participation of storage resources and distributed energy resource aggregations in the organized wholesale electricity markets administered by Regional Transmission Organizations (RTOs).  The Energy Storage Association calls FERC’s proposal a  “pivotal opportunity” that “opens a pathway for accelerating energy storage deployment” and accelerates the “transition to a more resilient, flexible, and sustainable grid.”

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Electricity Storage Resource Issues Coming to the Fore at FERC

Electricity storage technologies are playing a big part in the growth of renewable resources and the shape of the grid of the future. For example, batteries are a well-known back-up to renewables when the sun isn’t shining or the wind isn’t blowing.  But large-scale batteries, as well as flywheels, are entering the field to provide additional services as clean and fast-response resources for grid operators to help keep the bulk power system in balance.

The introduction of storage resources as grid service providers is raising important issues, such as how their services should be classified (i.e., as transmission or generation) how they should be compensated and whether they raise operational concerns. How these nuts-and-bolts questions are resolved will affect the extent of their penetration in grid services markets.

FERC has jurisdiction over the terms and conditions of services on the U.S. interstate transmission grid, and the Commission is poised to address some of these storage issues in two upcoming proceedings.  One of them is a staff technical conference scheduled for November 8, 2016, part of a generic proceeding to address operational and other issues regarding how storage resources are used in the organized wholesale electricity markets (i.e., Regional Transmission Organizations).  The second proceeding is a pending complaint by a utility-owner of a large battery resource alleging that the RTO tariff does not properly compensate its resource or provide for appropriate operational practices. Continue Reading

The EU reaction to ICAO ’s Agreement on Aviation Emissions

The European Commission calculated years ago that someone flying from London to New York and return generates roughly the same level of CO2 emissions as the average person in the EU does by heating their home for a whole year. And air traffic is supposed to double by 2035…

This is why the European Union decided as early as 2008 that, as part of its effort to address climate change, it would extend its so called EU emissions trading system (“ETS”) to the aviation sector.[1] By 2012, in principle, emissions from all flights from, to and within the European Economic Area (EEA) – the 28 EU Member States, plus Iceland, Liechtenstein and Norway – should have been included in the EU ETS system.

But this proposal was very negatively received by third countries. Airlines for America (A4A) together with several American air carriers engaged in legal disputes against the EU Directive, arguing that it broke the EU-US open sky agreement, the Kyoto Protocol, and the International Civil Aviation Convention. After their case was lost in the European Court of Justice, a coalition of countries led by the United States, China, Russia, India, Japan, and others launched a major political offensive against the unilateral character of the EU scheme. Their major argument was that the Directive, by imposing obligations on third countries, went against the principle of sovereignty. They pleaded that a satisfactory solution could only come through a global market based scheme, as it was discussed (but with not much success at the time) in the International Civil Aviation Organization (ICAO) Assembly .

As a result of these pressures – which included retaliation threats targeting Airbus sales – the EU renounced, provisionally, imposing its system to extra-EU flights. ETS requirements for flights to and from non-European countries were ‘suspended’ until the end of 2016, in order to give time to ICAO to develop a global ‘market-based measure’ (MBM) scheme. ICAO’s Assembly in 2013 decided in principle that a mechanism would be agreed by 2016 and applied by 2020. In the meantime, only flights within the EEA continued to be covered by the ETS system, with some exemptions for operators with low emissions.

ICAO has respected its self-imposed deadline: In its 39th session, on October 6th 2016 in Montreal, an agreement was reached on a ‘Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). According to the scheme, CO2 emissions for international aviation would be capped at the level of average emissions between 2019 and 2020, with participants offsetting any increases; the offsetting obligation would apply to all international flights between States that are part of CORSIA. In order to offset its emissions, an airline operator would have to buy ‘Emission Units’ originating from various emission reduction programs and projects across the globe. The specific criteria for these ‘Emission Units’ will be developed by ICAO in the next two years.

But, in order to ensure broad support, negotiating States concluded substantive compromises on the timeline of implementation, exemptions to the agreement, and the distribution of offsetting requirements among airline carriers.[2]  The European Union fought to reduce these exceptions or delays to a minimum but with limited success. It decided, anyway, in the end, to accept the final agreement. Continue Reading

Grid of the Future: Opportunities, Challenges, and Solutions in Corporate Energy Procurement

Fundamental changes in the way that the electric utility and power sector operates, interacts with customers, and relates to its regulators are occurring on a massive scale and at an unprecedented pace. Covington is committed to exploring these transformations affecting the power sector, helping our clients to understand and navigate the changes, and fostering collaborations to respond to the evolving nature of the power grid.

To this end, Covington has hosted a series of conversations with key thought leaders in industry and government to address the ramifications of these transformations. The first two conversations in the fall of 2015 focused on both the technology that underlies and enables these changes, and the response of the regulatory framework to the rise of distributed generation and a far more nimble and customer-oriented array of electricity services. A summary of these conversations can be found here.

On October 5, 2016 Covington, in collaboration with the American Council on Renewable Energy (ACORE) and Advanced Energy Economy (AEE), hosted a conversation devoted to the issue of corporate energy procurement. Senior representatives of corporations, utilities, developers, government agencies and NGOs participated in person and by webinar. Followers on Twitter joined the conversation at #CovingtonGOTF. Highlights of the discussion appear below with a link to the full audio replay.

October 5, 2016 – Covington’s Washington, DC Office Corporate Procurement & Renewable Energy: Market Overview (click here for the recording)

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FERC Considering Changes to Standards of Review for Acquisitions and Mergers

The Federal Energy Regulatory Commission (FERC) recently launched an initiative that could result in significant changes to the standards used for analyzing whether mergers and acquisitions are in the public interest.  In a September 22, 2016 Notice of Inquiry (NOI), FERC identified several broad areas in which its current policies may need reform, made a few suggestions and asked for public comment.  Depending on the comments received, a formal rulemaking initiative could result.

Given the significant volume of acquisitions of securities and facilities in the electricity industry that require FERC review, this NOI may mark the first step in policy changes that would affect a wide range of industry participants. Continue Reading

“Financial CHOICE Act” Approved by House Financial Services Committee

On September 13, 2016 the Financial CHOICE Act was approved by the House Financial Services Committee by a vote of 30-26.  The bill would overhaul regulation of the financial markets and is an important development for derivatives market participants, including energy companies.  For example, the bill would alter the functioning of the Commodity Futures Trading Commission (“CFTC”), by:

  • Requiring development of procedures governing no-action and other exemptive relief, including a requirement that the commissioners have the opportunity to review any responses to a request for relief.
  • Require notice-and-comment before issuance of policy statements, guidance, interpretive rules, or other procedural rules.
  • Allowing for judicial review of CFTC rules, along the lines of that allowed for Securities and Exchange Commission (“SEC”) rules.

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EU Adopts New Guidance on Environmental Claims

The EU recently published a Guidance on Compliance Criteria on Environmental Claims (“Environmental Claims Guidance”).  The Guidance is intended to support economic operators and EU Member State enforcement authorities in  their application and implementation of the principles of the Unfair Commercial Practices Directive (“UCP Directive”) to self-declared environmental claims and related graphics and imagery.  The UCP Directive establishes principles to prevent unfair commercial practices that may harm the commercial interests of consumers. Continue Reading

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