Currently, 29 states and the District of Columbia have RPSs, and another 7 states have non-binding goals. Generally speaking, these standards/goals require utilities in the state to obtain a portion of their power capacity or generation from renewable sources by a date certain. Depending on the state, and the relevant political atmosphere, the standards/goals may be minimal or quite aggressive. For instance, the California RPS, which was created in 2002, and was later expanded in 2011, requires privately-owned utilities, electric service providers, and community choice aggregators to increase their use of renewables to 33 percent by 2020.

For utilities that do not reach the required RPS standard, there are generally penalties which can be instituted against them. Many states have renewable energy credit programs in place which allows parties to “trade” credits in order to maintain compliance, and quite a few states also make a distinction between different types of renewable sources (e.g., Connecticut separates its renewable sources into various classes by statute). RPSs tend to be rather distinct depending on the state where they have been adopted, and can come in all shapes and sizes.

Over the course of the next year, it will be interesting to watch as state legislatures across the United States attempt to augment, or pare back, existing RPSs. In states such as California, where a democratic super-majority exists, it seems unlikely that any change will occur. But in states such as North Carolina and Colorado, where significant sources of traditional natural resources exist, lobbying by large-scale utilities may result in some potentially significant changes. No matter how these battles play out, the potential uncertainty and instability in some of these jurisdictions are are sure to have an impact on cleantech startups, as they will almost certainly be focusing their attention and expansion into more stable and welcoming areas in order to ease financing concerns and ensure access to government support.

Clean Power Stimulus

The proposal includes a provision for $615 million to stimulate an increase in the use of clean power, which includes an end goal of decreasing cost for the end-user. The proposal also includes a plan to spend 29 percent more than current rates on solar and wind power in an effort to make them competitive with conventional sources of energy. The additional spending would be used to more efficiently integrate those systems into the grid. In addition, the budget provides an investment of $153 million in research and design intended to transition the current electric grid to a Smart Grid.

Vehicle Technology

The proposal includes an investment of $575 million in vehicle technologies, $282 in the development of advanced biofuels, and $2 billion in mandatory funding for an Energy Security Trust to transition conventional cars and trucks off of oil. The proposal states an effort to make electric-powered cars as affordable as conventional cars within the next decade.

Energy Department Funding

In addition, the proposed budget calls for an increase of eight percent in funding for the Energy Department at a time when many other government agencies are set to experience spending cuts or minor increases.

Decreased Conventional Energy Support

To pay for the increased support to cleantech sectors, the president has proposed eliminating tax breaks and subsidies for the gas, oil, and coal industries, and to eliminate low-priority and low-performing programs. According to the proposed budget, the proposed changes would eliminate $4 billion in annual subsidies and costs that “undermine efforts to address the threat of climate change.”

The proposed budget signals Obama’s continued commitment to clean energy, despite significant Republican opposition.

In 2012, of the 39 states with utility-scale wind installations, Texas, California, Iowa, Illinois, and Oregon led the pack with the most wind capacity installed. A wind turbine has a life expectancy of 20 years, but mechanical breakdowns and lightning are the largest risks. Without the right type of insurance in place—including a wind farm insurance package—the risk of loss increases exponentially. Limits of liability can range from $5 million to $20 million, with deductibles ranging from $20,000 to $1 million.

Wind farm insurance packages can include: construction insurance, physical damage, and third-party liability insurance coverage for delays in building of a wind farm, loss of earnings, and business interruption once the operation is running. Specifically, wind turbine coverage can compensate the policyholder for production losses if the wind farm’s annual wind levels fall below forecast.

This blog entry discusses property and warranty insurance. The presumption is that the wind farm has statutory and discretionary coverage—workers’ compensation, employer’s liability, professional liability, commercial auto, and general liability—in place.

PROPERTY INSURANCE

Property Insurance encompasses: construction all-risk, including property damage and delay in startup (DSU); multiyear property all-risk, extending from construction through 12 months after operation; and property all-risk with business interruption (BI) for wind and energy-related businesses.

A. Builder’s Risk or Construction All-Risk

Builder’s risk or construction all-risk insurance covers property damage and delay in start-up. This type of insurance covers turbines, foundation, transmission, substation, and balance of plant. Coverage begins when the wind turbine components are being transported to the site (transit   physical-damage). The transportation of a wind turbine is challenging because nacelles can weigh more than 50 tons and the blades can be 150 feet in length.

