United States: Energy Insights: An Update From The Third Quarter Of 2016

In this edition of Seyfarth Shaw's Energy Insights Newsletter, our Energy and Clean Technologies team covers important developments in Q3 2016 for the energy industry, including 1) investments by internet companies in renewable energy to support their core businesses, 2) the eligibility of PACE financed properties for FHA-insured mortgages, and 3) the impact the extension of PTCs and ITCs, as well as the IRS's clarification on rules surrounding commencement of construction, has had on wind projects.

What do Cloud Computing and Wind Farms Have in Common? According to Internet Tech Giants Like Google - a lot

Google recently announced the purchase of the entire 12-year power production from a yet-to-be-built Norwegian wind power farm to supply its European data centers with renewable energy. In the past couple of years, they have invested in a North Dakota wind farm with 113 turbines developed by NextEra Energy Resources producing about 169.5 megawatts of power, as well as in the Lake Turkana Wind Power Project in Kenya, which is expected to generate 1,400 gigawatt-hours of power per year, or 15 percent of the country's electricity consumption, according to Vestas, one of the project's co-developers.  Investments have also been made in a solar plant in South Africa, along with other wind investments in Iowa, Texas and Oklahoma.  Google is not the only internet giant contracting for more renewable energy.  Other internet tech giants and cloud based service providers are contracting with wind and solar farm developers to generate power in states such as Texas, Indiana, North Carolina, Ohio and Virginia to support their expanding web services and cloud data centers.

So, why all this investment in what seems to be non-core businesses?  According to Greentech Media's Andrew Mulherkar, it's about cost management and predictability, sustainability and resiliency.  One could also argue it is also a necessity.  For these companies to continue to expand their platforms and customer reach, and support their growing services, more computing and cloud power in untapped regions is required.  Many renewable energy companies in the business of constructing, owning and operating energy generating facilities can't use their balance sheets or just a power purchase agreement to support and obtain the financing needed to construct such facilities.  Sizeable equity contributions must be made, and what better source than the purchaser of the power itself to invest.  While these investments sound non-core, the internet and tech giants view it as very connected and necessary.

HUD and FHA Go Live with PACE Financing

Effective as of September 17, 2016, the U.S. Department of Housing and Urban Development (HUD) and Federal Housing Administration (FHA) will now permit properties encumbered with a Property Assessed Clean Energy (PACE) obligation to be eligible for FHA-insured mortgage financing, whether for new purchases or refinancing. 

Pursuant to Mortgagee Letter 2016-11 issued back in July, HUD and FHA announced their support for clean energy and energy efficiency improvements by allowing Property Assessed Clean Energy (PACE) financing and improvements on its residential properties.  The terms and conditions of the PACE obligation may vary by state, local government, and PACE program. PACE programs also determine the scope of allowable improvements made under their respective PACE programs. 

In order for a PACE-encumbered property to be considered for FHA-insured mortgage financing, (1) the PACE obligation must be treated like a special tax assessment under the PACE-enabling legislation or ordinance; (2) only delinquent special assessment payments may take priority over a mortgage; (3) the PACE obligation must freely and automatically transfer upon sale; (4) the PACE obligation must be recorded on the land records; and (5) an outstanding PACE obligation must run with the land.

For properties with existing PACE obligations, the property sales contract must indicate whether the obligation will remain with the property or be satisfied by the seller at, or prior to, closing.  Where the obligation will remain, all terms and conditions of the PACE obligation must be fully disclosed to the borrower and made part of the sales contract between the seller and the borrower.  Further, any appraiser must analyze and report the impact on the value of the property, whether positive or negative, of the PACE-related improvements, and of any additional obligation (i.e., the PACE special assessment).

Notwithstanding the restrictions, this is an important step towards improving government-backed housing and reaching national energy efficiency goals.

IRS Extension of Production Tax Credit Qualifications and Safe Harbors for Wind Developments a Success in Spurring Growth

Back in December of 2015, the Protecting Americans from Tax Hikes Act of 2016 (PATH Act) extended the expiration date of the production tax credits (PTC) for wind facilities to those commencing construction prior to January 1, 2020. Thereafter, on May 5, 2016, the Internal Revenue Service (IRS) issued Notice 2016-31 which extends the window of time for eligible wind facilities to meet the "beginning construction" requirements necessary to qualify for renewable energy PTC, and also clarified the application of the "Five Percent Test" and "Physical Work Test" safe harbors under the continuous work requirement to be eligible for the PTC. The Notice also provided examples of activities that qualify for the physical work test, which includes (1) beginning work of a significant nature, such as excavation, (2) setting anchoring bolts, and (3) pouring concrete, but specifically excludes pre-construction activities such as project design, securing financing, exploring, or conducting environmental studies. 

A project will also be deemed to have "begun construction" if, pursuant to the Five Percent Test, it has paid or incurred five percent or more of the total project cost. Work on existing facilities only qualifies if the used property is no more than twenty percent of the project's face value. For retrofitted technology, the Five Percent Test applies to new property only. Additionally, a project may not alternate the Physical Work Test and the Five Percent Test year-to-year to satisfy the continuous progress requirement.  The Notice further provides clarification on excusable project disruptions, which allow projects to continue to satisfy the continuous progress requirement. Excusable disruptions include severe weather conditions, natural disasters, labor stoppages, interconnection-related delays, and permitting or government requested delays. And based on data reviewed, it appears that the lengthy extension by the PATH Act and the predictability of the IRS Notice has been very helpful to the wind industry.  

In 2015, according to the American Wind Energy Association, wind energy was the No. 1 source of new electric generation capacity in the U.S., delivering 41% of new capacity installations. In the wind rich regions of the Midwest, Pacific Northwest, and Plains states, wind was the primary choice for new power, providing over 59% or more of all new electric generation capacity between 2011 and 2015.  The U.S. led the world in wind energy generation, producing a record 191 million MWh of wind energy during 2015 – enough to power 17.5 million American homes.  However, "under construction" announcements in the fourth quarter of 2015 were down dramatically to 9,400 MW pending re-authorization of the PTC.  Nevertheless, by the third quarter of 2016, "under construction" levels were back up to mid-2015 levels, indicating that the PTC is still a driver for wind project development and completion, and ultimately an economic driver for the clean energy economy.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions