Climate Change Report

The Devil is in the Details: Financing of Solar Projects Starts with the Terms

K&L Gates — Mon, 02 Aug 2010 15:11:59 -0800

I see a number of press releases about large pipelines for solar project development. But many of these projects may never be built because they can't get financing. There are a number of important considerations involved in obtaining financing -- including the creditworthiness of the offtaker -- but the terms of the power purchase agreement (PPA) and site lease agreement (SLA) for the solar facility are the starting point for legal review.

A key economic consideration for the lender is the certainty of the facility’s revenue stream. And yet, PPA terms may not provide enough certainty that revenue will actually be received from the offtaker. Similarly, the terms of the SLA may not provide enough certainty that the facility will have the land rights needed to operate throughout the duration of the PPA. The terms in these agreements vary widely and each agreement must be carefully reviewed. Based on my experience in working with lenders, it seems that many developers sign these agreements without careful review -- either because they hope that changes can be made later using the leverage of an investor or because they simply don't realize the terms present financing risks.

My recommendation to lenders evaluating such projects is to obtain these basic agreements as part of initial due diligence, to identify problems in them and then to determine quickly whether the offtaker will accept the amendments needed to provide revenue and land rights certainty. Otherwise both the lender and its advisers may be wasting a lot of time.

Many of the financing issues I see are not rocket science. For example, for a lender to have a predictable revenue stream for debt service requires that the offtaker not be able to terminate the PPA easily. Some PPAs I have seen have very vague obligations, may be terminated for any default and lack a cure period for the alleged default. In drafting and reviewing PPAs, developers and lenders should be sure that only a material breach of the agreement can lead to termination and, if there is an alleged default, the offtaker must give both the power provider and the lender notice of the default and adequate time to cure the alleged problem.

I have also seen a PPA where the lender had a right to step in and cure, but didn't need to be given notice of a default. Of course, the lender needs notice in order to be able to step in and operate the facility to continue the revenue stream. The value of the facility is the continuation of the revenue stream, not just the right to sell what may be junk on the roof. This means the PPA and SLA should both be assignable to the lender without additional approval by the offtaker.

A poorly written SLA is another flag for lenders. I sometimes see an SLA that is very different from the PPA for the same project, as if one form came from one website and the other from a different website. It is critical for the agreements to be closely coordinated. For example, the SLA needs to run for the same time period as the PPA and must be extendable for the same periods as the PPA. Provisions relating to cure rights, permitted assignments, force majeure, etc. need to be the same under both agreements. Such inconsistencies can leave gaps and therefore jeopardize funding.

While agreements can sometimes be amended during the financing process to the satisfaction of the lender, it is a less risky path to securing financing if attention is given to the financeability of these agreements at the outset of the process.

When is a Power Purchase Agreement Provider Regulated as a Utility?

K&L Gates — Mon, 12 Jul 2010 15:22:36 -0800

By Fred Greguras (Palo Alto)

The June 30, 2010 Arizona Corporation Commission (ACC) decision to permit Solar City to sell electricity under a power purchase agreement (PPA) to government, schools and non-profit customers without being subject to regulation as a public service corporation highlights the state law issue facing PPA providers. The AAC decision does not address whether electricity may be sold by Solar City or other PPA providers to residential and for-profit (commercial) customers. That will be the subject of a separate ACC decision. Solar City’s petition to the ACC only asked for a ruling on government, schools and non-profit customers. The ACC decision ignored the recommendation by an Arizona administrative law judge that such PPA providers be defined as a regulated utility based on the statutory definition.

The PPA structure is an important financing stucture needed to accelerate the pace of deployment of solar energy. Customers of all types like the approach because they pay for electricity as used at a kWh price less than they would pay to a utility. The PPA provider incurs the capital and operating costs for the solar facility and bears the responsibility under the PPA for delivering electricity for a period of 20-25 years.

There are four basic sets of customers that PPA providers target:

utilities;
government, schools, and non-profit entities;
commercial or business customers such as a grocery store and
residential customers.

Each state's law controls whether a PPA provider may sell electricity in the state. As in Arizona, as a historical matter to protect the public, most states laws have a broad definition of what is a utility and either a public utitities commisssion (PUC) ruling or statutory change is needed in order for a PPA to be used with other than a utility customer. Some states laws may be so broad as to bring a lease arrangement within the definition of a utility. Most if not all states would permit PPAs to be used in a solar project when the purchaser under the PPA is a utility because the utility is between the PPA provider and the general public. Florida, an important solar market, only permits PPAs to be used when selling to utilities. California, Colorado, Hawaii, Nevada and New Jersey permit electricity sales under PPAs to all 4 sets of customers. The legal position of a number of states on this issue is unclear. (survey of the current status under state laws).

PPA providers targeting residential customers must also comply with both federal and state consumer protection laws such as the Song-Beverly Consumer Warranty Act in California.
The U.S. must rapidly speed up the deployment of renewable energy. This requires a portfolio of solutions including solar PPAs. State PUCs need to move into this century and authorize solar PPAs for all types of customers.