Each turbine is covered from the time it is erected, tested, and commissioned. All-risk insurance provides coverage for machinery breakdown, short circuit, storm, and fire. Damage from machinery breakdown such as pitting, backlash, and breakage usually happens because of defects in material, fatigue, use of wrong oil or wrong temperature, vibrations, and overloading.

1. Time Delay Coverage

This type of coverage insures against lost power-production revenue due to transit delays, lost revenue due to construction delays (advance loss of profits), and operational revenue losses (business interruption).

2. Fire

If a wind turbine burns down, it can result in months of downtime and loss of income to a wind farm operator. Technical fault is a main cause of fire, but fire can also occur from a component failure. Some examples illustrate how wind farm fires begin. If a bearing starts failing and runs dry, the resulting buildup in the component, especially if combined with oil and grease, leads to fires. A fail-safe brake running hot during a sustained brake action could cause a nacelle fire.

Fire protection insurance is necessary. The cost alone of replacing a blade is in the hundreds of thousands of dollars. Insurance usually pays the entire cost of replacing a turbine destroyed by fire. Even if the insurer or the wind operator can prove a fire was caused by failure of a part, the warranty usually only pays for the costs of replacing the faulty part, not the entire turbine. Fire damage is usually caused by overheated bearings, a strike of lightning, or sparks thrown when the turbine is slowing down. Risk of damage from a storm can result in a collapse of the tower and loss of rotor blades and gearbox due to runaway spinning under extreme wind conditions.

3. Lightning

Lightning is a major cause of damage. The most common insurance claims filed by wind farmers are for lightning strikes.

The damage increases with the wind turbine height. Damage from lightning can range from damage to: (a) the control panels that include the sensors, actuators, the motors for steering the equipment, rotor blades, gearbox, generator, and control system; (b) the use of carbon fiber in the larger blades—as a way of adding maximum strength with minimum weight—increases vulnerability from lightning; (c) the electronics, including the transformer, frequency converter and the switchgear elements; (d) the blade, as a lightning strike to an unprotected blade will raise the temperature to as high as 54,000 (°F) 30,000 (°C) and result in an explosive expansion of air within the blade. This expansion can cause delamination, damage to the blade surface, melted glue, and cracking on the leading and trailing edges; (e) generators; and (f) batteries that can be destroyed or detonated.

4. Wind

Yes, wind turbines are produced to capture wind power, but high velocity wind can destroy a wind turbine. Wind speed, gust, and direction changes can damage the rotors with high wind speed.

5. Mechanical Damage

The most frequent damage is to gears, but it can also happen to bearings because of breakdown or wear, backlash, and tooth breakage. Damage may occur from defects in material, fatigue, the use of wrong oil or wrong oil temperature, vibrations, and overloading. The project owner usually bears the risk and expense of insurance, but that risk can pass to the engineering, procurement, and construction contractor if the risk is included in the contract.

What happens if all the turbines have been erected and the commissioning is underway, but one week before the keys are turned over and the commercial operation date has been reached, the substation transformer is struck by lightning? If the substation transformer needs to be replaced and the lead time for the next available transformer is ten months away, the expense for the project’s loss of production could be in the millions.

Project owners who procure all-risk construction coverage should also consider negotiating an endorsement for non-production soft costs such as extended financing charges, interest for the construction loan, and legal and accounting fees related to the delay of the loan closing.

B. Operating All-Risk Coverage

This coverage is activated once the commercial operations begin, and all the turbines are fully operational. This insurance is provided to the operating company and its financiers to protect against all risks of physical loss of damage to the entire wind farm project. Operating all-risk coverage should include full, non-warranty mechanical and electrical breakdown coverage to eliminate the need for a separate boiler and machinery policy.

Operating all-risk coverage includes: (1) damage to wind turbines, including mechanical and electrical breakdown (with or without warranty protection); (2) full catastrophe coverage for flood, windstorm, and earthquake; (3) business interruption to cover loss of gross revenue or gross profit arising from damage to wind farm assets including wind turbines, ancillary plant, buildings, and associated building and civil works; (4) interruption in the supply of electricity to the grid following failure of owned or non-owned substations; (5) terrorism coverage; and (6) public liability insurance.

WARRANTY INSURANCE

A wind farm must avoid the gap between property coverage and warranty coverage. A property policy does not provide warranty coverage. A wind farm should purchase a separate warranty policy.

By way of summary, a property policy provides coverage for mechanical and electrical breakdowns, subject to the policy’s exclusions and limitations, which may include:

• Defects or faults in material, workmanship, or design
• Wear and tear
• Gradual deterioration
• Inherent vice (e.g., hidden defects in the equipment or material that cause deterioration)
• Latent defects
• Serial losses

Warranty policies, on the other hand, provide coverage for product defects that lead to losses. Warranty policies typically offer coverage for: five years with a “toolbox” approach; product defect, serial defect, noise, power curve, and availability; parts and labor “backstop”; self-insured retention/deductible buy-down options; and warranty and loss control.

A wind farmer can purchase an extended warranty policy from the original equipment manufacturer (OEM). OEM warranties are sold on a per-turbine, per-year basis and cover the full value of the turbine with little to no deductible. Or a wind farmer may opt to purchase a third-party warranty policy that can be wrapped around the turbine supply agreement to continue coverage supplied by the OEM. The third-party warranty product can cover additional risks or modify the risks covered in the original turbine supply agreement. The third-party warranty covers serial defect, product defect, availability, parts, and labor. Optional coverage for power curve and noise are also available and can be added by endorsement. This is usually sold in “blocks” of limits that are usable for a five-year period. The third-party warranty has an annual deductible structure.

Once a wind turbine warranty expires, the operator may decide to assume responsibility for 100 percent of the costs and losses resulting from warranty-related incidents. In other words, the operator decides to pay out-of-pocket for costs to secure the effected turbine, obtain and ship replacement parts, hire and transport the repair equipment, provide the labor for repairs, and assume lost income and production tax credits. Or an operator may rely on the property insurance to cover costs, which does not provide warranty coverage.

INSURANCE PRODUCTS TO CONSIDER

A wind farm operator should discuss the available insurance products with a broker who specializes in wind farms and has the expertise to determine which products best suit the project. The products available include:

• Original equipment manufacturer warranty
• Extended warranty
• Wind availability insurance products
• Builder’s risk
• Transit/ocean cargo
• Property all-risk insurance, including business interruption
• Equipment breakdown
• Engineering and loss control
• Project performance
• Supply bonds
• Performance bonds
• Professional liability
• General and umbrella liability
• Workers’ compensation
• National resource damage (environmental/pollution)

HOW TO AVOID RISK

First and foremost, do not rely on a standard property policy (fire and storm) to cover a wind farm. The market has adopted specialized insurance products that apply specifically to a wind farm and wind turbines. It is important for a risk manager to work with a commercial insurance broker who has the expertise to understand the project exposure and technology. In negotiating premiums, factor in the manufacturer’s guarantee, inspection, and maintenance; faulty design; the types of material used; and upgrading of performance. Also consider fire prevention measures such as a fire-suppression system to reduce the premium.

RECENT CASE

A recent case demonstrates the significance of ensuring that even a single wind turbine should have the proper insurance. Without careful analysis of a policy’s terms, conditions, and limitations, the risk of loss can shift to the policyholder. In Ass Kickin Ranch LLC v. North Star Mutual Insurance Company, the South Dakota Supreme Court decided in favor of the insurer who denied coverage for two unassembled wind turbines that were destroyed in a fire on a ranch (Ass Kickin Ranch, LLC v. N. Star Mut. Ins. Co., 822 N.W.2d 724 [S.D. 2012]). Coverage was denied based on a specific policy exclusion for “fences, windmills, windchargers, or their towers;” regardless of whether they were assembled or not. The lesson to be learned from Ass Kickin Ranch is to ensure that the proper coverage is negotiated (e.g., an endorsement that carves out certain types of exclusions).

INSURANCE COVERAGE LITIGATION

After the wind farm has purchased the insurance products best suited to the project, the next step is for the policyholder to comply with the policies’ terms and conditions.

