RENEWABLE energy
Behind-the-meter PPAs : In these more traditional purchase agreements between energy consumers and renewable energy companies , there is a physical connection between the renewable energy-generating asset and the assets using the energy . These partnerships can reduce reliance on local distribution infrastructure buildout and scope 3 emissions , but they operate at scale and require large-load sources .
Surface acreage leases : O & G producers are distinctively positioned to benefit from the implementation and utilization of battery storage systems and renewable technologies like wind and solar at all stages of their recovery operations . Land and location , for example , are valuable assets for renewable developers . Exploration and production companies with large surface acreage ownership can lease that land to wind and solar companies to generate royalty revenue .
There are strategic advantages to combining behindthe-meter PPAs with surface acreage leases , including markedly reducing energy costs for O & G companies while also reducing reportable emissions . But before proceeding , there are important considerations to weigh when choosing a renewable energy partner . For instance , solar requires a larger permanent footprint than wind , whereas wind power can impact O & G operations during construction .
BATTERY STORAGE FOR ‘ RAINY DAYS ’ Another opportunity to optimize clean energy usage is through battery storage . The energy output of intermittent renewable resources , such as wind and solar generation facilities , varies as a function of the weather conditions at any given moment . As a result , continuous 24 / 7 generation capacity is not possible , as is the case with traditional fossil fuel or nuclear generation . Battery storage systems , however , allow oil and gas producers a more reliable source of consistent energy by storing energy produced from an intermittent renewable resource during times when there is more supply than demand , and then utilizing that stored energy when supply from the intermittent renewable resource is unavailable .
RENEWABLE ELECTRICITY TAX CREDITS
The optimism surrounding clean energy and meeting reliability goals was bolstered on Aug . 16 , 2022 , when President Joe Biden signed into law the IRA , which represents the single-largest investment in climate and energy in American history . Among other incentives , the IRA significantly expanded the clean energy tax credits for electric generation projects . These credits , which represent a dollar-for-dollar offset to a taxpayer ’ s federal income tax liability , can reduce the net costs of project development to sponsors and developers and , therefore , are expected to encourage increased investment in and accelerated deployment of clean electricity projects .
Investment tax credit for electricity generation : The IRA extends the ITC for projects placed in service until at least 2033 . Initially , taxpayers will be eligible for the ITC for generation technologies that were creditable before the IRA , including solar , wind , fuel cell and geothermal . For projects placed in service during or after 2025 , taxpayers will be eligible for the ITC regardless of the nature of the generation technology , as long as the project has a greenhouse gas emissions rate of zero or below . The IRA also creates a stand-alone ITC for energy storage projects , including battery storage .
Under the IRA , a taxpayer ’ s ITC for a taxable year generally will equal the product of the tax basis of eligible projects placed in service during the year and a 30 % rate , which is subject to an 80 % reduction if a project fails to satisfy either the prevailing wage requirements or the apprenticeship requirements under the IRA .
The IRA also created additional bonus credits for projects produced with qualifying amounts of domestic content ( maximum of 10 percentage points ); projects located in high fossil fuel employment areas , referred to as “ energy communities ” ( maximum 10 percentage points ); and for small solar and wind projects located in lowincome communities ( maximum 20 percentage points ). Accordingly , the typical ITC-eligible project may qualify for a 50 % ITC while small solar and wind projects may be able to attain a maximum 70 % rate .
Production tax credit for electricity generation : The IRA extends the PTC for projects placed in service until at least 2033 . Taxpayers are eligible for the PTC for generation technologies that were creditable before the IRA , including wind , biomass , landfill gas and hydropower . The IRA also reinstates the solar PTC , which had phased out in 2006 .
The PTC is available for the first 10 years after a generation facility is placed in service at a rate of 1.5 cents ( as adjusted for inflation , 2.75 cents ) per kilowatt hour of electricity that the taxpayer produces from solar , wind , geothermal or closed-loop biomass facilities and sells to unrelated parties , although this rate is subject to an 80 % reduction if a project fails to satisfy either the prevailing wage requirements or the apprenticeship requirements .
Like the ITC , the PTC generally will become technology neutral for projects placed into service during or after 2025 , provided that the facility has a greenhouse gas emissions rate of zero or below .
A PTC-eligible project generally qualifies for additional bonus credits if the project is produced with qualifying amounts of domestic content ( 10 % increase to base credit )
42 Spring 2023