U.S.: SEC Seeks to Bring Clarity to Reporting "Known Uncertainties"

K&L Gates — Fri, 09 Jul 2010 15:27:07 -0800

by Stephen K. Rhyne (Charlotte)

Uncertainty seems to pervade almost any discussion of climate change and its consequences. This is especially true when discussing climate change legislation and regulation.

Notwithstanding, the Securities and Exchange Commission (SEC) in January sought to bring some clarity to the question of whether climate change and its consequences, including pending legislative and regulatory proposals, are appropriate matters of disclosure for public companies. In its detailed interpretive release, the SEC sets forth the analytical framework and process for a public company to follow in determining whether climate change and its consequences are to be disclosed in the company’s public filings.

Download this White Paper

U.S.: It's All About the Fuel: New Emissions Standards for Boilers and Process Heaters

K&L Gates — Thu, 08 Jul 2010 15:22:56 -0800

by Thomas R. Carey (Chicago), David A. Franchina (Charlotte), Ashley A. Peck (Seattle), and Christopher S. Walker (Charlotte)

On June 4, 2010, EPA published four proposed rules related to its regulation of emissions of hazardous air pollutants from new and existing industrial, commercial, and institutional boilers and process heaters and commercial and industrial solid waste incinerators ("CISWI") under the Clean Air Act.

Of the four rules, the rule clarifying which fuel types are not “solid waste” under the Resource Conservation and Recovery Act ("RCRA") may prove to have the greatest regulatory effect because it will dictate whether a particular combustion unit will be regulated as a boiler or under the more-stringent CISWI Rule.

Thus, the type of fuel used in a facility’s combustion units can have a large impact on a facility’s environmental compliance costs and should be considered in project, operation, and budget decision-making. This article provides an overview of the proposed rules and focuses specifically on facilities that combust two fuel types—natural gas and biomass.

Webinar: Breaking News in Patent Law

K&L Gates — Tue, 06 Jul 2010 14:44:21 -0800

July 9, 2010 11:00 a.m. - 12:30 p.m. EDT / 8:00 a.m. - 9:30 a.m. PDT

Register for this event.
Presenters: Stephen C. Glazier, Jeffrey L. Snow

Please join us for a complimentary seminar by K&L Gates partners, who will update you on the most important new case in patent law and other trends in patent law for today's companies and intellectual property owners.

Agenda

In re Bilski
What the Supreme Court's decision means: Where it came from and how it may apply going forward in patent prosecution and litigation.

False Patent Marking Claims
Two recent Federal Circuit cases: Forest Group and Solo Cup. Is the current spate of false marking claims justified or sustainable?

Inequitable Conduct
Overview of the current state of the law, and implications of the Federal Circuit's en banc review of the substantive issues of inequitable conduct in Therasense.

Webinar Schedule:
Log-in opens: 10:45 a.m.
Program: 11:00 a.m. - 12:30 p.m.

Webinar log-in instructions will be circulated via email prior to the program.

New York, NY: Drafting and Negotiating Construction and Design Contracts: Meeting the Challenges of Sustainable Development 2010

K&L Gates — Thu, 01 Jul 2010 14:48:10 -0800

July 15, 2010

PLI New York Center
New York, NY

Online brochure

Presenters: Josh M. Leavitt
Sponsors: Practising Law Institute

The movement toward a more sustainable built environment continues to grow at a rapid clip, notwithstanding the economic challenges facing the design and construction industry as a whole. You need to be able to advise your industry clients about the challenges of designing and building green. It is important not to run into the “red” by going “green.”

This course is designed to provide you with the tools to evaluate green risks and properly serve your clients in the drafting and negotiation of their contracts, as well as providing advice during the performance of their services. You will learn the basics of the most important green certification program for private development - the Leadership in Energy and Environmental Design (“LEED”) rating system, from LEED Accredited Professionals.

You will also be given the information necessary to advise your clients regarding the federal government’s green initiatives. The American construction industry is “going green” and you need to understand the ramifications for owner, designers, contractors, and lenders. This course will give you the tools you need to guide industry participants through this vital and vibrant subject.

Washington, DC: Briefing on the USA Science & Engineering Festival

K&L Gates — Wed, 30 Jun 2010 14:46:46 -0800

July 14, 2010 8:30 a.m.

K&L Gates
(entrance is on 16 St. side)
1601 K Street, NW
Washington, DC 20006

Register for this event.
Sponsors: K&L Gates and the Greater Washington Board of Trade

K&L Gates LLP and the Greater Washington Board of Trade welcome Larry Bock, creator and executive director of the USA Science & Engineering Festival. Mr. Bock, a nationally known serial entrepreneur, will discuss the upcoming national science festival, expected to be the largest in world history, which will take place on the National Mall in Washington, D.C. and around the country in October 2010.

The USA Science & Engineering Festival will excite the interest of hundreds of thousands of students in scientific disciplines with a variety of engaging demonstrations, exhibitions, labs and seminars. Modeled after Mr. Bock's 2009 festival in San Diego during which more than 200,000 people participated in 500 exhibits and events, the national festival already has more than 500 event sponsors and contributing partners, including colleges & universities, professional societies, federal agencies, Nobel laureates, and corporations. Opportunities for additional interested parties to participate in the festival will be discussed.

U.S.: Tsunami Warning: California's "Regulations for Safer Products" Are on the Way

K&L Gates — Mon, 14 Jun 2010 14:37:29 -0800

By Edward P. Sangster (San Francisco)

A tsunami is a wave that washes over lands far distant from the geological event that caused it. So it will be with California's "Regulations for Safer Products," which will shortly be released for public comment. These regulations will have far reaching impacts in markets throughout the United States and beyond.

The Green Chemistry Initiative
The Regulations for Safer Products will comprise one part of California's Green Chemistry Initiative. The Green Chemistry Initiative surfaced in April 2007 as a directive from the Secretary of California’s Environmental Protection Agency to its subsidiary agencies and boards. The Green Chemistry Initiative was described at the time as a "preemptive strategy to stop toxic substances before they contaminate the environment and our bodies." The Secretary directed agencies to place new emphasis on enforcing existing statutes and regulations, and to develop new regulations focused on eliminating exposures, rather than regulating wastes.

The official motto for the Green Chemistry Initiative succinctly, if quixotically, states its ultimate goal: "cradle to cradle" regulation. The motto signifies the intention of California regulators to compel the design of chemical products and processes that will reduce or eliminate the use of hazardous substances and the generation of hazardous wastes.

In 2008, the California Legislature empowered the Green Chemistry Initiative by enacting Assembly Bill ("AB") 1879. AB 1879 requires California's Department of Toxic Substances Control ("DTSC") to enact regulations by January 1, 2011 to identify Chemicals of Concern in consumer products, and then to impose life cycle regulation on consumer products containing such chemicals...

The Politics of Climate Change Legislation

K&L Gates — Thu, 10 Jun 2010 08:17:29 -0800

Authored by Tim L. Peckinpaugh (Washington, D.C.)

With this spring’s passage of landmark healthcare legislation and the likely enactment this summer of the financial reform bill, the White House is looking for a third legislative victory with the passage of comprehensive climate change and clean energy legislation. Much like horse racing, however, the odds of achieving this legislative trifecta are exceedingly small.

Climate change is a vexing legislative issue that has become increasingly complex and politically problematic. The failure to produce a binding agreement at the Copenhagen conference late last year highlights the intricate politics that permeate the climate change debate. These same politics have largely stymied Congress and the White House in moving forward on “cap and trade” legislation.

Status

To review, the House of Representatives already approved a massive climate change and clean energy bill last summer. The House legislation, dubbed the Waxman-Markey bill (HR 2454), passed by a razor-thin and mostly partisan margin of 219-212. It would establish an elaborate cap-and-trade system to reduce greenhouse gas emissions over the next 40 years, and would provide for various mandates and incentives for the production and use of carbon-free energy sources.

The Senate has drafted similar legislation in two parts: a clean energy bill and a cap-and-trade bill. Both bills have been approved by their respective committees. The energy bill sponsored by Senator Jeff Bingaman (D-NM), S. 1462, is a bipartisan bill approved last summer by the Energy & Natural Resources Committee, which includes a renewable energy standard and various incentives to promote clean technologies. The cap-and-trade bill sponsored by Senators Barbara Boxer (D-CA) and John Kerry (D-MA), S. 1733, was approved last fall by the Environment & Public Works Committee after a highly partisan and contentious process in which the Republicans refused to participate.

Both bills have been ready for Senate floor consideration for months. Yet, there’s been no action on the Boxer-Kerry cap-and-trade bill because most observers (including many Democrats) agree that there are not 60 votes in the Senate, which is usually required to move any meaningful bill. The reasons for this are many and strike at the very core of climate change politics.

The first concern is that restrictions on greenhouse gas emissions will impose economic costs in the form of higher prices on carbon-based fuels. Many Senators are reluctant to support any legislation that has economic consequences, especially with the economy still struggling to recover and a near double-digit jobless rate.

The second concern is regional equity. Senators representing states dependent on carbon fuels, such as those that mine or burn coal, are concerned that their constituents will pay a disproportionate share of the costs stemming from climate change restrictions. These Senators need to be persuaded that a cap-and-trade system will not impose an unfair burden on their states just because of the type of energy they produce or consume.

A third concern relates to the mechanics of cap-and-trade. With the memories of the subprime mortgage financial meltdown still fresh, some Senators fear that creating a new and complex market to trade carbon credits is fraught with potential gaming and even abuse. The House-passed cap-and-trade system has also been roundly criticized for giving away up front too many free credits to utilities and carbon producers to curry political support.

The combination of these concerns, along with a healthy dose of partisan politics as the November midterm elections near, rendered the Boxer-Kerry bill essentially dead on arrival on the Senate floor. So, if the Senate were to proceed in the elusive goal to cobble together a coalition of 60 votes to pass climate change legislation, a new approach was needed. Such an alternative proposal was earnestly pursued for months by a trio of Senators: Kerry, Lindsey Graham (R-SC), and Joe Lieberman (I-CT).