Coverage disputes often arise under the “notice” provision of a policy. A policyholder is required to provide notice of a claim or a potential claim. When a wind farm policyholder provides notice, the insurance carrier can disclaim coverage or refuse to defend the claim. If the insurance company, however, has a defense obligation, it can agree to defend the claim but reserve its right to disclaim coverage based on the policy’s terms and limitations if certain facts in the litigation reveal application of an exclusion or policy term and condition. In this instance, coverage counsel is important to review the policy and understand the nuances of the policy language. Coverage counsel can also monitor the underlying action to determine whether any facts develop during litigation that will fall within the exclusion or defenses asserted by the insurance carrier in the reservation of rights. If facts reveal one or more claims in the action constitute an uncovered claim, then an issue of allocation between covered and uncovered claims may also arise. In this instance, coverage counsel is imperative to negotiate an allocation with the insurance carrier.

If the policyholder and the insurance carrier cannot come to an agreement on application of the policy’s terms, conditions, and limitations, and if the policyholder is not receiving the benefits of the policy, then the policyholder may consider filing a suit. The parties should consider avoiding coverage litigation unless negotiations to resolve the insurance disputes reach an impasse. The optimal resolution is to avoid a two-front battle: one against the claimant and one against the insurance carrier. This type of dual litigation is time-consuming and costly. Unless experienced coverage counsel is retained, policyholder beware—“enter at your own risk”—in connection with a coverage dispute with an insurance carrier.

CONCLUSION

Wind farm insurance is a highly specialized discipline that requires the expertise of a broker that can guide the owner through the nuances of the available insurance products and has a background in the energy industry. The insurance carrier, in turn, should have specialists provide insurance premium estimates for individual projects and perform reviews of the insurance provisions of project documents. Unless a wind energy company elects to pay an uninsured loss, out-of-pocket expenses, or accepts the insurance company’s preliminary evaluation of a claim, coverage counsel for an insurance coverage dispute should first be retained when the insurer issues a coverage position letter that either denies coverage or raises defenses that affect immediate coverage afforded under the policy.

The USPTO allows patent owners to pay maintenance fees without surcharge during a period starting six months before the maintenance fee due date and for six months after that with a surcharge. Consequently, patent owners may want to take advantage of the applicable payment windows and pay any maintenance fees due on or before March 18, 2013, to avoid the increased fees.

Electric Vehicle Recharging Equipment Credit

The governor is proposing to replace the expired “alternative fuels refueling property” tax credit with a new tax credit for “electric vehicle recharging property.” The alternative fuels refueling credit expired in 2010 and was intended to create an incentive for business to install certain refueling property for vehicles that utilized various “clean-burning” fuels (e.g., certain biodiesel, ethanol, compressed natural gas, etc.).

This new credit is intended to create a similar economic incentive for electric vehicle recharging property. If the legislation becomes law, the new credit could be applied against a taxpayer’s Article 9 corporation tax, Article 9-A franchise tax, or Article 22 personal income tax. For each installation of electric vehicle recharging property, the credit is equal to the lesser of $5,000 or 50 percent of the cost of the installed property. None of the costs of the electric vehicle recharging property can be paid for by grants from the New York State Energy Research and Development Authority or the New York Power Authority. Also, it is unclear exactly what constitutes an “installation” for purposes of the credit.

The term “electric vehicle recharging property” means all equipment needed to convey electric power from the electric grid or another power source to an onboard vehicle energy storage system. The credit is not refundable (unused credit can be carried over to future years) and is subject to certain recapture provisions. This new credit would expire at the end of 2017.

Sales Tax Exemption for Natural Gas

The current sales tax law contains an exemption for various motor fuels, including E85, compressed natural gas and hydrogen. The new legislation clarifies this exemption by expanding it to include “natural gas purchased and converted into [compressed natural gas] for use or for sale for use or consumption directly and exclusively in the engine of a motor vehicle. Thus, the law now explicitly makes clear that natural gas can be purchased tax free if it is going to be converted into compressed natural gas for use in a motor vehicle.

Stay tuned for updates on this proposed legislation. Rarely does a proposed budget get enacted without substantial changes. Thus, it’s unclear whether these proposals will ultimately make it into law.

• State energy code compliance
• The use of mass transit
• The availability of biking or pedestrian facilities
• Greenhouse gas emissions
• The use of green infrastructure
• Whether a brownfield site will be remediated
• The quantity of energy to be used

There may be new forms requesting additional information, but there is no corresponding directive on how this information should be used by an agency, and little that would result in fast-tracking sustainable projects.

While the new forms signal DEC’s effort to incorporate sustainable growth into agencies’ decision-making, it is unclear how such changes will encourage sustainable projects and the use of renewable energy. The consensus among those in the regulated community is that the forms are exceedingly burdensome, which has resulted in frustrating the review of applications, including those that incorporate sustainability and renewable energy. In fact, the outcry was so strong that DEC determined not to require use of the forms until corresponding workbooks could be developed to aid in the forms’ completion. These workbooks are detailed manuals, which provide extensive guidance for each of the forms’ questions. The new forms are currently scheduled to go into effect on April 1, 2013 (extended from October 1, 2012).

DEC has also proposed changes to the SEQRA regulations and has made a weak attempt to streamline the environmental review for sustainable projects. There are no changes to guide agencies’ consideration of most renewable energy projects, little encouragement for the use of green building techniques, no direction on consideration of impacts from greenhouse gas emissions, and few provisions to fast-track green projects. The question that must be raised is, why ask for more information in the new forms if there is no corresponding directive on what to do with such information? These omissions are especially surprising given that DEC has previously shown some leadership in this area by adopting a policy governing DEC’s assessment of energy use and greenhouse gas emissions in environmental impact statements. Agency guidance on the use of this information is particularly critical given that the failure to consider climate change has led to rejection of some environmental assessments under the National Environmental Policy Act (NEPA) [see Ctr. for Biological Diversity v. Nat’l Highway Traffic Safety Administration, 538 F.3d 1172 (9th Cir. 2008)]. SEQRA review, guided by the environmental assessment forms, needs to be complete to avoid a similar result.

While the proposed changes leave much to be desired, some efforts are laudable, such as encouraging development on previously disturbed sites in municipal centers with supporting infrastructure, promoting green infrastructure projects, and streamlining review of some solar energy development. For example, DEC has proposed to add some redevelopment on previously disturbed sites, small-scale solar energy development, and construction to incorporate green infrastructure techniques to its “type II” list. These actions are deemed not to have a significant adverse impact on the environment, and further environmental review is not required. The “type II” list is the likeliest avenue to encourage certain projects, because to be on the list is to be categorically excluded from further environmental review, which could lead to delays, significant expenditures, and litigation. But while the additions proposed are a step in the right direction, they are relatively modest and fall short of encouraging sustainable development on a broader scale.

DEC has other weapons in its arsenal that it, so far, has declined to use. In addition to expansion of the “type II” list, DEC could modify the regulations to utilize the new information gleaned from the revised forms. One possibility would be to modify the criteria for determining whether an action would result in a significant adverse impact by mandating consideration of the benefits derived from sustainable projects. But there is not even a hint that those portions of the regulations will be touched. DEC’s proposed regulatory changes are currently under review, and a formal notice of proposed rulemaking is expected in March 2013. DEC will also be issuing a generic environmental impact statement before the regulations become final. Public comment will continue to be accepted throughout the process.

The change from the first-to-invent (pre-AIA) system to a first-to-file (AIA) system will expand the prior art that will be relevant to patentability of an invention. For example, under the current first-to-file system, applicants were able to eliminate certain prior art references by establishing an earlier date of invention. Under the AIA, this will no longer be a possibility because the date of invention will not be relevant.

This change also does away with proceedings to resolve which of two applicants was the first to invent a technology (therefore being entitled to the patent for that technology)—the so-called “interference proceedings.” Under the AIA, the relevant question will be “which inventor filed the first application?” Companies involved in the fast-moving cleantech industry may need to reconsider at what point during the technology development process a patent application should be filed. However, filing too early can also be problematic because the application may not sufficiently enable a nascent technology. This would affect whether or not priority would be accorded to any claims in any continuing applications.

Beginning March 16, patent examiners will determine which of the rules to apply to the claims of a patent application by reviewing the priority date accorded to those claims. If all claims in a patent application are entitled to a priority date earlier than March 16, 2013, the claims will be examined under the pre-AIA rules. If all claims are entitled to a priority date of March 16, 2013, or later, the claims will be examined under the AIA rules. Examination under pre-AIA rules means more options to overcome prior art but includes the possibility of being subject to interference proceedings. Examination under AIA rules means fewer options to overcome prior art but no possibility of being subjected to interference proceedings.

This priority date analysis becomes more complicated for applications having a mix of claims—some with a priority date earlier than March 16, 2013, and others with a later priority date. In these cases, the U.S. Patent & Trademark Office will examine all of the claims under the AIA rules for prior art, and yet all may be subject to interference proceedings. Deleting claims with one or the other priority date does not resolve this because this rule applies if the claims were present “at any time” during prosecution.

