Carbon Capture: 11 Highlights From the Finalized 45Q Rules
A summary of key points from the 187-page final regulation
By Matt Lucas, PhD; Managing Director, Business Development
I’m excited about carbon capture technology; it’s critical for decarbonizing hard-to-electrify industrial infrastructure and other facilities whose emissions are challenging to mitigate. So, like many others, I’ve been waiting for the IRS to release its final carbon capture regulations on 45Q, the federal tax credit.
After nearly three years of anticipation, we finally have both the regulations and the IRS’s commentary. As then-Treasury Secretary Mnuchin said, “These final regulations provide taxpayers and the American energy sector with needed clarity on utilizing the section 45Q credit.” Finally!
For carbon capture to continue to iterate, scale, and improve, it needs non-recourse project financing and the traditionally conservative tax equity community to come to the table. Tax equity is critical for monetizing 45Q.
There’s a great deal to glean from the IRS guidance, but I would guess most people don’t have the time or patience to sift through its 187 pages. Here’s your cheat sheet: I’ve summarized the key points, which collectively provide the additional clarity and certainty that investors need to invest in carbon capture.
11 Takeaways from the 45Q Final Guidance:
- Removing the Cap: One of the key reforms to the 45Q regulation was to lift the 75 million ton cap on credits. However, the cap still applies to qualified carbon capture facilities placed in service before February 9, 2018 (i.e. before the reform was passed). In the interim, several 45Q credits have been ‘disallowed’—IRS-speak for ‘revoked’ because the taxpayers claiming them were not complying with the regulations. The IRS clarified that those disallowed credits will be returned to the 75Mt pool. To keep track, the IRS publishes an annual running tally (page 925) of claimed credits and will continue to do so until the cap is reached. In June 2020, 72,087,903 credits had been claimed, so I suppose the cap will be hit soon, even with the exclusion of the disallowed credits, and this annual report will then become irrelevant.
- Clarifying Who Gets the Credit: Some carbon capture projects (including many of the early demos) were vertically integrated from capture through geologic storage, so there was no question about who could claim the tax credit and who had responsibility for secure storage. However, this becomes more complicated when the capture and storage are completed by different parties. The IRS ruled that the credit belongs to the party that owns the capture equipment, and only they can elect to transfer the credit. Furthermore, the owner of the capture equipment may be different than the owner of the industrial facility, which the equipment is capturing from. This is important for carbon capture entrepreneurship; third-party capital can be brought to existing emitting facilities that don’t understand carbon capture but still want to benefit from the emissions reduction.
- Contractually Ensuring CO2 is Stored (Sort of): Beyond ownership, a greater complication is the contract between the capture company and the storage company. After all, if the storage company leaks the CO2, the capture company would be the responsible entity in the eyes of the IRS, since they were awarded the tax credit. The IRS thoughtfully allows for multiple CO2 storage contracts, as well as a string of contracts (say from a general contractor to subcontractors), but has only minimal rules about what liability the storage company is required to take on (“must include commercially reasonable terms and provide for enforcement of the party’s obligation”). As business hates ambiguity, I think this is a prime opportunity for investment-grade insurance solutions, like those from New Energy Risk, which can indemnify the capture company against leakage from storage.
- Timing the Credit: Legislation states the 12-year period for claiming the credit starts when the equipment is originally placed in service. Some rejected comments sought to stretch the timeline, by delaying the ‘Placed in Service’ date to account for MRV plan approval or a commissioning ramp-up period. The current policy design rightfully incentivizes the fastest possible commissioning schedule.
- Lifecycle Accounting Is Only for CO2: Some CO2 utilization pathways mitigate greenhouse gases other than CO2, and mitigation may be greater than the Qualified Carbon Oxide directly utilized. To comply with ISO 14044:2006, the IRS required lifecycle analysis reports (LCAs) to ensure the overall carbon utilization process was reducing greenhouse gas emissions, but expressly limited those LCAs to account for carbon oxides only for purposes of the tax credit. The credit volume is capped by carbon oxides that are captured rather than also including those that are mitigated. This is an admittedly messy area with many different processes. In particular, there are issues with defining system boundaries, defining a baseline, and verification generally. Overall, I doubt any of this nuance will contribute meaningfully to overall credit volumes since geologic storage projects will be much larger.
- Defining Carbon Capture Equipment: Earlier drafts from the IRS had attempted to list the included and excluded equipment, which turned out to be confusing given the diversity of carbon capture technology and processes. The final regulations allow for inclusion of all equipment related to carbon capture up to the point of transportation.
- What Is an Electric Generating Facility: One would think this is obvious, but some facilities, like combined heat and power facilities, may sell incidental electricity to the grid even if power generation isn’t their primary purpose. Many are not large enough to meet the 500,000 ton per year minimum requirement. The IRS defines these facilities by their MACRS asset classes, which are used in calculating depreciation. Since MACRS classes are well defined, this should put to rest any questions about which facilities have to meet the higher minimum capture volumes of an Electric Generating Facility.
- Holding the Line on Tough EOR Regulation: The IRS appropriately held firm that enhanced oil recovery (EOR) operations had to have their MRV plans or ISO certifications in place before claiming the 45Q credit and could not do so on a provisional basis.
- Expansively Defining a ‘Qualified Carbon Capture Facility’: A previous IRS document, Section 8 of Notice 2020-12, provided a broad definition for how to define a Qualified Facility. I applaud the IRS’s flexibility, allowing projects that share some features including:
- common ownership
- common loan agreement were planned under the same FEED study
- share common operations and management
- share infrastructure
- are part of the same contractual offtake
- are combined in regulatory permits and reporting
- and/or are proximally located to qualify as a single unit.I see no compelling reason to disqualify facilities solely for being too small. Technoeconomics will dictate a minimally viable facility size, but I see no reason for the IRS to put its thumb on that scale. However, Placed-In-Service requirements will still require any distributed projects to be commissioned simultaneously, which I think will limit the utility of this broad definition. - Slammed the Door on Photosynthesis and Soils as “Direct Air Capture” and “Secure Disposal”: For proponents of photosynthesis and soil carbon as climate solutions, ‘direct air capture’ sounded like plants and regenerative agriculture sounded like ‘secure storage.’ The IRS rejected these comments and preserved the Congressional intent of the tax credit to support ambient capture facilities and geologic storage in deep formations, not soils.
- Lookup Period is Shortened: Any CO2 leakage is deducted on a last-in, first-out basis. Earlier rules provided a five-year lookback period for ensuring geologic storage, but the IRS shortened this to a three-year period. Class VI storage sites are not exempt from recapture requirements. The shorter lookup should be helpful as it lowers the compliance burden on the taxpayer. Insurance solutions from New Energy Risk can mitigate this further.
If you have additional questions about 45Q, we’d be happy to hear from you. Here at New Energy Risk, we are geared up to play a substantial role in helping to scaling new carbon capture technologies. So for us, the finalization of 45Q is the bedtime reading we’ve been waiting for. And now we can finally get some rest.
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Interview: Kara Owens, Global Executive Underwriting Officer – Cyber & ESG
We are inspired by people who are passionate about insurance and technology that solves pressing global challenges. In this interview series, our chief actuary, Sherry Huang, talks with friends of New Energy Risk whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.
“You should meet Kara Owens,” my reinsurance broker friend suggested to me last summer. “She is a cyber risk underwriting executive and is heavily involved with Markel’s ESG initiatives.” I had mentioned to him that NER is refocusing on our own ESG efforts: the ways we engage in business that is positive for environmental, social, and governance goals.
So, I reached out to Kara who shared the story of her career and her latest initiatives at Markel. Markel provides coverage for specialty insurance and reinsurance for commercial niche markets. Markel is one of the reinsurance partners of AXA XL that works with us at NER.
Kara, tell us about how you get to where you are today, and some of the mentors who showed you the way.

It’s been quite the journey. I am one of those odd ducks that majored in Risk Management and Insurance rather than falling into the industry. I went to Temple
University and had numerous insurance internships in college. After graduation, I accepted a role at Guy Carpenter. I decided after a couple of years that underwriting was more my passion, so I moved to TransRe. I spent eight years at TransRe, moving up from a line underwriter to a global P&L manager for Cyber before age 30. My role at TransRe took me all over the world – from South America to Europe to Asia doing presentations and helping insurance companies start cyber portfolios. I helped form the Women’s Group at TransRe and was on the Board of a project with the Singapore government. I was out of my comfort zone a lot. I truly think being outside of my comfort zone helped to shape my career.
I moved to Markel about three years ago and now I can work with all of the (re)insurance divisions, from fronting paper to Insurtech to alternative capital. I’m on the board of the Association of Professional Insurance Women (APIW), which helps me to give back while doing something I’m passionate about. I am also now engaged on the leadership team for the Markel Women’s Network. I recently became a strategic advisor to a start-up company that advises individuals and firms on how they can measure their impact in building a more sustainable world. When the role of global executive underwriting officer for ESG was established, Markel recognized my passion and I was graciously offered the position. I’m thrilled to continue this adventure!
I have been incredibly lucky with mentors throughout my career. I keep in touch with them all regularly and still need to seek advice to this day! I don’t think that will ever change. What has changed is that I am now acting as a mentor to several mentees. It’s important to me to give back to this industry.
What is your vision for Markel’s ESG practice?
My role is still very new and I’m so excited for what is to come! I think there’s a lot of work to be done in the industry that will really make a difference (while at the same time reducing risk). At Markel, we have always had a strong commitment to our communities and ESG is a natural fit with the culture. I’m in the process of working with colleagues to create an underwriting framework and strategy to allow Markel to better understand, prevent, and reduce ESG risks. There is also a lot of opportunity for product development by enhancing, creating, and supporting products that promote responsible environmental and social efforts.
I see a lot of ways for more collaboration in the insurance industry. We have seen examples already with the United Nations Environment Programme Finance Initiative Insurance Working Group and Principles for Sustainable Insurance initiatives where insurers and stakeholders collaborated on the proposed ESG standards. In addition to the insurance space working together, [the industry can embrace] other partnership opportunities with other industries and initiatives.
What do you enjoy the most about your job? What is the most challenging aspect?
What I enjoy most and what is the most challenging is the same thing for me.
Being involved in two areas that touch nearly every product line provides me the opportunity to constantly be learning, which I really enjoy. But sometimes I feel like I’m drinking from a firehouse as I evaluate numerous products’ exposure to cyber and now ESG.
I really enjoy the concept of ‘round-table’ in underwriting, which describes the need to look at each transaction from many perspectives, including how current events might affect our business and how each transaction/risk might affect our portfolio. I also love the potential to really make a difference with the ESG role.
What is your advice for people entering the insurance industry today?
One piece of advice is to never stop taking advice! There’s always room to grow.
A few more takeaways that have really helped me:
- Even with technology coming full-force at the insurance space, relationships are still the heart of the industry. Make sure to build a network and a support system including mentors.
- Join organizations and take leadership roles within those groups. This will help to build your confidence while building a network!
- Raise your hand when no one else wants to (this is what I did with cyber). Also: speak up. I always loved Ruth Bader Ginsberg’s quote, “Speak your mind even if your voice shakes.” Don’t be afraid to get out of your comfort zone often.
- Never stop learning—whether it’s taking classes or getting designations, going to conferences, taking a new job, or just reading the news and applying it to the insurance industry—there are always opportunities to grow.
- Find your passion. My passion seemed to change over time, but I always let it guide me in my decision making.
- Give back! This is an area where this industry never ceases to amaze me. I have met some of the most charitable people in insurance. Also, as you grow in your career, give your time to mentor and to organizations such as Gamma Iota Sigma or [elsewhere] such as universities to recruit talent into our amazing industry.
- Take care of yourself. It’s often difficult to balance it all, but it’s more important now than ever! Meditation, building in small breaks to my workday and going for walks outdoors have really helped me.
Thank you, Kara, for this interview. You inspire me with your can-do attitude, your desire to give back, and your passion for insurance-related ESG potentials!
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$100 Million from Elon Musk Won’t Enable Carbon Capture
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Last Thursday, Elon Musk announced (in well under 140 characters) his intention to donate $100 million to the “best” carbon capture technology, chosen through a competition whose details and judging criteria are yet to be announced. Musk promised further details next week. The problems holding back the mass deployment of carbon capture technology are primarily economic. As such, funding for research and development of carbon capture technologies is most welcome, and Musk’s donation will surely lead to technological advances. However, a Silicon Valley mindset like Musk's, one that champions disruptive innovation as the solution to all problems, is the wrong fit for this important industry.
One difficulty with carbon capture technology is that uses for its recovered CO2 are still limited. The predominant usage today is in enhanced oil recovery, a process that increases oil reservoir yields by injecting CO2 into the well. Multiple other commercial uses are in development, but until there is an offtaker willing to purchase CO2 at scale, projects are having a hard time gaining traction with capital investors.
Those investors are direly needed, however, because carbon capture technology is costly. For example, separating CO2 from the emissions of power plants or industrial facilities (e.g. Petra Nova in Texas) doesn’t happen spontaneously: it takes loads of energy. Separating CO2 from air (e.g. Carbon Engineering) is more costly still because the CO2 is thinly dispersed, making up only 0.04% of the air we breathe. Then on top of the expensive power needed to perform the separation, the equipment itself is still extremely expensive. Even as equipment costs come down, no technological advancement can overcome the laws of nature and make this process free.
Proposals to avoid the need for complex equipment by utilizing kelp, trees, soil, and other natural processes to capture and sequester carbon face the usual challenges associated with funding, creating, and managing forests or farms, but with the additional challenge that the true efficacy of these potential carbon sinks is still widely debated.
Whether the technology performing carbon capture is chemical, biological, or otherwise, somebody has to buy the resulting CO2 or otherwise incentivize its capture and sequestration to make the upfront and ongoing costs worthwhile.
To find markets for the captured carbon, some are looking at chemically converting CO2 into high-value products, like carbon nanotubes. The downside of this approach is scalability: the most attractive products hold high value precisely because they are hard to make or have small and limited markets. As one scales up carbon capture technology to impact climate change, the sheer quantity of produced material would swamp the niche markets for these high-value products, cratering prices and undermining the original business case.
A more scalable solution aims to create a circular economy wherein CO2 is used to make fuels; the kerosene used by Musk’s SpaceX could be made this way. Even here, however, fundamental laws of thermodynamics show that the energy input required to convert CO2 into chemicals or fuel is higher than the energy available in the products themselves. For an idealized system that converts CO2 and water into gasoline using only exactly as much energy as ends up in the fuel, the cost of the energy to perform the conversion would be $3.69 for each gallon of gasoline produced, assuming electricity at 10 cents per kilowatt-hour. It’s physically impossible, no matter the advancement of technology, to use less energy to synthesize that fuel. Real systems aren’t 100% efficient, and further, add in the cost for maintenance, overhead, water, energy for the CO2 separation from its source, and financing costs for the equipment to do all this work, which leads to still higher costs per gallon produced. Competing against cheap fossil fuels on a dollar for dollar basis is nearly impossible.
The only durable solution that enables the scaling of carbon capture technology is a regulatory regime that makes it more expensive to emit CO2 (through taxes, fees, or otherwise), that pays companies to capture CO2, or that does some combination of the two. Thankfully, some of these tools are already in place. Just weeks ago the United States Internal Revenue Service (IRS) finalized its rules for a program colloquially referred to as 45Q, a tax credit that provides projects with up to $50 per metric ton of CO2 stored underground. The California Low Carbon Fuel Standard (LCFS) provides credits to facilities that capture and store CO2, with the value of the credit floating based on a mandated trading market and the number of granted credits dependent on the overall carbon intensity of the process. Similar programs exist in the Pacific Northwest and a federal program is under development in Canada.
These programs are not enough. 45Q is temporary and will expire in a few short years. The LCFS program has limited scope and jurisdiction, and its market would be quickly overwhelmed if carbon capture reaches scale. But these programs provide mechanisms to help support the burgeoning industry today and provide blueprints for new programs in the future. The solution to carbon capture deployment lies in expanding financial programs like these to provide further incentives to technology developers.
Carbon capture today looks a lot like solar technology did 20 years ago, when it was on the brink of growing 500x over the next two decades. Research and development money did not unlock the solar market at the turn of the century; rather it was the emergence of a viable business model driven by mandated renewable energy targets that allowed solar to rapidly expand and run down the cost curve, driving further growth. Carbon capture is ready to make that jump.
Musk’s prize will surely help some firms further their technology and reduce their costs, but Silicon Valley-type solutions won’t create the market that unlocks carbon capture. Instead, carbon capture is ready for Wall Street and Capitol Hill. It will take the deployment of today’s technologies supported by billions of dollars in incentives and investment from governments, banks, and corporations to demonstrate the much-needed business case for carbon capture and truly enable it to scale.
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Interview: Audrey Lee, PhD, Clean Energy Senior Executive
We are inspired by people who are passionate about technology that solves pressing global challenges. In this interview series, our chief actuary, Sherry Huang, talks with friends of NER whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.
