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A conversation with Cici Vu and Morgan Putnam of DNV Energy Systems
Today we’re speaking with Cici Vu and Morgan Putnam from DNV Energy Systems, who helped craft a must-read report out this week on community relations in transmission with Americans for Clean Energy Grid (ACEG). Their report compiles findings of a roundtable with environmentalists, Indigenous rights activists, developers, and individual land owners, and finds transmission can fare better than solar and wind in this current political climate – and that community benefit agreements can be helpful for getting projects across the finish line. But some issues divided the roundtable, including how to structure labor benefits to ensure lots of people get job opportunities from transmission.
The following is a lightly edited and abridged version of our conversation:
Jael: Can you walk me through what you and ACEG found as a part of your research?
Morgan: ACEG identify – like you have – that there is a realness to the community opposition that can arise with these projects. While there are clearly cases of money being spent to augment that, it doesn’t mean the opposition isn’t present. ACEG’s interest was to help make meaningful progress on this issue and figure out how we can do better to accelerate the rate at which we develop transmission. As the report calls out early on, development really proceeds at the pace of trust within a community.
Cici: There are a lot of reports out there on best practices. There are 1,500-page reports on desktop research and lots of interviews and so forth. But I think ACEG hit the nail on the head by bringing in the voices at the same table. With my expertise in mediation, we were able to do that. The recruiting of all the voices helped make the report more inclusive, and more comprehensive and more holistic in viewpoints and perspectives.
The other thing that was really important was bridging the technical aspects of these large infrastructure projects that are so complex that communities don’t understand [them.] Being able to bring the large complexities of these projects – transmission, in this case – and community needs and interest, and being able to translate and interpret and be able to talk to one another, is a core piece of this report.
The tool that gets us there is these community benefits agreements, project work agreements. And they only work well and are effective if they are co-developed with the voices, the developers, the landowners, the host communities alike.
Jael: Did you feel there was a need for a consensus on best practices for community engagement?
Cici: It’s a differentiator. It’s one of the reasons we’re doing this.
We all recognize the needs of load growth demand. But to most effectively advance some of these best practices and make them actionable, these trusted voices have to discuss and agree. Or not agree – because we have a non-consensus segment as well where there were issues that did not meet consensus. When that happened, we made a recommendation to continue the discussion toward consensus.
Jael: What issues were most difficult to find consensus on and why?
Cici: The big piece of tension was how would these projects treat workforce development [and] bring in a local workforce while balancing the needs of labor,because labor has the skills. For instance, one of the issues was that local workforces need to be up-skilled in a way that is much more structured and systematic because there are safety issues in climbing a pole and doing electrification and things like that.
Jael: At a high level, are we seeing a similar broad backlash to transmission like what we’re seeing in specific communities with solar and wind?
Morgan: No, we’re not. It could happen. But those types of things you’re referencing are not yet occurring in transmission. I think it is less likely but not impossible, because–
Jael: What about Grain Belt Express or what’s happened around Piedmont? Do those situations give you any pause?
Morgan: So Grain Belt I think a little bit but it’s in a different category in my mind. Grain Belt is a specific project and, well, just look at the MISO region where that project sits. MISO’s moving forward with a lot of transmission. That project is but one project and it is being developed by an independent transmission developer that has… I think they face additional hurdles at times by virtue of their independence.
Having said that, I think the earlier statement still applies to all transmission. It’s about trust. It’s something where I think if you have the trust and support of the communities, you’re going to be able to move the projects forward.
Cici: We’ve seen a lot of momentum in favor of longer term regional planning of transmission. We haven’t seen as much attention on the triggering words we see with solar, or wind, and the incoming administration for transmission. And we also have a lot of the load demand, which is data centers.
We’re all crossing our fingers with the incoming administration. It’s so unpredictable.
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A conversation with Scott Cockerham of Latham and Watkins.