Mixed-claim applications may occur, for example, if a priority application such as a provisional application was filed before March 16, 2013, with the corresponding non-provisional filed on or after March 16, 2013. It is possible that not all claims in the non-provisional application will be accorded priority to the provisional. For example, there may be new matter added in the non-provisional application which provides support for some of the claims. So even if a single claim is denied priority to the provisional, all of the claims will be examined under the AIA prior art rules, and yet all of the claims (including the one that was denied priority) can be subject to interference proceedings.

In view of this peculiar rule, applicants may want to avoid mixed-claim applications. For example, if a provisional application has already been filed, applicants may consider filing a corresponding non-provisional or an international application under the Patent Cooperation Treaty (PCT) before March 16, 2013, even if the 12-month period from the filing date of the provisional is not over. In addition, applicants may also use continuing applications to segregate claims with different priority dates.

Careful review of your options with patent counsel should help to identify the appropriate filing strategy suited to your situation.

The goal of XP and Limnia was the production of a lightweight SUV with a sales price below $20,000. In 2008, XP applied for a $40 million loan for the SUV project, while Limnia requested $15 million to manufacture the vehicle’s battery. Although XP and Limnia assert they initially received positive reviews of their application and confirmation that the loan program’s requirements were met, the two loan applications were eventually rejected. The suit alleges the initial reasons given for the denial made no sense—such as denying the SUV because it is a hydrogen fuel vehicle, which it was not—and that later, “backfilled” explanations similarly failed to support the DOE decision.

Paragraph 26 of the complaint summarizes the allegations of misconduct:

26. At all times relevant, XPV was unaware both that its ATVM Loan Program application had been “set aside” in favor of applications from politically-connected government cronies and that Defendants had “fixed” the ATVM Loan Program process to benefit political donors. XPV also was unaware that Defendants had no intention of approving XPV’s ATVM Loan Program application (or the application of any other company without significant political contributions or influential political patrons) under any circumstances, notwithstanding all of their representations and assurances to the contrary, because XPV competed with government favored companies. Instead, XPV assumed that Defendants were acting in good faith, and in accordance with law, to carry out Congress’s intent by lending up to $25 billion for the development and production of advanced technology vehicles in the United States to reduce U.S.dependency on foreign oil.

The suit specifically names Tesla and Fisker Motors Inc. as two politically connected companies that received ATVM loans and points out neither has achieved its goals. DOE has suspended funding to Fisker because of multiple missed milestones, while Tesla, which has received its full drawdown of $465 million of “taxpayer money to build a luxury vehicle aimed at rich actors, media personalities, and businessmen, has repeatedly missed production targets, burned through cash and required DOE to repeatedly renegotiate loan terms to survive.”

The complaint relies heavily on allegations made and e-mails disclosed as part of the Solyndra investigation, as well two Government Accountability Office (GAO) reports critical of ATVM: the February 2011 “Advanced Technology Vehicle Loan Program Implementation Is Under Way, but Enhanced Technical Oversight and Performance Measures Are Needed,” and the March 2012 “DOE LOAN GUARANTEES: Further Actions Are Needed to Improve Tracking and Review of Applications.” In testimony to the House of Representatives Subcommittee on Oversight and Investigations of the Committee on Energy and Commerce in April 2012, the GAO summarized its reports and the DOE response:

[T]he ATVM loan program had set procedures for overseeing the financial and technical performance of borrowers and had begun using the procedures to oversee the loans; at the time of our report, however, it had not yet engaged the engineering expertise needed for technical oversight, as called for by its procedures. As a result, we reported that without qualified oversight to analyze the information submitted by the borrowers and to provide technical monitoring, DOE could not be adequately assured that the borrowers are delivering the vehicle and component projects as required by the loan agreements. In addition, we reported that DOE had not developed sufficient performance measures that would enable it to fully assess progress toward achieving its program goals. DOE disagreed with our recommendations that the agency accelerate its efforts to engage the expertise needed for effective oversight and develop sufficient performance measures, although we continue to believe that the agency should take these actions.