I first ‘met’ Audrey through a few shared online interest groups. One day I saw that she had posted about being a co-chair of Clean Energy for Biden. (I subsequently found out that Matt Lucas, NER’s managing director of business development, is also involved in the same organization.) This piqued my interest, and I then learned that Audrey has an impressive background with a wealth of diverse experiences. She has done everything at work from scientific research, policy and regulation, big data and analytics, product and market development; she is now a Board director for ArcLight Clean Transition Corp, a special purpose acquisition company with a focus on sustainability and clean energy. I spoke with Audrey on the eve of Election Day with great anticipation. Audrey is personable, open, driven, and enthusiastic about the work she is doing to promote the clean energy sector.
When did you first start working on energy-related technologies? Was there a pivotal opportunity or individual who led you to working in the renewable energy sector?
I first discovered energy policy in graduate school while struggling with my PhD in electrical engineering. I took classes in public policy with Professor Denise Mauzerall at Princeton and I loved how directly impactful to society it is. Professor Valerie Thomas was also an early believer in me and she helped give me a lot of confidence. When I graduated, I joined the Department of Energy through a Presidential Management Fellowship. I highly recommend that program, which targets recent graduates with an advanced degree for federal government public service. At the DOE Policy Office, under the guidance of Carmine Difiglio, I found a way to be the bridge between the technical analysts and modelers at Brookhaven National Lab and White House policy decision-makers.
Can you tell us about the most rewarding project that you worked on in the last few years? Between being an advisor to the California Public Utilities Commission, running Sunrun’s Energy Services group, and co-chairing the Clean Energy for Biden initiative, I am sure it’s hard to talk about only one!
I love proving that something new can be done. At Advanced Mircrogrid Solutions, we replaced fossil fuel power plants with an aggregation of batteries at customer sites. With Sunrun, we entered the ISO-NE capacity market with the aggregation of rooftop solar and batteries. Most recently, it has been great to be involved in Clean Energy for Biden – a volunteer organization – and witness the impact that we made from hundreds of active volunteers and 10,000 members.
Tell us a little more about the Clean Energy for Biden initiative.
We have three goals: fundraise, get out the vote, and provide policy recommendations. We leverage diverse skills of volunteers, across the country with more than 30 state/regional/affinity teams. Check out the upcoming policy summits on November 16 (4-6pm PT) and November 23 (4-5:30pm PT):
https://www.cleanenergyforbiden.com/policysummit
Do you have any advice for women who are pursuing a STEM career, who wish to maximize their impact using their backgrounds and skills?
Personally, my education in applied physics and electrical engineering provided a good foundation. I would encourage women to explore, talk to people, and understand the problems they are trying to solve. I’ve always loved learning from other people – including from my own family. My Dad is a physicist, and my mother is an entrepreneur. My general advice is never be too comfortable; ask yourself how can I learn more, how can I apply a quantitative, analytical approach to solve a problem.
Which areas require the most work in advancing clean energy solutions? Policy/regulation, innovation in technology solutions, or private investment?
Many technology solutions are economically competitive for clean energy already, and private investment, such as ArcLight, is ready to deploy investment and reduce the cost of capital. On the technology innovation front, we need more technology solutions for negative emission, such as carbon capture, to help achieve a rightfully aggressive clean energy goal of net-zero emissions by 2050. I think we have the most need for policy at this moment. Policies that set the rules of the game, set mitigation goals, and let competitive technologies and market solutions participate. Such policies can go hand in hand with economic recovery as more jobs are created in the clean energy sectors.
Thank you, Dr. Lee, for talking to me for this interview series!
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One Small Step for Torrefaction, One Giant Leap for the Bioeconomy
Commissioning of the US’s first commercial torrefaction facility is a milestone in its own right, and a potential game-changer for the bioeconomy’s inroads against fossil fuels
By Matt Lucas, PhD, Managing Director, Business Development
Moonshine: It might not sound synonymous with the bioeconomy, but at a massive scale, the fermentation of traditional sugar to create ethanol was where the bioeconomy got its start. Leaving behind tasty feedstocks and inebriating bioproducts until happy hour, today we see that the bioeconomy includes a growing and wide variety of feedstocks, processing technologies, and products. Importantly, when the feedstocks are cost-advantaged wastes that are converted into value, the bioeconomy is good for both commercialization and environmentalism.
One processing technology of the bioeconomy is torrefaction, a member of the trifecta of dry thermochemical waste processing technologies, which also includes gasification and pyrolysis. With the completion of the Restoration Fuels (RF) commercial scale torrefaction facility in Grant County, OR, the US now has a complete set of all three technologies in or nearing commercial operation. Each process has its own strengths and weaknesses, but all of them are important contributors to a new wave of bioeconomy innovation.
What is torrefaction?
Torrefaction is a thermochemical process where organic material feedstock (“biomass,” e.g. wood chips) is heated in the absence of oxygen to drive off water and volatile organic compounds (VOCs). The VOCs are burned to provide process heat, but the vast majority of the feedstock’s mass remains in solid form and exits the process as the product. The product, termed “bio-coal,” is more energy dense than biomass, is hydrophobic (important for shipping and storage), and is far more resistant to rotting (important for storage). Bio-coal is used as a drop-in replacement for coal as a global energy source, more on this below.
Torrefaction’s thermochemical counterpart, gasification, instead applies an oxidant to the feedstock so that most of it converts to a gaseous product stream. (Gasification makes gas, go figure.) The other counterpart, pyrolysis, uses the same oxygen-starved environment as torrefaction but typically operates at higher temperatures to drive further reactions that convert more of the feedstock to gases and liquids. (The meaning of pyrolysis is “pyro” for heat and “lysis” for break down. Incidentally, to torrefy means to roast, so I like to loosely think of torrefaction as the slow-cooker barbeque in the bioeconomy kitchen.)
What happened?
In 2019, the RF commercial-scale torrefaction facility started operations. The facility is co-located with an existing lumber mill. It processes forest residues from a forest restoration project on public lands, making use of what would otherwise be wasted or what would become a wildfire hazard. This is the first commercial-scale torrefaction facility located in the US.
