Mention Texas in the same sentence as energy and most folks will think of the oil and gas industry. But not so for plenty of well-informed lawyers, leading among them Diana Liebmann, a partner in Haynes and Boone, who has developed the firm’s electrical power legal practice from scratch and knows that the Lone Star State ranks at the top of the nation for production of wind energy. Despite the Trump administration’s potential to shake up the energy industry and strip away federal tax subsidies, which have historically helped the wind industry, Liebmann, who has represented Horizon Wind Energy and others, remains optimistic about wind’s prospects. When Liebmann answered Texas Lawyer’s emailed questions below, she helped explain why others in Texas might to join Team Wind as well.
Texas Lawyer: What are the top three reasons you expect wind energy production to increase during President Donald Trump’s time in office?
Diana Liebmann: Production tax credits (PTCs) are still in place and with the IRS guidance provided on May 5, 2016, that provide for additional flexibility in meeting the safe harbor provisions for PTCs, the industry will continue to build projects and may expedite projects that are already in the pipeline. The companies engaged in the wind energy business are not new entrants, but sophisticated players with market experience, and understanding of transmission congestion issues and market dynamics. As a result, the investments that are being made are better investments. The cost of siting a wind facility is also much lower now because of advances in the industry and the experience wind developers bring to project development. In some markets, particularly those where investments in transmission have been significant, wind projects will continue to be developed irrespective of the availability of PTCs.
TL: Are there any reasons to fear a downturn?
Liebmann: In the past there have been downturns when the PTC has not been renewed. However, market prices in many markets are limiting the quantity of other types of generation, and wind projects remain protected under the PTC safe-harbor provisions. In fact it is wind generation that makes up the bulk of the interconnection queue in several markets. That is exactly the case in the ERCOT market [the Electric Reliability Council of Texas market serves about 24 million Texas customers] where wind additions in the coming years are expected to be substantial.
TL: Do you expect increases to be realized even if, as some predict, federal renewable-energy tax credits, grants and research dry up because of Trump’s approach favoring less government intervention in business affairs?
Liebmann: President Trump has made infrastructure projects the centerpiece of his new administration—he has talked about infrastructure upgrades that would increase jobs and boost the economy. There are several large-scale transmission projects that would increase the efficiency of transmission systems in the United States and allow for renewable generation to move to where the demand is, particularly for renewables located in areas where the wind resource is the best and that have not been able to reach areas of the country that cannot locally support wind development due to poor capacity factors. Investments in transmission infrastructure could be more beneficial to the growth of the wind industry than the continuation of tax credits by providing access to markets where there is no expiration on the economic benefit to the wind resource, and where wind has previously not seen market penetration.
TL: What are some of the nuances that are important to understand about elimination of tax credits?
Liebmann: One of the nuances that is significant is that even if PTCs are not renewed, they are still in existence for those projects that are safe-harbored. As a result, any change will be gradual and not have an immediate effect on construction timelines. The other, and likely more important point, is that the wind industry is maturing and given the experience of the wind developers, many of which are large companies that have significant market expertise, the PTCs become less important and are not required to sustain the industry in the long term. PTCs make projects more attractive, but without them, the industry has reached a critical mass and will continue to grow and reach new markets.
TL: What advice do you offer clients about tweaking future contracts and arrangements because of expected tax changes?
Liebmann: If a project can be safe-harbored, then we would make sure that it is, because the obvious enhancement to the value of the project. For those projects in the future that do not qualify for safe-harbor status, we would look at those differently in terms of the siting of a new project and evaluate the overall risks based on the revenue stream and how that project would be financed, particularly given that tax equity financing would not be available. However, we would also view those projects in much the same way as we look at projects for which tax credits have expired, and wind developers are familiar and comfortable that they can make good business decisions with that risk/reward profile as well.