The Kerry-Graham-Lieberman proposal (or "KGL") married the greenhouse gas emission reduction targets with a more aggressive campaign to develop domestic energy resources, particularly nuclear power (the largest source of carbon-free energy), clean coal, and offshore oil and gas. Graham valiantly put himself at odds with most in his party by being prepared to accept a modified cap-and-trade program, provided it also featured some consumer protections and expanded energy production to reduce dependence on unreliable foreign supplies. KGL was packaged in national and energy security terms, not environmental terms, to attract Republican votes.

On the eve of the bill’s unveiling in late April, Graham pulled out, leaving the bill without a Republican sponsor. Graham expressed concerns that the political milieu in the Senate had been poisoned by the clumsy efforts to advance controversial immigration reform legislation ahead of climate change. Others speculated that Graham was feeling the political heat as it appeared that no other Senate Republicans were prepared to stand with him in support of KGL.

Undaunted, Kerry and Lieberman pushed ahead without Graham and released their 987- page bill, entitled the American Power Act, in May. The bill was faithful to the production-oriented climate change proposal that Graham helped craft, with a few provisions inserted to respond to the offshore drilling accident in the Gulf of Mexico.

Prospects

In the Senate, the climate change debate for this year now hinges on whether the Kerry-Lieberman bill (now "KL") can muster 60 votes for passage. The Environmental Protection Agency ("EPA") and the Department of Energy ("DOE") will release an economic modeling of the bill during June, which means it should be ready for Senate floor action in July.

The unfolding oil spill in the Gulf also shines the political spotlight on energy policy, which should provide heightened impetus for Congress to act. In fact, Majority Leader Harry Reid (D-NV) has directed the committees of jurisdiction to provide their legislative proposals on oil spill liability and mitigation and response measures by the end of June so that they can proceed with Senate floor consideration after July 4. However, despite the favorable politics and push to develop oil spill legislation and the strong and personal backing from President Obama, the Kerry-Lieberman bill still faces the same difficult obstacles as the original Boxer-Kerry bill.

The first obstacle is the compressed calendar. The Senate has many other “must do” priorities, such as spending, tax, and jobs bills, as well as a Supreme Court nomination. With the Senate on recess during most of August and the November election fast approaching, there is not much time to debate climate change.

Second, the Kerry-Lieberman cap-and-trade proposal is complex and has not been fully vetted. In some respects, it’s even more complicated than the House-passed bill because it imposes individual caps on three sectors: utilities, industry, and transportation.

Third, the whole climate change debate, and especially the cap-and-trade methodology, has become increasingly controversial. More Americans question the science on global warming and opponents of cap-and-trade have, for the moment, largely won the public relations battle.

Fourth, the legislation does not enjoy bipartisan support. Graham’s departure is very costly, because without him, there is no visible Republican support in the Senate for the Kerry-Lieberman bill. Given the current party composition of the Senate, a partisan proposal is not going to clear the 60-vote hurdle.

Finally, the timing is wrong. Many members are rightfully fretting their reelection prospects, especially on the heels of tough votes taken to pass healthcare. The last thing the Senate Democratic leadership and the White House want is to ask moderate Democrats to “walk the plank” again by supporting a climate change bill.

Despite these dismal prospects for passing the Kerry-Lieberman climate change bill, there are some options. For instance, Senators Maria Cantwell (D-WA) and Susan Collins (R-ME) have proposed an alternative “cap and dividend” proposal. This bipartisan approach, which gets credit for its simplicity (it’s only 39 pages of legislative text), would set up a pure auction with revenues generated returned mostly to the public. While the cap and dividend bill is getting some renewed interest as a bipartisan group of Senators have asked DOE to model its impact, it is simply too late to advance the bill this year, but perhaps the cap and dividend concept can become a fresh and viable option to the old cap-and-trade model next year.

Another option is a straightforward carbon tax, which many economists argue is the best way to put a price on carbon to encourage the production and use of clean, non-carbon emitting energy. Yet, given the current political environment, any proposal featuring taxes will likely face entrenched opposition from Republicans and some moderate Democrats.

Another legislative option is to proceed with the Bingaman clean energy bill, with its incentives and mandates to promote renewables and energy efficiency, most of which can probably pass the Senate this year. While the Bingaman bill enjoys bipartisan support, proponents of comprehensive climate change legislation may not support moving it separately for fear that without it being used as a sweetener, passage of cap-and-trade or other stand-alone restrictions on carbon dioxide (CO₂) will not be politically viable. Others, however, have advocated using the Bingaman clean energy bill as alegislative vehicle to respond to the Gulf oil spill crisis and permit it to be amended on the Senate floor with climate change proposals, such as the Kerry-Leiberman bill.

A final option if Congress is unable to pass climate change legislation is for EPA to regulate greenhouse gas emissions. The agency has already started to review proposed rules that impose restrictions on major emitters of CO₂, such as coal-fired plants and certain energy-intensive manufacturing. EPA regulation would be extremely controversial and would likely be challenged by the Congress and in the courts. For instance, a privileged resolution offered by Senator Lisa Murkowski (R-AK), disapproving of EPA’s regulation of greenhouse gas emissions, fell just four votes short of passing the Senate on June 10. In addition, any climate change regulations finalized by EPA will likely trigger lawsuits that may be tied up in the federal courts for years.

China and Hong Kong: Building Low Carbon Economies

K&L Gates — Thu, 03 Jun 2010 08:24:31 -0800

Authored by Chistopher Tung (Hong Kong)

“One country, two systems”, has been the guiding constitutional and policy blue print for Hong Kong since the return of the territory to China in 1997. This principle guaranteed the common law legal system of Hong Kong within the Chinese civil law system for 50 years until 2047. Over a decade later, it is increasingly clear that the economies and communities of Hong Kong and Mainland China have integrated and converged. While “One country, two systems” broadly holds true, so that Hong Kong remains a distinct legal jurisdiction, both legal systems have been exerting increasing influence on each other over the years. It is therefore crucial for investors to understand the real policy and regulatory dynamics in both places to successfully navigate through business opportunities and risks straddling both jurisdictions.

2010 is a watershed year in this continuing convergence and there is no single policy and development issue that is more pressing than the transition of the Mainland Chinese and Hong Kong economies to a low carbon basis.

Supporting the transition: low carbon policies and law

China

China’s National Climate Change Programme of 2007 was the first comprehensive policy document to address climate change. Only since last year have senior Chinese government policymakers started to evaluate seriously specific policy to transform the economy to a low carbon basis, as a key pillar of national economic and social development. The key catalyst for action was the announcement by the Chinese government in late November 2009 that it would target a 40-45% cut in carbon intensity by 2020 (adopting a 2005 baseline).

Although no national low carbon economy policy has yet emerged, the State Council and key government ministries such as the National Development and Reform Commission (NDRC), the Ministry of Finance, the Ministry of Housing and Urban-Rural Development, researchers at Tsinghua University and the Chinese Academy of Social Sciences, are doing a great deal of work to formulate low carbon policies for inclusion in the 12^th Five Year Plan (FYP)(2011-2015), China’s highest national development policy document. The 12^th FYP will mandate the promulgation of new laws and regulations to support the development of a low carbon economy. As national policy evolves, the governments of Chinese cities, provinces and special economic regions have wasted no time to announce and issue their own low carbon plans. In marked contrast to the position in the United States, the low carbon economy drive has reignited the interest of senior policy makers in introducing domestic carbon trading, as a market based tool to encourage domestic carbon market growth. In the event that domestic carbon trading adopts a baseline and credit model, rather than a cap and trade model, or a hybrid of the two, there would be substantial potential to develop emission reduction projects to generate domestic Chinese carbon credits. Carbon market commentators indicate a domestic Chinese carbon credit market value between US$500 million and US$2 billion is realistic and achievable. Plans for domestic carbon trading pilots are expected in the 12^th FYP. It is important to emphasize that plans to develop a Chinese domestic carbon market is only one part of a much broader array of economy wide and sector based initiatives to encourage action and investment in clean and low emissions technology, alternative energy and energy efficiency. Estimates of the scale of investment needs for China vary considerably, and must be treated cautiously, but McKinsey’s have estimated a range of US$35 billion to US$250 billion for 2010-2030.

Hong Kong

The Hong Kong Government has been pursuing a low carbon economy policy now for two years. However, unlike Mainland China, Hong Kong does not have a separate overarching climate change policy. To date, climate change policy and action in Hong Kong have been led by the Environment Bureau and Environmental Protection Department.

In May 2010, Edward Yau, the Hong Kong Secretary for Environment, indicated that Hong Kong would “seek to follow if not excel” on the China national carbon intensity reduction target of 40-45% by 2020. This marked a substantial shift from the previous policy commitment of a 25% reduction in energy intensity by 2030 (that also adopted a 2005 baseline), which unimpressively reflected a business as usual position. The new commitment to meet or exceed the China national target is significantly more aggressive. A recent study conducted by the Energy Research Institute of the NDRC suggests additional investment and energy expenditure up to 2020 of around US$1 billion to over US$5 billion.

Preparations are now underway in Hong Kong to develop a low carbon strategy and action plan that will both align with the China national carbon intensity reduction target, and co-ordinate action with Guangdong Province to create a low carbon and green Pearl River Delta. Ideally, this low carbon strategy and plan will be formally incorporated into the Hong Kong Chief Executive’s Policy Address and Agenda in October this year. In the event that an integrated low carbon strategy and plan are not included in the Policy Address and Agenda, Hong Kong’s commitment to the China national carbon intensity reduction target and the impending inclusion of Hong Kong in the 12^th FYP, will still provide strong impetus for low carbon investment and action in Hong Kong.

Recent developments under The Closer Economic Partnership Arrangement between Mainland China and Hong Kong have extended the ability of Hong Kong businesses to set up wholly-owned enterprises to provide environmental protection services in Mainland China. And since 1 December 2009, Hong Kong companies have been able to fully own and control Clean Development Mechanism projects in China. These two key examples of preferred access provided to Hong Kong based investors (which can be foreign owned) compared to foreign investors in the China low carbon and green market, gives Hong Kong a strong competitive advantage. Importantly, policymakers in Mainland China and Hong Kong are firmly committed to providing further preferred market access for Hong Kong based companies and investors.