The project had been a long time coming. It originated from the Consortium of Advanced Wood-to-Energy Solutions, a public-private partnership between the US Forest Service and the US Endowment for Forestry and Communities, a non-profit. The Consortium supported bio-coal production for a test campaign at Portland General Electric’s Boardman power plant.
Bio-coal as a coal substitute?
The bioeconomy has long been making inroads as a source of fossil fuel substitutes. Ethanol displaced gasoline (within limits). Biodiesel displaced diesel (within limits). Then renewable diesel came along to displace diesel entirely (without limits). Also, various biofuels can blend into the aviation fuel supply. Finally, let’s not forget renewable natural gas, which displaces fossil natural gas.
But throughout this bioenergy revolution, coal remained untouched. And that makes some sense. Coal is cheap and already losing ground to other fuels, so why chase a replacement for the lowest-margin product in a declining market? However, there actually are compelling reasons to pursue bio-coal. The coal-fired power generation fleet in much of the world is still young and critical to national grids. There are calls for a just transition from coal, which means prioritizing workers and keeping their jobs. A drop-in replacement, bio-coal, lets that happen, but also allows for these fleets to be an integral part of the energy transition. RF’s new facility takes advantage of this upside.
Lessons learned
Although it was ultimately successful, the reality is that RF had a tough time getting to market. What lessons can we learn? New Energy Risk’s products and some more general lessons from project financing could help for future projects:
- No offtake: RF didn’t have a long-term purchase agreement to enable project financing of their facility. For new products where market demand is not yet clear, it can be tempting to build an entirely merchant project. If possible, it is more desirable to establish market demand and a fit between your product and your customers’ specifications at sub-scale before the big dollars are at risk. Fortunately, subsequent torrefaction projects are securing letters of interest from overseas utilities for bio-coal, so we feel hopeful about the potential for creditworthy offtakes to support future projects.
- Minimal scale: RF can process 100,000 tons of feedstock per year, which is modest for a bioeconomy facility. Thermochemical processes almost always see improvement in capital efficiency at larger scale, so a larger facility would likely have been cheaper. RF has stated that part of their thesis is to match facility size to the local forest residue resource, so they targeted a smaller facility near a smaller forest. Luckily, there’s an opportunity to co-optimize facility sizing and location with forest restoration contracting. New Energy Risk’s insurance solutions can facilitate the technological and financial de-risking required to unlock larger capital projects.
- Feedstock uncertainty: The site that hosts the RF facility almost shut down in 2012 owing to a lack of wood fiber from the public forest lands in the area. The need for certainty in a long-term feedstock supply is critical to project financing. New Energy Risk is developing insurance solutions to help mitigate feedstock risk.
At New Energy Risk, we’re excited to see the trifecta of dry thermochemical processes—gasification, pyrolysis, and torrefaction—reaching commercial scale to support the waste-to-value and bioeconomy sector. These projects are even more impactful when the feedstock comes from forest restoration, both reducing the risk of wildfires in the forest while creating bioenergy and bioproducts. It’s an uncommon win-win for forest managers, coal workers, and environmentalists alike; may they celebrate together with a glass of moonshine and a toast to the future of the bioeconomy.
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Trump Embraces Corn Ethanol As The Election Draws Near
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Reports surfaced recently that President Trump had directed the U.S. Environmental Protection Agency (EPA) to reject a series of applications for biofuel waivers submitted by U.S. oil refiners, and on Monday the EPA confirmed the action. The move is the latest, and likely last, development in a major drama that has pitted traditionally red constituencies against each other, with farm states battling against big oil. For most of this presidency, the Trump administration has sided with the oil lobby and granted relief from biofuels mandates, but with an election year upon us, the president’s allegiances have shifted.
The regulation at the center of this dispute is known as the Renewable Fuel Standard, or RFS. Established by law during the last Bush presidency in 2007, the program was developed during an era of falling U.S. oil production as a strategic initiative to ensure domestic energy security. As esoteric as it may seem, the regulation underpins an ethanol industry that generated more than $46 billion in revenues in 2018 alone. Since ethanol is produced from corn, the RFS directly supports farm economies across the U.S. Midwest, with the bulk of production centered in Iowa and the surrounding states.
The RFS has few fans in the oil industry however, as the program adds compliance costs and overhead. When the regulation was passed, the oil lobby secured a waiver program in the legislation, allowing small refiners to obtain exemptions from biofuels mandates. Under the Obama administration, few waivers were issued. But once Trump came into office, the floodgates opened and over 30 waivers were granted in the first two years of the administration, including to large refiners. Biofuels mandates for other refiners weren’t increased to compensate, and ethanol prices fell steeply. By 2019, the value of the ethanol credit (known as a ‘D6 RIN’) had collapsed to just a quarter of its value from two years earlier, its lowest level since 2013.
The battle was on: Chuck Grassley (R-IA) attacked the EPA, saying the organization had “screwed us.” Lobbyists for farmers and ethanol producers unloaded criticism on administration officials. Lawsuits were filed to challenge the validity of the waivers. Ethanol producers closed facilities and went out of business. Throughout this process, the Trump administration tried to mollify corn growers and made various promises to farmers. The promises, however, turned out to be hollow and the administration failed to deliver. It seemed as if farmers and ethanol producers were on the losing side of the fight.
Then the courts stepped in. In January of this year, the U.S. Tenth Circuit in Denver sided with the ethanol industry and ruled that the Trump EPA exceeded its authority in issuing the waivers. Soon after, the government signaled it would not appeal. The oil industry, incensed, wasn’t ready to accept defeat. They noted that the court’s decision didn’t invalidate the EPA’s ability to issue waivers entirely: The court held that the EPA maintained the authority to grant waivers, but only as extensions to waivers already issued. Oil refiners quickly filed a series of retroactive waiver applications, 68 in all, to provide the necessary chain to pass legal muster.