XP and Limnia join a growing chorus of disappointed applicants charging political favoritism in the ATVM Program, including Carbon Motors Corp., which, after its $310 million application for assistance with a law-enforcement vehicle featuring a diesel engine was dropped by DOE in early 2012 after two years of review, charged that it was the victim of “a political decision in a highly-charged election year environment.” In response to this new suit, a DOE spokesperson told the Washington Post “that decisions made on the department’s loan program were made solely on the merits after careful review by the department’s technical experts.”

Impact on Cleantech Investment

While a significant portion of the Solyndra discussion was as a useful tool by certain media outlets to slam all things Obama during the presidential campaign (and one of the XP/Limnia attorneys is Cause for Action, Inc., which has connections to the Republican side of the aisle) , the XP suit does present heightened concerns for cleantech investors. First, it is likely to provide further ammunition for those members of Congress seeking a reduction or termination in federal support for cleantech programs, particularly in the upcoming debt ceiling/spending cut negotiations. Second, cleantech investors, particularly early-stage investors, will likely discount the availability of federal grants/loans if the program is seen as less than fair to all applicants. At a minimum an “XP Ventures Premium” may be factored into the cost of capital.

In addition to merely defending this suit, a successful second Obama Administration effort in fostering cleantech development requires a demonstration that federal funding programs are fair and equitable to all comers. The administration should embrace the GAO recommendations, and increase the transparency in its review process. Private capital is unlikely to be available for these game-changing type of companies, but neither will tax dollars if Congress and the public believe the loans and grants are, as the new suit charges, nothing more than political paybacks.

Second, Governor Cuomo announced that he would be appointing Richard Kaufmann to a cabinet-level position focused on the state’s energy program, including leading the effort associated with the development of the green bank. Mr. Kauffman is a veteran of the energy and financial sectors, having served in Washington and the New York financial markets, and most recently, having acted as a senior advisor to Secretary Steven Chu in the U.S. Department of Energy. The governor’s decision to hire Mr. Kauffman is a clear sign that he envisions New York as a potential long-term leader in the use and development of clean energy.

Third, Governor Cuomo announced an expansion of the NY-Sun solar jobs program, which was previously discussed by my colleague Joe Endres. The governor’s expansion would call for an additional $150 million annually through 2023 to benefit solar panel installation on both a commercial and residential basis. This expansion further demonstrates the governor’s aggressive stance regarding solar energy development in the state and, perhaps, his skepticism regarding the commitment of public utilities to cleaner energy production.

Finally, the governor announced a number of other smaller initiatives to help further innovation and/or the use of clean technology in New York. A few of the more notable examples of these items include the following:

• The development of 3,000 electric vehicle charging stations across New York over the next five years
• The development of 10 tax-free, high-tech incubator zones
• The development of a $50 million venture capital fund to support the development of new companies within the state

On these matters too, the speech was short of funding specifics.

Of note to cleantech followers, Ms. Jackson has overseen EPA’s imposition of new regulations on a number of traditional fuel production sources, such as coal-fired plants. Many have cited these increased regulations as providing cleantech companies with an opportunity to make an aggressive push in the marketplace due to a more level playing field. And with President Obama’s call for new investment in the cleantech sector during his recent presidential campaign, a great deal of attention had been placed on Ms. Jackson’s potential role in that initiative.

The names of a number of potential replacements have been thrown around, including the current deputy EPA administrator, Bob Perciasepe; a number of former EPA and Clinton White House staff; and Daniel Esty, the commissioner of the Connecticut Department of Energy and Environmental Protection. Esty’s potential appointment is of note to cleantech followers, as he has been involved with the development of a clean energy bank in Connecticut through the Clean Energy Finance and Investment Authority (CEFIA).

In general terms, CEFIA is a quasi-public corporation which takes public funds and resources and combines them with private capital, which can then be used in a number of different ways to provide low-cost financing for clean energy projects. CEFIA has been modeled after a number of developing projects, including the United Kingdom’s Green Investment Bank and Australia’s proposed Clean Energy Finance Corporation. As those in the cleantech sector know, providing options for low-cost financing is an important tool for increasing clean energy project development, as it makes the large up-front development costs more bearable. With the increasing likelihood that federal grants and tax credits will continue to dry up, clean energy banks may be the next step to creating a positive move forward for the industry. There has been speculation that the clean energy bank model could be used on a federal level, and Esty’s consideration for the top environmental post could signal the administration’s interest in pursuing such a course.