By Opeyemi Naimot Dawodu, Legal Intern, Pace Energy and Climate Center
Introduction
The Pace Energy and Climate Center (PECC) is happy to announce the publication of the report, Expanding Municipal Options for Thermal Energy Networks (“the Report”), —developed for Mount Vernon, a municipality in New York State, on strategies for a permitting regime and the potential options for structuring thermal energy networks (TENs). TENs, otherwise called district geothermal, involves the adoption of technologies that use heat pumps to move thermal energy from sources, such as the ground, surface water, wastewater, and waste heat, to provide heating and hot water to one or more buildings. TENs also involve moving thermal energy to sinks, such as the ground, and surface water, to provide cooling to one or more buildings. Thus, TENs are ideal for heating and cooling purposes in buildings.
The goals of municipal TENs projects are to enhance decarbonization efforts, promote cost-effective means of providing heating and cooling to homes, commercial buildings, and industry, as well as promote equitable access. These projects are a critical effort towards the fight against climate change because the energy supply contributes to no less than three-quarters of global greenhouse gas emissions, and the amount of greenhouse gas emissions from commercial and residential buildings from heating and cooling are significant.
Legal Considerations for Developing TENs
It is against this background that PECC has developed the Report, which critically evaluates a myriad of options available to Mount Vernon and other municipalities for implementing TENs in their communities. The report considers affordability as the central goal while also taking into consideration sustainability and equitable access to TENs. The report discusses some key considerations that could potentially affect the affordability of TENs. These considerations include the permitting regime, legal and tax considerations, and business models. A unique feature of the report is that it highlights potential strategies that Mount Vernon and other municipalities in New York can adopt in developing a permitting regime. The report advises Mount Vernon on the most viable options for structuring the permitting regime and how the options impact the project timelines and cost. A permitting regime that is more flexible and less cumbersome is highly recommended for Mount Vernon and other municipalities as this will promote the development of geothermal technologies and reduce energy costs that could be passed onto consumers.
Proposed Permitting Regime for TENs
Specifically, the report proposes a risk-based approach for the permitting regime, which involves categorizing the permits into four types. That is, Types A, B, C, and D. The report suggests that Type A permits would apply to small-scale, closed-loop and low-risk projects. Type B permits would cover more complex closed-loop geothermal pump projects that are low risk but more complex than Type A. Type C permits would apply to open-loop systems while Type D would potentially cover projects with technical risk, a higher degree of complexity and environmental sensitivity. These tiered categorizations help to strike a balance between low-risk and high-risk projects while factoring in the features, complexity, technical requirements, and environmental risks involved. The tiered permitting approach would also enhance the ease of adoption and advancement of TENs while ensuring cost-effectiveness. In the report, PECC also proposes that municipalities facilitate TENs projects through permits and by incorporating federal and state environmental regulations and industry standards. The Report also calls upon municipalities to consult with the New York State Department of Environmental Conservation which is in the process of developing a regulatory framework for TENs that will govern drillers.
Legal/Tax Considerations
On the legal and tax considerations, PECC’s report analyzes the various ways the TENs project can be structured to maximize the tax exemptions, incentives, and ensure efficient pricing. To achieve this, ownership, financing, operation, and revenue generation options are considered in the Report to give municipalities a clear picture of the options, and respective tax consequences. For instance, the Inflation Reduction Act (IRA) has extended the Investment Tax Credit (ITC) to apply to geothermal technologies. Also, PECC’s Report factors in the legal considerations under the New York State Utility Thermal Energy Network and Jobs Act, the Public Service Commission’s (PSC) regulatory roles and how to qualify for PSC regulation exemption, as well as the New York State law governing Local Development Corporations (LDCs).
Business Models for TENs
In addition, the PECC report suggests the adoption of business models, like municipally-owned (not-for-profit) TENs, as this will provide significant economic benefits for consumers, prioritize cost efficiency, and ensure long-term community benefits. Municipally-owned TENs could be structured with complete municipal ownership, which means that the municipality owns, finances, and operates the TEN. This type of model is appropriate for a municipality that has the administrative, financial, and technical capacity to run the TEN. There is maximum cost-efficiency and control in this model. There are other types of models including partial municipal ownership with outsourced services and private or utility-owned TENs with municipal involvement. These models are discussed in the report with particular emphasis on the municipally-owned TENs as the most viable option for Mount Vernon.
Conclusion
Overall, PECC’s focus in the TENs report is to assist Mount Vernon and other New York municipalities in developing geothermal technologies in the most affordable, sustainable, and equitable manner possible. The report’s objectives align with the New York State decarbonization goals as well as Statewide actions to promote energy efficiency in buildings and industries. PECC remains committed to foster, through its projects, the reduction of greenhouse gas emissions.
The report, Expanding Municipal Options for Thermal Energy Networks, can be found here.