This week’s conversation is with Scott Cockerham, a partner with the law firm Latham and Watkins whose expertise I sought to help me best understand the Treasury Department’s recent guidance on the federal solar and wind tax credits. We focused on something you’ve probably been thinking about a lot: how to qualify for the “start construction” part of the new tax regime, which is the primary hurdle for anyone still in the thicket of a fight with local opposition.
The following is our chat lightly edited for clarity. Enjoy.
So can you explain what we’re looking at here with the guidance and its approach to what it considers the beginning of construction?
One of the reasons for the guidance was a distinction in the final version of the bill that treated wind and solar differently for purposes of tax credit phase-outs. They landed on those types of assets being placed in service by the end of 2027, or construction having to begin within 12 months of enactment – by July 4th, 2026. But as part of the final package, the Trump administration promised the House Freedom Caucus members they would tighten up what it means to ‘start construction’ for solar and wind assets in particular.
In terms of changes, probably the biggest difference is that for projects over 1.5 megawatts of output, you can no longer use a “5% safe harbor” to qualify projects. The 5% safe harbor was a construct in prior start of construction guidance saying you could begin construction by incurring 5% of your project cost. That will no longer be available for larger projects. Residential projects and other smaller solar projects will still have that available to them. But that is probably the biggest change.
The other avenue to start construction is called the “physical work test,” which requires the commencement of physical work of a significant nature. The work can either be performed on-site or it can be performed off-site by a vendor. The new guidance largely parrotted those rules from prior guidance and in many cases transferred the concepts word-for-word. So on the physical work side, not much changed.
Significantly, there’s another aspect of these rules that say you have to continue work once you start. It’s like asking if you really ran a race if you didn’t keep going to the finish line. Helpfully, the new guidance retains an old rule saying that you’re assumed to have worked continuously if you place in service within four calendar years after the year work began. So if you begin in 2025 you have until the end of 2029 to place in service without having to prove continuous work. There had been rumors about that four-year window being shortened, so the fact that it was retained is very helpful to project pipelines.
The other major point I’d highlight is that the effective date of the new guidance is September 2. There’s still a limited window between now and then to continue to access the old rules. This also provides greater certainty for developers who attempted to start construction under the old rules after July 4, 2025. They can be confident that what they did still works assuming it was consistent with the prior guidance.
On the construction start – what kinds of projects would’ve maybe opted to use the 5% cost metric before?
Generally speaking it has mostly been distributed generation and residential solar projects. On the utility scale side it had recently tended to be projects buying domestic modules where there might have been an angle to access the domestic content tax credit bonus as well.
For larger projects, the 5% test can be quite expensive. If you’re a 200-megawatt project, 5% of your project is not nothing – that actually can be quite high. I would say probably the majority of utility scale projects in recent years had relied on the manufacturing of transformers as the primary strategy.
So now that option is not available to utility scale projects anymore?
The domestic content bonus is still available, but prior to September 2 you can procure modules for a large project and potentially both begin construction and qualify for the domestic content bonus at the same time. Beginning September 2 the module procurement wouldn’t help that same project begin construction.
Okay, so help me understand what kinds of work will developers need to do in order to pass the physical work test here?
A lot of it is market-driven by preferences from tax equity investors and tax credit buyers and their tax counsel. Over the last 8 years or so transformer manufacturing has become quite popular. I expect that to continue to be an avenue people will pursue. Another avenue we see quite often is on-site physical work, so for a wind project for example that can involve digging foundations for your wind turbines, covering them with concrete slabs, and doing work for something called string roads – roads that go between your turbines primarily for operations and maintenance. On the solar side, it would be similar kinds of on-site work: foundation work, road work, driving piles, putting things up at the site.
One of the things that is more difficult about the physical work test as opposed to the 5% test is that it is subjective. I always tell people that more work is always better. In the first instance it’s likely up to whatever your financing party thinks is enough and that’s going to be a project-specific determination, typically.
Okay, and how much will permitting be a factor in passing the physical work test?
It depends. It can certainly affect on-site work if you don’t have access to the site yet. That is obviously problematic.
But it wouldn’t prevent you from doing an off-site physical work strategy. That would involve procuring a non-inventory item like a transformer for the project. So there are still different things you can do depending on the facts.
What’s your ultimate takeaway on the Treasury guidance overall?
It certainly makes beginning construction on wind and solar more difficult, but I think the overall reaction that I and others in the market have mostly had is that the guidance came out much better than people feared. There were a lot of rumors going around about things that could have been really problematic, but for the most part, other than the 5% test option going away, the sense is that not a whole lot changed. This is a positive result on the development side.
And more of the week’s most important news around renewable energy conflicts.
1. Carroll County, Arkansas – The head of an influential national right-wing advocacy group is now targeting a wind project in Arkansas, seeking federal intervention to block something that looked like it would be built.
2. Suffolk County, New York – EPA Administrator Lee Zeldin this week endorsed efforts by activists on Long Island to oppose energy storage in their neighborhoods.
3. Multiple counties, Indiana – This has been a very bad week for renewables in the Sooner state.
4. Brunswick County, North Carolina – Duke Energy is pouring cold water on anyone still interested in developing offshore wind off the coast of North Carolina.
5. Bell County, Texas – We have a solar transmission stand-off brewing in Texas, of all places.
Is there going to be a flight out of Nevada?
Donald Trump’s renewables permitting freeze is prompting solar companies to find an escape hatch from Nevada.
As I previously reported, the Interior Department has all but halted new approvals for solar and wind projects on federal lands. It was entirely unclear how that would affect transmission out west, including in the solar-friendly Nevada desert where major lines were in progress to help power both communities and a growing number of data centers. Shortly after the pause, I took notice of the fact that regulators quietly delayed the timetable by at least two weeks for a key line – the northern portion of NV Energy’s Greenlink project – that had been expected to connect to a litany of solar facilities. Interior told me it still planned to complete the project in September, but it also confirmed that projects specifically necessary for connecting solar onto the grid would face “enhanced” reviews.
Well, we have the latest update in this saga. It turns out NV Energy has actually been beseeching the Federal Energy Regulatory Commission to let solar projects previously planned for Greenlink bail from the interconnection queue without penalty. And the solar industry is now backing them up.
In a July 28 filing submitted after Interior began politically reviewing all renewables projects, NV Energy requested FERC provide a short-term penalty waiver to companies who may elect to leave the interconnection queue because their projects are no longer viable. Typically, companies are subject to financial penalties for withdrawals from the queue, a policy intended to keep developers from hogging a place in line with a risky project they might never build. Now, at least in the eyes of this key power company, it seems Trump’s pause has made that the case for far too many projects.
“It is important that non-viable projects be terminated or withdrawn so that the queue and any required restudies be updated as quickly as possible,” stated the filing, which was first reported by Utility Dive earlier this week. NV Energy also believes there is concern customers may seek to have their deals for power expected from these projects terminated under “force majeure" clauses, and so “the purpose of this waiver request is thus to both clear the queue to the extent possible and avoid unneeded disputes.”
On Monday, the Solar Energy Industries Association endorsed the request in a filing to the commission made in partnership with regional renewable trade group Interwest Energy Alliance. The support statement referenced both the recent de facto repeal of IRA credits as well as the permitting freeze, stating it now “appears that federal agency review staff are unsure how to proceed on solar projects.” This even includes projects on private lands, a concern first raised by Nevada Gov. Joe Lombardo, a Republican, after the permitting freeze came into effect.
The groups all but stated they anticipate companies will pull the plug on solar projects in Nevada, proclaiming that by granting the waiver, “it will encourage projects facing uncertainty due to recent legislation and federal action to exit the process sooner and without penalty, creating more certainty for the remaining projects.”
How this reads to me: Energy developers are understandably trying to figure out how to skate away from this increasingly risky situation as cleanly as they can. It’s anybody’s guess if FERC is willing to show lenience toward these developers.