What it means for you

The greatly increased co-operation between Mainland China and Hong Kong in low carbon and green economic development means that foreign investors can establish or acquire operations in Hong Kong and benefit from the strength of Hong Kong’s legal system and courts, while taking advantage of the preferred access afforded to Hong Kong based companies and investors in Mainland China across a range of industries. Further policy and legal incentives are likely to emerge to encourage foreign investment in clean technology and alternative energy in both Mainland China and Hong Kong. Careful attention will need to be paid to the scope, interaction and implementation of these policies and initiatives to ensure that an investor gains maximum benefit while keeping risks to a minimum.

United States: Will the Recovery Act Section 1603 cash grant be extended beyond 2010?

K&L Gates — Wed, 02 Jun 2010 06:19:20 -0800

By Fred Greguras (Palo Alto).

The Recovery Act 1603 cash grant in lieu of investment tax credit has been a key incentive for both wind and solar project financing since late last year, but it expires at the end of 2010 and projects must be "under construction" by then to qualify. Legislation has been introduced to extend the deadline but other legislation has been introduced which would reduce the predictability of the cash grant being available for a project.

The cash grant was intended to solve the problem of many potential investors not being able to use an investment tax credit because they don't have enough tax liability to offset. This problem continues.

Here is an overview of the proposed legislation on this cash grant:

* Late last year, Senator Feinstein introduced S. 2899, the Renewable Energy Incentive Act of 2009, that among other things, would extend the 1603 cash grant in lieu of investment tax credit through 2012. The legislation would also make public power utilities eligible for such grants and proposes a new tax credit for solar manufacturing facilities.

* A House bill (H.R. 4599) would extend cash payments until 2013 but payments would be made as tax refunds based on filing tax returns rather than cash grants that are to be paid within 60 days of placing a project into service. The timing of a tax refund payment clearly is later and is unpredictable which means greater risk for potential investors.

* In early March, Senator Schumer introduced S. 3069, the American Renewable Energy Jobs Act, which would apply the Buy American provision (Recovery Act Section 1605) and a job preservation and creation analysis on the cash grant program to all renewable energy projects, no matter whether public or private. This was in response to the highly publicized A-Power/Shenyang Power wind project in Texas that will use turbines manufactured in China. The authorizing language of Section 1603 would be changed from "shall" to "may" to provide Treasury with more discretion on whether to pay such grants.

Currently, the Buy American provision applies only to projects on public works or public buildings but the Schumer legislation would apply the requirement even if the project is on a private building or land.

The exception is when materials used in the project are from countries with which the U.S. has an applicable international agreement would still apply(such as the World Trade Organization (WTO) Government Procurement Agreement). The international agreement exception is not available, however, for projects sized at a little under $8M.

China is a member of the WTO but not of the Government Procurement Agreement (which has been an issue for Chinese solar companies under the current Section 1605) but the Schumer legislation intends to cover private projects not governmental. The legislation also would require an analysis of jobs that would be created in the "production, installation and operation" of the project to be submitted as part of the application for the cash grant.

This analysis would be where Treasury could apply discretion on whether to make the payment. The legislation leaves it to Treasury as to the relative weights of each type of job creation. For example, most renewable energy projects in the U.S. would create jobs for installation and operation but not many would create jobs in production.

Currently, the cash grant payment is required to be made by Treasury if all required information is in the application which has provided predictability for project finance. The added discretion for Treasury decisions would likely be worse for project finance than the Buy American provision for private projects. The Schumer legislation would decrease the predictability of a project receiving the cash grant. Since China is a member of the WTO and the legislation addresses private projects, except for smaller projects, the discretion change is the only way such funding could be denied.

None of these bills is likely to be enacted as a stand-alone bill, but rather as part of larger energy, tax, climate or possibly jobs legislation. While extending the Recovery Act 48C manufacturing tax credit and incentives like the Arizona state manufacturing tax credit will have a positive impact on manufacturing in the U.S. but the Schumer legislation could have a negative impact on renewable energy project finance and manufacturing in the U.S. Spending bills are becoming more difficult to get approved in Congress. The best case scenario for the cash grant appears to be an extension late in the year but perhaps the best course of action is to get projects under construction by 12/31 and not assume the cash grant will be extended in any form.

Hot Topics in Patents and IP for Technology Companies

K&L Gates — Sun, 30 May 2010 06:53:22 -0800

Tuesday, June 8, 2010
8:00 - 10:30 a.m. Eastern
Via webinar

Register for this event.

Presenters: David J. Byer, Tara C. Clancy, John J. Cotter, Thomas F. Holt, Jr., Thomas A. Turano

Please join us for a complimentary seminar by K&L Gates partners who will update you on current trends in patent and trademark law for today's technology companies. The panel of experienced patent and trademark prosecutors and litigators will focus on important cases from the past twelve months and point out their implications for high technology businesses. During their presentations, the speakers will answer your questions and focus on real world applications.

Topics include:

Bilski and the Supremes: Will billions of dollars in assets really evaporate?
Permanent injunctions after eBay v. MercExchange
Social networks, bloggers, reviewers, user-generated content, and your on-line community
Patent damages developments – clamping down on the entire market value rule and on evidentiary standards
Inequitable conduct – dead or alive?

Who should attend:

In house counsel and other in house administrators of company intellectual property

Webinar log-in instructions will be circulated to registrants via email prior to the program.

