Project Development Committee Report

I. Introduction

This 2023 report, while touching upon such subjects as impactful legislation and private developments in the energy sector, expands the scope of this year’s report to include ever important environmental justice considerations within the field.

II. Environmental Justice Grows Influence in Infrastructure Development

A. Electric Vehicle Infrastructure

1. Introduction

The Biden Administration is continuously working on funding and incentives for a nationwide network of charging stations for Electric Vehicles (EV). In recent years, President Biden’s Justice40 initiative tasked the Department of Transportation, Department of Energy, and the Joint Office of Energy and Transportation with overseeing the Electric Vehicle (EV) charging and infrastructure programs. “Transportation is the single largest source of carbon emissions in the” United States. Biden’s goal is to build a national network of 500,000 public EV charging stations and reduce national greenhouse emissions by 50-52% by 2030. Multiple steps were taken in 2023 to meet the goals set by the administration and departments.

2. Policy Developments

The U.S. Department of Transportation’s new Changing and Fueling Infrastructure (CFI) Discretionary Grant Program provides “$2.5 billion over 5 years to a wide range of applications, including cities, counties, local governments, and Tribes.” The first round of funding in fiscal years 2022 and 2023 makes up to $700 million of “funding available to strategically deploy EV charging and other [...] infrastructure projects in publicly accessible locations in urban and rural communities, as well as designated Alternative Fuel Corridors (AFCs).” “The final minimum standards for federally funded EV charging infrastructure projects [along with the] implementation plan for President Biden’s EV charging Build America, Buy America requirements [aids all states in building] EV charging stations pursuant to their approved state charging plans [that were] developed under the National Electric Vehicle Infrastructure (NEVI) Formula Program.” The Federal Highway Administration (FHWA) established a temporary public interest waiver effective March 23, 2023 “to waive Buy America requirements for steel, iron, manufactured products, and construction materials in” EV chargers. The temporary waiver enabled EV charger acquisition and installation to immediately proceed while also ensuring the application of Buy America to EV chargers after the short term waiver is phased out. The waiver applies to all EV chargers manufactured by July 1, 2024, whose final assembly occurs in the United States, and whose installation has begun by October 1, 2024. The goal of these national standards is to ”give EV users confidence that they will be able to find available, safe, and reliable EV charging stations across the country,” which is a “critical step in building a seamless national network” for the widespread adoption of EVs.

3. Policy Implementation and Shortcomings

Overall, there was significant growth in EV sales in 2023. EVs “are on pace to make up 9% of sales” in 2023 compared to light-duty vehicles “including plug-in hybrids, accounting for 7.3% of sales in 2022.” Further, “sales of hybrids, plug-in, and battery [EVs] account for 15.8% of all new light-duty vehicle sales in the United States [as of September 2023], compared to 12.3% in 2022 and 8.5% in 2021.”

One of the goals of the Biden administration is to expand EV charging infrastructure. The reason for expansion is to address concerns American drivers may “have when considering making the switch to electric,” by ensuring that they are accessible and visible in the community. While the Biden administration is making policy changes to implement the widespread adoption of EV and EV charging sites, “regulatory mandates [and incentives alone] will not address the conditions that will determine the ultimate success of the EV transition.” In a 2023 study by Pew Research,

Americans who are confident the country will build the necessary infrastructure are more likely than others to say they would consider purchasing an EV. Among those who are extremely or very confident that the U.S. will build the infrastructure needed to support EVs, 68% say they would be at least somewhat likely to consider purchasing an EV. Just 19% of those who are not too or not at all confident in future EV infrastructure say they are at least somewhat likely to consider purchasing an EV.

Further, the public interest “in purchasing an EV is down 4 percentage points from May 2022.” This points to that while people need the charging sites to successfully drive their EV, they need confidence that the charging is there in order to purchase an EV in the first place. The study suggests that investments in EV charging alone isn’t enough, and that communication about those investments are the key to making them successful. Thus, it is important that education about EVs and charging sites directly to consumers and other outreach programs are available to reach President Biden’s emissions goals.

B. Clean Energy Infrastructure

1. Introduction

In 2023, several Midwestern states, including Michigan and Minnesota, took instrumental steps towards improving and achieving their state’s clean energy standards. Governor Gretchen Whitmer of Michigan signed a package of bills that enable the state to become a leader in clean energy standards in the United States and help accomplish Governor Whitmer’s earlier proposed clean energy goals. Notably, this package of bills includes Senate Bill 271, which requires [energy companies in Michigan] to meet a 100% clean energy standard by 2040. Other pieces of legislation in the package include measures that increase the state’s energy waste reduction standards and create goals for further energy savings and allow farmers to rent out their land for solar energy generation while still participating in the state’s farmland and open space preservation program. Other signed bills consider the authority granted to state agencies when regulating the energy sector and provide the Michigan Public Service Commission ”the authority to approve large scale renewable energy projects.”