They didn’t stop there either. The oil groups opened a second flank in the battle by petitioning the U.S. Supreme Court to review the lower court’s decision. They did this despite knowing that the strategy is highly unlikely to succeed, given that the defendant in the suit, the EPA, has not joined their brief or filed an appeal. Beyond these near-term battles, a larger conflict looms: legislated quotas under the RFS expire at the end of 2022. At that point, the program will still technically exist and the EPA will still be required to set quotas, but with no mandates specified in law. Lobbying from both sides will aim to shore up or eliminate the RFS prior to the expiration. Should Congress fail to act, expect more lawsuits.
But for now, farmers have gained the upper hand. The decision by Trump to deny the 68 retroactive biofuels waivers has put a final, permanent end to refiner’s strategy of undermining the RFS through mandate waivers. Their next hope is that the EPA sets low volume requirements for 2021, but with an election looming and support for Trump dipping across the Midwest, the president has bet that backing farmers across states like Ohio, Minnesota, and Wisconsin is good politics. He has turned his back on the oil lobby his administration originally supported, and for now, the RFS lives on.
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Interview: Connie Joe, Corporate Social Responsibility Officer, Bank of the West
We are inspired by people who are passionate about technology that solves pressing global challenges. Scaling and commercializing those solutions requires serious knowledge, courage, perseverance, and support systems like those who work in the insurance industry. In this interview series, our chief actuary, Sherry Huang, talks with friends of NER whose work makes a difference, and whose journeys will inspire you, too.
This interview has been lightly edited for clarity.

Connie and I met through our kids and we are in the same book club. We seldom discuss work when we meet (our kids are usually in the way!), but recently we realized our work has some common ground. Connie is the Corporate Social Responsibility (CSR) officer at Bank of the West, while I work on an insurance team that supports commercialization of sustainable, breakthrough technologies. After spending some time talking to Connie, I realized we have more professional commonality than I thought! We both work to enable innovative new ventures using the platform of traditional industries, and we each enjoy the aspirational part of our jobs, making a difference for our partners and the world.
Connie, you are always so enthusiastic about your job! Tell us about what you do at Bank of the West.
As a CSR officer at Bank of the West, my role involves setting up and implementing governance guidelines for various mission-driven programs that align with environmental, social, and governance (ESG) initiatives at the company. Along with others on my team, we work on programs that span from community outreach, to governance for new sustainability-related requirements (e.g. no coal business by 2030), and we partner with others in the company to grow new business portfolios such as our Energy Transaction vertical. Both Bank of the West and its parent company, BNP Paribas, have a strong focus on sustainability and a commitment to social issues, striving to be the bank for a changing world.
How do you measure success at work and what are some of the challenges you and your team face?
Our group goal is aligned with the company’s mission to become a leader in sustainable banking. We measure our success by monitoring and reporting on our annual CSR plan. Balancing the cost and benefit of implementing the right mission-driven programs and managing missed opportunities is something that I think all of us have to work with from time to time.
What parts of your job excites you the most?
I sincerely love being able to make a positive difference as the core part of my job. It gives me great satisfaction to know that my role plays an integral part in making sure that we are only financing companies that are supporting energy transition. Bank of the West also has some innovative sustainable financing programs that support energy transition for retail consumers. For example, our ‘1% for the Planet’ debit account provides a carbon footprint tracking tool for every purchase made with the debit card and will donate 1% of revenue to environmental nonprofit partners. I am also proud that Bank of the West is one of the few US banks that has a CEO who is a minority woman!
How did you get to where you are today?
I studied biology in college and started my career as a consultant at Accenture with a focus on public health. Starting out in consulting was a great experience – I loved the goal-oriented, clear-path environment that allowed me to grow exponentially. I decided to move away from consulting after starting a family and got more involved with process and program management. I took a chief of staff position at Bank of the West that enabled me to return to community development through working on the Community Reinvestment team, which eventually led me to the CSR team today.
Did you have a mentor who helped you shape your career?
Yes, I have been lucky to have mentors that have helped me grow and navigate my career. One of my mentors is famous for promoting women into positions that were stretch roles. He constantly challenged us to never become too comfortable in our roles and demonstrated to me how important it is to have an executive who can see your potential before you can. Another mentor was instrumental in supporting [me when I was] finding my way back to working in community development. Her support during my career pivots, even if it was not the easiest path to her organization, allowed me to begin and grow my career in the CSR area.
Thank you, Connie!
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A Unanimous FERC Decision Saves Net Metering
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
A much-hyped petition to the Federal Energy Regulatory Commission (FERC), which sought to end net metering on customer-side rooftop solar energy in the United States, was put to an unceremonious end last week. FERC commissioners unanimously voted to dismiss the petition. Submitted in April by a secretive group calling themselves the New England Ratepayers Association (NERA), the petition raised alarm bells across the solar industry, with some actively questioning whether FERC’s response to the petition would be a fait accompli. Yesterday’s dismissal alleviates those fears and saves net metering, but the future of the popular program remains uncertain.
Net metering began in the United States over 40 years ago as a way to compensate small-scale wind and solar owners who wanted to use the electricity generated by their systems at different times of day. Since solar panels only generate power when the sun shines, a consumer may end up producing too much electricity during the middle of the day and too little in the evenings and at night. Net metering solves this problem by paying the consumer retail rates for their excess electricity during one portion of the day to offset the costs of power when the sun isn’t shining. This simple mechanism became the bedrock of solar policy across the United States, helping to enable the incredible growth in residential solar installations across the country.
Net metering policies are set at the state level, and this patchwork creates different regimes in different jurisdictions. The petition before FERC sought to preempt state rules with federal oversight, and the fear among solar proponents was that a fossil-friendly administration would effectively shut the programs down. After NERA filed its petition, there was immediate speculation that the shadowy group was funded by utilities, who have traditionally viewed net metering as a threat to their bottom-lines and fought expansions of the program. When many stayed silent on the petition itself, that speculation grew and later reporting identified a link.
Utilities have fought net metering because it costs them money. When a solar customer is paid retail rates for their excess electricity production, the utility is paying a significant premium above the wholesale power rates it pays to commercial producers. Many have argued this is worthwhile policy, as it incentivizes cleaner means of production, but others have countered that the program is unfair and forces utility customers to subsidize the solar panels on other roofs. Some go as far to argue that net metering is essentially a form of regressive taxation, with the beneficiaries tending to be higher income.
But net metering has another, more existential, problem: Bundled into a significant portion of retail electricity rates are costs unrelated to the production of electricity, including grid management and maintenance. When solar owners are compensated for extra power at the retail rate, the utility loses out on revenue it needs to maintain the wires. At small penetrations of solar, this loss is manageable, but as solar installations grow, utilities can find themselves serving clients who pay less in utility bills than it costs to keep service going to those homes. As a result, net metering can’t scale; at some point, customers need to pay (more) to maintain the grid.
Already, states have pulled back from net metering, including some at the leading edge of solar and renewables deployment. Hawaii, perhaps the clearest example, eliminated net metering in 2015, despite maintaining a 100% renewables goal by 2045. In its stead is a more complex system wherein solar customers are paid for the excess power at less-than-retail rates. Permits for installs quickly began to tumble. Other states have enacted distributed solar caps, and once a cap is hit, net metering is no longer available for new solar customers. Illinois hit its cap earlier this year, starting a process to transition away from net metering programs. Phaseouts have occurred in Arizona, Connecticut, Indiana, Kentucky, Michigan, and New Hampshire.
For those considering a solar purchase, the time may be now. Most programs grandfather in those lucky enough to interconnect while net metering remains in place, and the impending roll off of the federal investment tax credit adds further motivation. FERC has taken the threat of an immediate net metering cancellation off the table, but expect more phaseouts as solar continues its explosive growth. Net metering programs won’t be around forever.
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A Renewable Future Is on the Horizon
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Dominion Energy, one of the largest utilities in the United States with over 7 million customers across 18 states, recently announced that it was shedding a large portion of its natural gas portfolio to Berkshire Hathaway, including the largest storage site in the United States, while cancelling plans for a controversial pipeline project in Appalachia. The sale, worth almost $10 billion, transfers vast gas storage and transport holdings and refocuses Dominion’s activities on the regulated electricity sector. The company, not generally known as a leader in clean or renewable technologies, has in recent years begun a concerted effort to restructure its generation portfolio to cleaner sources in its home market of Virginia.
This sale represents yet another sign that a renewable future, nearly free of fossil fuel influences, is closer than many would have imagined possible just 10 years ago. It’s also a strong signal that public policy works and is imperative in driving this change.
At first glance, these asset sales seem to fall in line with much of Dominion’s recent activity: Dominion regularly touts on its website and press releases the renewable bona-fides of the company. Since 2013, the company has deployed 1.8 GW of solar across its territory, and is expecting another 16 GW by 2035. It recently announced its desire to develop the first offshore wind project along the mid-Atlantic coast, and has begun site surveying work, hoping to install over 5 GW of offshore wind in the next 15 years. But Dominion’s renewables focus didn’t come along by itself.
In 2018, Democrats took control of the Virginia government for the first time in decades. Quite suddenly, Dominion found that a regulatory environment it had readily dictated was suddenly out of its control. Within two years, the state of Virginia had passed regulations requiring Dominion to be 30% carbon-free by 2030 and 100% carbon-free by 2045. All coal plants are required to be shut down by 2024. Dominion, long accustomed to its fossil-fired fleet, with minimal renewables in its portfolio (about 5%) compared to its peers, has suddenly been forced to dramatically alter its generation business.
Despite its supposed renewables focus, Dominion has routinely sought to develop more natural gas power generation. The utility has brought nearly 10 GW of gas power online since 2010 and had plans to add 3.6 GW more by 2035. Only 5 GW of new solar was proposed in that same timeframe. Virginia, however, pushed back on the proposal. For the first time in generations, Dominion found that its plans were not rubber-stamped by regulators. Forced back to the drawing board, Dominion returned with the more focused renewables plan they promote today. This came begrudgingly, and Dominion is now seeing the writing on the wall: Its gas business is simply not a business of the future. It consequently made a decision to get out now and refocus the company on its regulated utility business.
Where Virginia hopes to nudge Dominion, in California the stronger push of regulators to transform electricity supplies shows how much more is possible. For example, on June 28, California notched three consecutive hours with over 90% of its grid powered by renewables, predominantly solar and wind. Three hours may seem like a small period, but it is stunning that the California Independent System Operator could reliably fold in such a high concentration of renewable assets to the world’s 5th largest economy during the peak of the day. It was not long ago when the near-universal consensus was that such a high utilization of renewables was impossible and would lead to a fundamental destabilization of the grid. California policy makers continue to urge its utilities forward, and greater renewables penetration is expected in the months and years ahead as a result.
Dominion’s gas asset sales will help enable the utility’s transition into the future. Without as many gas assets to maintain and support, Dominion will be freer to move away from fossil sources, as legislation demands. That future won’t appear tomorrow, and eliminating gas from the Dominion portfolio may take decades. Unlike California, Dominion isn’t (yet) looking to turn off gas peaker plants and replace them with solar and storage. But California utilities weren’t aiming for that five years ago either. Change takes time and Dominion has taken another undeniable step forward. It’s a welcome sign for all who look forward to a cleaner future.
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Sunrun’s Vivint Acquisition Creates the Leader in an Evolving Residential Solar Market
By Brentan Alexander, PhD; Chief Science Officer & Chief Commercial Officer
Sunrun’s nearly $1.5 billion all-stock acquisition of Vivint Solar, announced today and expected to close later this year, creates an undisputed king in the residential solar space. The combined company, valued at over $9 billion, will control over 15% of the residential solar market. Its closest competitor, Tesla, claims just 6% of the market; its solar business entered free fall after it acquired the one-time leader SolarCity despite its troubling financial outlook (which led to shareholder lawsuits). Sunnova, another competitor that went public just over a year ago, is valued at only $1.6 billion, a fraction of Sunrun today. A combined Sunrun and Vivint represents the largest consolidation in the residential solar market to date and sets up Sunrun to lead the sector as it grows and matures.
The Search for New Roofs
The residential solar business model requires finding vast numbers of new customers looking to put solar on their roofs, compelled by the promises of utility bill savings. Installers expend significant resources on sales and marketing teams that, in many cases, go door-to-door to sign up new customers. Now with most early-adopters off the market, companies are hungrily hunting for new customers. But some approaches to customer acquisition have floundered. For example, when Tesla moved to an online-only approach and abandoned targeted sales activities, its market share collapsed.
For the past half-decade, growth has been enabled by the rapid fall in prices for solar equipment combined with rising utility rates. As prices dropped, houses that previously presented uneconomic value propositions suddenly became attractive solar targets. Although those trends continue, the impending roll off of the residential solar investment tax credit (ITC), valued at 26% this year and scheduled to drop to 22% next year and 0% the year after, threatens to push business in the wrong direction. The ITC roll off essentially adds cost to the system, tightening margins. COVID-19 hasn’t helped: Tax equity that can monetize the ITC has become harder to find with the large uncertainty in corporate profits.
For many years, Sunrun and its competitors pushed consumers towards a lease option, wherein the solar company would finance the cost of the equipment and guarantee an electricity rate for decades, usually 20 years. Homeowners would get power with little to nothing upfront, and all maintenance would be handled by the lease provider. The industry has been shifting in recent years as more homeowners have sought to buy systems outright and capture more of the value created by their systems. To avoid being squeezed, Sunrun and others have responded to these changes by offering financing options to buyers and signing up customers for service contracts to maintain their systems.
It’s a cutthroat business that favors those with more efficient customer acquisition strategies and access to cheap capital. Sunrun’s appetite for Vivint seems squarely aimed at improving their standing on both fronts, boosting margins and allowing Sunrun to outrun competition. Sunrun estimates that the combined company will realize $90 million in “cost synergies,” lowering the cost of customer acquisition. Further, Sunrun Executive Chairman Ed Fenster noted on an informational call that they expect the combined company to more effectively and efficiently raise capital to support their operations. Offering leases and financing options depends on access to low cost capital (and tax equity while the ITC remains in place), and the larger Sunrun should have an easier time finding cash.
An Evolving Revenue Model
This Sunrun deal also sets up well for the long-game: At some point many years out, there won’t be enough open roofs with sufficient solar resources to justify further solar deployments, and costs to acquire new customers will jump. As a result, Sunrun’s grid services business is likely to grow in importance. By building to ensure there are gigawatts of distributed solar and storage under management, Sunrun will be positioned to control storage systems and supply electricity to the grid on command, a valuable grid management service.
Sunrun (and its competitors) have rushed to enable this market by offering battery storage options for customers as part of the solar system pitch. Rolling “public safety” outages in California and the Coronavirus pandemic have helped whet customer appetite for resilient systems. Unlike a standalone solar system, battery storage devices require another level of oversight and control. When should the battery by charged and discharged to maximize customer benefit and unit life? How can a customer ensure their storage device is ready to supply electricity to the grid in times of high demand?
The packaging of distributed assets into so-called “virtual power plants” has only started recently and is still in its infancy; startups focused on algorithms to dispatch these assets abound. Sunrun has already started to dip its toe into this game. They announced their first wholesale contract with a grid operator in early 2019, are now working to utilize their assets in California to replace a gas-powered spinning reserve power plant in Oakland, and recently reported $50 million in near-/final contracted revenues associated with grid services (although a small fraction of the top-line, to be sure).
Competing in the grid services game requires scale. The more assets you have to manage, the more power you can pump on or off the grid, and the more value you can capture from grid services. Which brings Sunrun back to their current primary business: customer acquisition. The more customers Sunrun acquires today, the more they enable their grid business tomorrow.
Navigating the Rough Patch
The last six months have been a wild ride for the residential solar space. Business during the first quarter of 2020 was up for Sunrun, with year-over-year installations growing 13 percent. By the end of March, things had cratered along with the economy: business was down 40 percent. Sunrun and its competitors, heavily dependent on in-person marketing techniques, began furloughing or laying-off workers and preparing for a very different future. 72,000 jobs were lost across the sector as a result. Online sales systems were spun-up on the fly and contactless acquisition processes were rolled out. Business has ticked back up recently, but is still far below the levels projected at the start of the year. Estimates are that demand will be lower than pre-pandemic levels for the foreseeable future.
Vivint was especially reliant on door-to-door sales methods to grow its business, a model ill-suited for the current moment. However, Sunrun’s acquisition of Vivint is as much about surviving the current moment as it is about prepping for the future. Although some relief may come from Congress, where House Democrats have raised the prospect of an ITC extension, Sunrun is preparing for an uncertain future in which the old rules of customer engagement are essentially against the law. By combining forces, Sunrun and Vivint get a larger megaphone from which to advertise digitally, and the ability to scale up targeted in-person marketing across a variety of distribution channels when lockdowns ease.
For now, both Sunrun and Vivint are sounding a confident note, highlighting their combined strength and painting an optimistic future together. Wall Street (not always the best judge of things) seems to agree, with both Sunrun and Vivint stock up considerably today given the news. Tesla, Sunnova, and others are surely taking note. When the transaction closes, the larger Sunrun will be the undisputed leader in residential solar, evermore ready to rise.
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