Register for this event.

June 8 Webinar - Hot Topics in Patents and IP for Technology Companies

K&L Gates — Fri, 21 May 2010 13:09:23 -0800

Date: June 8, 2010

Time: 8:00 - 10:30 a.m. Eastern

Register for this event.

Topics include:

Bilski and the Supremes: Will billions of dollars in assets really evaporate?
Permanent injunctions after eBay v. MercExchange
Social networks, bloggers, reviewers, user-generated content, and your on-line community
Patent damages developments – clamping down on the entire market value rule and on evidentiary standards
Inequitable conduct – dead or alive?

Who should attend:

In house counsel and other in house administrators of company intellectual property

Webinar log-in instructions will be circulated via email prior to the program.

Boldly Going Where No One Has Gone Before: In the Face of Uncertainty, Power Plants May Want to Consider Preemptively Addressing their Greenhouse Gas Emissions

K&L Gates — Wed, 05 May 2010 12:50:27 -0800

By Thomas R. Carey (Chicago), David A. Franchina (Charlotte), Ashley A. Peck (Seattle), and Christopher S. Walker (Charlotte)

The U.S. Environmental Protection Agency recently issued regulations confirming that it will not regulate emissions of greenhouse gases (“GHGs”) from stationary sources in 2010. However, barring court intervention or action from Congress, EPA will regulate GHGs under the Clean Air Act (“CAA”) starting in 2011 through the Prevention of Significant Deterioration (“PSD”) construction permit program and other sections of the CAA.

Though it remains unclear what the practical effect of applying PSD for GHGs will ultimately be, power plants may want to address their GHG emissions sooner rather than later to prepare for eventual regulation and as a hedge against potential litigation.

This alert describes recent regulatory developments on GHG emissions, highlights actions underway to develop guidance for best available control technology (“BACT”) for GHGs under the PSD program, and suggests that power plants may want to consider addressing BACT for their GHG emissions prior to the onset of a legal mandate.

United States: Come in Sputnik

K&L Gates — Sun, 02 May 2010 06:32:59 -0800

By Thomas Turano (Boston) and James O'Hare (Boston).

Soviet Fires Earth Satellite Into Space; It Is Circling the Globe at 18,000 M.P.H.; Sphere Tracked in 4 Crossings Over U.S. - New York Times 10/5/57

China Trumps U.S. in Clean Investments - New York Times (online) 3/25/10

As relayed in the New York Times over 50 years ago: One consoling thought offered by a scientist last night was: "Maybe the Russian-American competition hasn't been so bad on the satellite if it encourages us into beating them to the moon."

Question: Are we headed to the moon or will we be satisfied by listening to Chinese reports about how cool it is up there?

Over the past month, perhaps in reaction to the lack of "success" at the December Copenhagen conferences, there have been a number of press reports questioning our national cleantech leadership. None other than John Doerr of Kleiner Perkins Caufield & Byers, warned at a WSJ conference - "My conclusion is China is winning" and "We are barely in the race."

A recently published report by The Pew Charitable Trusts stated that China is emerging as the world’s clean energy powerhouse. For the first time, China took the top spot for overall clean energy finance and investment in 2009, pushing the United States into second place. Having built a strong manufacturing base and export markets, China is working now to meet domestic demand by installing substantial new clean energy-generating capacity to meet ambitious renewable energy targets. Even though overall clean energy finance and investment in the United States more than doubled during the past five years, its growth rate lagged behind five other G-20 countries.

On a brighter note, Deloitte and Cleantech Group reported cleantech venture investment was up 29% from the previous quarter and up 83% from the same period a year ago. The number of deals recorded in 1Q 2010 represented a new record total, edging ahead of the previous high set in 4Q 2009 (165 deals). For Stimulus Act fans (an unprecedented effort to jumpstart our economy), the Department of Energy reported during March that of the $32.74 billion authorized - $2.93 billion or 8.9% in funding had been spent.

Are we in the race or going through the motions?

The Copenhagen Conference: the international legal community's reaction

K&L Gates — Mon, 12 Apr 2010 07:29:48 -0800

Hong Kong partner Chris Tung comments in this article by PLC Cross-border, examining the reactions of UK, US, Chinese and Indian lawyers to the Copenhagen Conference and the resulting Accord, and discusses the possible commercial implications and outcomes of the document, and their predictions for climate change issues going forward.

Read the full article here.

United States: EPA Issues Preliminary Study on Vessel Discharges for Fishing Industry and Smaller Cargo Vessels

K&L Gates — Tue, 30 Mar 2010 06:39:19 -0800

By Barry M. Hartman (Washington, DC), Mark Ruge (Washington, DC), Susan B. Geiger (Washington, DC) and Stephen P. Roberts (Washington, DC).

Why is this study important?

In an apparent major step forward toward performance-based regulation of vessel discharges, the Environmental Protection Agency (EPA) has sent to Congress a draft report on the discharges from fishing vessels of all sizes and non-recreational vessels less than 79 feet in length.

