Wisconsin is currently experiencing a significant shift to renewable energy (RE) for its electricity usage.
Thoughtful regulatory and statutory changes are needed to ensure the full potential of this moment is realized for Wisconsin businesses and residents – not to mention our homegrown contractors whose job trailers we’d prefer to see on these sites.
Warming Up to the Idea
Wisconsin lags the rest of the U.S. in terms of RE electricity production.
In 2019, our statewide RE mix was only 7.7 million megawatt hours (MWh), or 11.1 percent of the total 69 million MWh in electricity sales. With the national average for RE at 21 percent and growing, and many Wisconsin municipalities setting immediate goals of 25 percent RE’s by 2025, there’s a significant amount of work already here and on its way.
In fact, the estimated amount of utility-scale RE construction projects currently in the queue is approaching $10 billion. But the vast majority if not all of this work will be let to out-of-state contractors. This is quite understandable, considering Wisconsin’s delay in pursuing RE, while contractors in other states were able to cut their teeth amid burgeoning RE markets.
Unless we thoughtfully create entry points for our local contractors, it will be these same out-of-state firms coming up here and eating our lunch.
Task Force Recommendations and Increasing Market Growth
We saw a significant public shift toward RE in 2019, culminating in the establishment of the Governor’s Task Force on Climate Change, whose December 2020 report included the following poignant statement from Lt. Gov. Mandela Barnes, task force chair, that helps encapsulate the moment: “Utility companies are investing in renewable energy. And our local communities are reforming their policies to promote greener, cleaner economies.”
The December report contained 55 recommendations to combat climate change and promote climate justice and equity, with 17 designed to advance RE.
Many of these recommendations, if adopted, would increase RE market growth in Wisconsin. Four in particular could provide those entry points for local contractors who wouldn’t have to scale up to compete:
No. 6: Develop electricity storage and microgrids for critical infrastructure. Increase funding to the Public Service Commission of Wisconsin’s (PSC) Office of Energy Innovation to help local communities develop critical green energy infrastructure, such as microgrids.
No. 10: Support low-cost debt financing of customer clean energy projects. Maximize property assessed clean energy (PACE) financing opportunities for commercial customers and provide on-bill financing for residential and governmental customers.
No. 14: Support community solar. Encourage utility buildout of community solar and review green tariff models from other states as well as the Madison Gas & Electric (MG&E) model. At the same time, facilitate community solar/renewable energy sponsored by local communities and Tribes to help them meet their clean energy goals.
No. 49: Allow third-party renewable financing (solar/energy generation). The PSC or legislature should clarify the ability of customers to utilize third-party financing for energy generation projects – including the ability of taxable customers (residential customers and taxable entities) to enter equipment leases, as they can do so without adversely affecting the ability for the projects to receive federal tax credits, and ability of nontaxable entities to enter power purchase agreements, since federal tax credits could be adversely affected if these entities must enter equipment leases.
As recommendation No. 14 covering community solar illustrates, the concept of providing capital to underwrite RE development is not new, nor is it foreign. The MG&E model is currently being examined by Wisconsin’s largest municipalities through the Milwaukee City-County Task Force on Climate and Economic Equity.
Power Purchase Agreements – Third-party Financing Arrangements
A separate, controversial model being pursued is third-party financing arrangements called Power Purchase Agreements, or PPAs.
PPAs allow developers to install and directly rent solar arrays to homeowners and businesses. Proponents appreciate these deals as they provide a means to defer the cost of the necessary RE equipment, as has been seen with numerous municipalities and school districts throughout the state. Public utilities have pushed back against this practice, claiming that these developers are providing power directly to the public in violation of Wis. Stat. chapter 196 or as a matter of public policy.
A case of note before the Public Service Commission (PSC) is already two years into an appeal of a denial for an application for interconnection under a PPA. In PSC 9300-DR-104, the joint entities of Eagle Point Solar and Eagle Point Energies entered into a Solar Services Agreement (i.e., PPA) with the City of Milwaukee for the installation of a solar arrays on half a dozen city-owned buildings. The governing utility denied the necessary installation permit, citing the general reasons above, prompting Eagle Point’s appeal. Following the recusal of one of the three commissioners, an indeterminate split decision is anticipated.
The specific circumstances of this case, or total value of the contract, are of little relevance to the point here – that Wisconsin’s current inconsistent enforcement of PPAs has a practical, chilling effect on private investment in commercial and residential RE, in a market that is an otherwise perfect entry point for well-positioned Wisconsin contractors.
Conclusion: Finding the Toehold
The advancement of affordable technology and public demand have converged to democratize the small-scale energy market. As our community leaders meet in earnest to identify routes up this mountain, infusion of private capital is essential to guarantee that our contractors have a secure toehold.
This article was originally published on the State Bar of Wisconsin’s Construction and Public Contract Law Section Blog. Visit the State Bar sections or the Construction and Public Contract Law Section web pages to learn more about the benefits of section membership.