2. Progress with Pushback

However, while this legislation instructs the Michigan Public Service Commission to weigh factors like equity, environmental justice, affordability, public health, and more, it is important to note that several environmental justice advocacy groups criticized some aspects of this legislation, specifically Senate Bill 271. Environmental justice advocates stated that the legislation’s definition of renewable energy to include landfill gas, biomass, gas from a methane digester, and incinerators and natural gas using carbon capture technology will potentially impact low-income communities and communities of color that are already disproportionately adversely affected from greenhouse gas emissions and pollution, in future siting of these projects. Similarly, Minnesota Governor Tim Walz signed two pieces of legislation, Senate File 4 and House File 7. These bills represent a commitment to “both a carbon-free energy standard and a renewable energy standard.” The carbon-free standard commits all Minnesota utilities to provide their in-state customers with one hundred percent carbon-free electricity by 2040. In the Minnesota legislation, carbon-free is defined as an energy source that does not release carbon dioxide, and includes sources such as solar, wind, nuclear, and hydropower. Moreover, the legislation simplifies the process for siting new clean energy projects throughout the state by, for example, streamlining the siting and routing process for solar energy generation projects.

III. Interest Grows in Clean Energy Alternatives, Hydrogen and Off-Shore Wind

A. Global Interest in Hydrogen Energy Rises, U.S. Drafts Guidelines for Green Hydrogen Tax Credits

1. Introduction

In 2023, there was a surge of interest in hydrogen energy, with governments around the world announcing ambitious hydrogen strategies. The European Union moved forward with its European Hydrogen Bank to help invest in hydrogen projects across Europe and held a pilot auction in December to help bidders prepare for projects in 2024. Japan announced its intention to invest $107 billion in hydrogen supply over the next 15 years and increase its yearly hydrogen production to 12 million tons. In October, the United States announced seven regional “Hydrogen Hubs” that will receive a collective $7 billion of government funding.

2. Public and Private Progress

This increased interest culminated in the 28th Conference of the Parties to the U.N. Framework Convention on Climate Change (COP28), where hydrogen energy was spotlighted. High-level panels and dedicated sessions delved into the challenges and opportunities of scaling up green hydrogen production, building robust infrastructure, and fostering technological advancements to increase the efficiency of production and transportation. Countries like Australia, Japan, and Morocco showcased ambitious hydrogen roadmaps, and private companies unveiled innovative projects and partnerships. At the end of COP28, over 30 countries signed a Declaration of Intent on Mutual Recognition of Certification Schemes for Renewable and Low-carbon Hydrogen and Hydrogen Derivatives.

In December 2023, the U.S. Treasury Department and IRS released draft guidance for claiming the 45V “Green Hydrogen Energy Credit” established by the 2022 Inflation Reduction Act. The 45V tax credit offers up to $3 per kilogram of clean hydrogen produced. In order to claim this credit, the electricity in hydrogen production needs to be sourced from renewable or zero-emission sources. Hydrogen producers may use Energy Attribute Certificates (EACs) to confirm this. The proposed guidance creates three new criteria for the EACs specific to hydrogen: incrementality, deliverability, and temporal matching. The finalized guidance is expected in mid-2024.

B. U.S. Offshore Wind Experiences Growth and Growing Pains

1. Introduction

The U.S. offshore wind industry saw continued growth in 2023. Since the passage of the Inflation Reduction Act in August of 2022, investment in the industry has increased by $7.7 billion, including significant investments in U.S. infrastructure and supply chain. However, inflation, supply chain issues, high-interest rates, and insufficient subsidies resulted in rising project costs in 2023. As a result, some developers canceled or sought to renegotiate power purchase agreements signed prior to the onset of higher project costs.

2. Growth and Interest Persist

Despite setbacks, many projects remain on track. In New York, Ørsted’s South Fork Wind began producing power in December, and Vineyard Wind 1 off the coast of Massachusetts is expected to follow suit soon. The construction of Atlantic Shores Project I off of New Jersey, Revolution Wind off of Rhode Island, and the Coastal Virginia Offshore Wind Project—the nation’s largest offshore wind farm approved to date—will also begin in the coming year.

The industry expects 2023’s challenges to begin subsiding in 2024. Several Northeastern states recently announced solicitation rounds where developers intend to place new bids on canceled or threatened power purchase agreements. Five states will allow contracts for new projects to be adjusted for inflation that occurs before construction commences. IAnd finally, 18 planned component manufacturing projects coupled with the collaboration between nine East Coast states and federal agencies should increase supply chain capacity.

IV. Increased Regulation of Utility and Residential Clean Energy Industries

A. Property Assessed Clean Energy Financing Faces New Lending Rules

1. Introduction

On May 11, 2023, the Consumer Financial Protection Bureau (CFPB) proposed a rule to amend Regulation Z, addressing the applicability of the Truth in Lending Act (TILA) to Residential Property Assessed Clean Energy (R-Pace) programs.

2. R-Pace Market and Loan Structure

The market for R-Pace loans has grown in recent years, reportedly financing approximately $8.46 million worth of upgrades in 2022. Eligible upgrades under these programs vary by locality, but generally cover energy efficiency, water efficiency, resiliency, and renewable energy upgrades. While the municipality and locality authorize the programs through enabling legislation, private lenders can administer the funds. The program is distinctive for its collateral. Most enabling legislation creates a “Super Priority” voluntary tax lien, which holds a senior position to any non-tax debt on the property. Another unique aspect of the program is the underwriting criteria which focuses on the property’s financial health and the owner’s equity in it. This varies significantly from the traditional ability-to-repay model which considers a borrower’s credit score, credit history, and debt-to-income ratio.

3. TILA Requirements for R-Pace Transactions

The proposed rule primarily focuses on clarifying TILA’s applicability to R-Pace programs, including both its ability-to-repay rules and civil penalties. The current definition for “credit” in Regulation Z categorically excludes all “tax lien[s]” and “tax assessment[s].” This exclusion implies that TILA provisions do not apply to the voluntary tax assessments created by most R-Pace programs. The proposed change specifies that the exclusion only applies to involuntary “tax lien[s]” and “tax assessment[s].” With this clarification, R-Pace lenders would be required to comply with TILA rules. This includes the ability-to-repay rule, which would shift the traditional underwriting criteria for these transactions from looking solely at the properties financials to also mandating a review of the borrower’s credit score, credit history, and debt-to-income ratio.

4. Modified Loan Estimates and Closing Disclosures Required for R-Pace Transactions

If adopted, the proposed rule would also require R-Pace lenders to provide Loan Estimates and Closing Disclosures that reflect the unique nature of R-Pace transactions. A Loan Estimate provides a borrower with a good faith estimate about the credit costs and the terms of the transaction while a Closing Disclosure provides a final disclosure of the actual terms. Both form documents use clear language to help consumers find key information, assess affordability, and compare costs. While imposing an additional requirement on R-Pace lenders, the proposed rule does adjust certain aspects of these disclosures to account R-Pace transactions’ unique nature. Notable changes include clarifying information about transactions implications and providing a separate component identifying a sperate tax assessment for property tax obligations on the Loan Estimate. The changes also mandate disclosures about the R-Pace lender itself in the Loan Estimate, including identifying information about the company, and disclosures in the Closing Disclosure related to the assumption, late payment, partial payment policy, and the consumer’s liability after foreclosure.

B. Utility Scale Renewable Energy Faces New Foreign Ownership Rules

1. Introduction

Between January to June 2023, fifteen states enacted restrictions on foreign ownership of land. Joining the states that already had restrictions prior to 2023 are Montana, Idaho, Utah, North Dakota, South Dakota, Oklahoma, Arkansas, Louisiana, Mississippi, Alabama, Florida, Tennessee, Indiana, West Virginia, and Virginia. At year’s end, roughly half of U.S. states have some form of restriction on foreign ownership of land, and it is suspected that this number will continue to increase as various states propose restrictions of their own. There are no states with an absolute prohibition on foreign ownership, though there are several with severe enough restrictions that foreign ownership is impractical or impossible long-term.

2. Long-term Effects Remain to be Seen

These restrictions, depending on the state, may forbid or limit nonresident aliens, foreign businesses and corporations, and foreign governments from acquiring or owning an interest in agricultural land in a particular state. Some of the largest U.S. states in the renewable energy arena have some of the most restrictive laws regarding who can control and invest in private agricultural land. From North Dakota to Oklahoma, nearly the entire central midwestern chain of states limits foreign ownership in some way. North Dakota has a total limit on alien ownership of agricultural land unless they comply with a list of statutory requirements. South Dakota limits the acreage that can be owned by foreign citizens or governments. Nebraska has what almost amounts to a blanket ban on aliens owning land or acquiring title except under the treaty of the United States, except for certain time limits. Kansas limits corporate ownership of agricultural land. Oklahoma has a blanket ban on acquiring title and requires those that acquire title via devise or bequest to get rid of the title within five years.

Who exactly is forbidden from controlling agricultural land, in what amount, and for what duration, may depend on where any particular person or entity secures their funding from, their citizenship, or even their affiliations with certain foreign nations. Large swaths of land, often agricultural land, being the preferred sites for large wind and solar renewable energy projects; these restrictions are important to keep in mind for those on the developing, investing, or selling side of land deals in rural areas.