In December 2008, the EPA issued its first Vessel General Permit (VGP), which regulated the discharge of everything from deck runoff to chain effluent on large commercial cargo and tankers.[1] At the time, fishing vessels and non-recreational vessels under 79 feet were exempt, pending a further study.[2] Unlike when EPA issued its requirements for the VGP,[3] the EPA conducted its own testing of discharges from these currently exempt vessels to provide a foundation for Congress to determine whether to continue a two-year moratorium from VGP requirements on discharges for fishing vessels and these smaller vessels.

What does the study say?

READ MORE

California: REC Market and Project Financing

K&L Gates — Sun, 28 Mar 2010 12:55:23 -0800

By Fred Greguras (Palo Alto)

On March 11, the California Public Utilities Commission (CPUC) approved the rules for a REC market and authorized the use of RECs in the state Renewables Portfolio Standard program (RPS). RECs are a certificate of proof that 1 MW of renewable energy has been generated. The RPS requires investor-owned utilities and other energy service providers operating in California to obtain 20% of their retail sales from renewable energy sources by 12/31/2010 and 33% by 2020. Utilities were previously required to use only "bundled" contracts for both energy and RECs together. Green or environmental attributes such as RECs are currently bundled with the energy delivered under power purchase agreements (PPAs) in utility projects.

RECs may ultimately provide another revenue stream to help create demand for commercial, governmental and utility distributed generation projects...

The only current market demand for RECs, however, is for RPS compliance. Because of the "flexible" RPS compliance requirements, even demand from utilities will develop slowly since there is no "teeth" in such requirements. REC trading will start slowly because contracts to acquire RECs from projects must be approved by the CPUC and there is currently a limited supply of projects to generate RECs. RECs seem unlikely to have a material impact on RPS in 2010 for the same reasons. RECs may be unbundled from the energy in smaller scale utility distributed generation projects. In the short term, because of the lack of predictability of demand and pricing for RECs, it seems likely that power producers will want the revenue from a higher kWh price under the PPA rather than a lower PPA price if the RECs are sold separately.

The use of RECs for RPS compliance is initially limited to 25% of an annual obligation and a price cap of $50 per REC. The caps are intended to allow the CPUC and the market to better understand the implications of trading before opening the market to unlimited use. Trading will occur through the Western Renewable Generation Information System (WREGIS). REC sellers and other participants in the California market must satisfy the requirements of WREGIS which will not register a system smaller than 1 kW of generation capacity. Both the 25% usage cap and $50 price cap will expire at the end of 2011. As indicated, contracts for RECs must be approved by the CPUC just as for bundled energy under PPAs and the $50 is a ceiling and will not be assumed to be a"reasonable' price which a utility must prove as part of the REC contract approval process.

A 500 kW system might generate about 700,000 kWh (700 MW) a year. Assuming a $50 price, annual revenue from the sale of the 700 RECs could be about $35,000, which over the 20 plus years life of the system could make a financing more feasible.

SEC Posts Guidance on Climate Change Disclosure,

K&L Gates — Thu, 11 Mar 2010 13:37:55 -0800

Written by Stephen K. Rhyne (Charlotte), Sean M. Jones (Charlotte), Kristy T. Harlan (Seattle)

On Tuesday, February 2, 2010, the Securities and Exchange Commission (SEC) published its interpretive release providing guidance to public companies regarding disclosures to be made in SEC filings about the consequences of climate change.

As described in our January 28 alert "SEC Approves Interpretive Release on Climate Change Disclosure," the SEC had approved the release at its open meeting on January 27, 2010. In addition to highlighting areas where climate change may trigger disclosure requirements, as described in our earlier alert, the interpretive release also provides a more complete analysis of the SEC's view of the obligations of public companies, and the process to be undertaken by them, regarding climate change-related disclosure.

U.K.: The Carbon Reduction Commitment (CRC) Regulations

K&L Gates — Wed, 03 Feb 2010 13:24:27 -0800

Written by Kevin Greene (London), Sophie Charveron (London), Bonny Hedderly (London).

What is CRC?

The Carbon Reduction Commitment (CRC) is a mandatory auction-based emissions trading scheme for energy users which applies to both public authorities and private sector companies. It forms part of the Climate Change Act 2008, which comes into force in April 2010.
It is not a new building regulation as such as it targets energy use in buildings, rather than their construction. The CRC incorporates incentives and challenges to encourage business and the public sector to reduce energy use by taking steps to become more energy efficient
According to Nicholas Stern's report on climate change, 50% of the total CO2 emissions in the UK come from its existing buildings. This percentage is likely to increase by 140% by 2050 if nothing is done to curb the CO2 emissions by buildings by improving their energy efficiency.
The CRC focuses on businesses that have not previously been directly targeted by climate change legislation such as the European Emissions Trading Scheme (EU ETS) and a Climate Change Agreement.
The CRC scheme is revenue neutral to the Government. Revenue raised from the auctioning of allowances will be "recycled" to the entities responsible for compliance with the scheme in proportion to their average annual emissions (i.e. their "performance") since the start of the scheme. CRC Organisations will receive a bonus or penalty depending on the their position in the league table published by the Government each year.

Read more about when it comes into force; the threshold; obligations on CRC Organisations; costs; enforcement; important dates, and; the responsbilities of parents and subsidiaries, PFI companies, tenants and landlords.