IRS Provides Relief for Offshore Wind and Federal Land Projects

New guidance from the Internal Revenue Service (IRS) extends the Continuity Safe Harbor to 10 years for both offshore wind projects and projects on federal land. The relatively quick release of this guidance following enactment of the offshore wind investment tax credit (ITC) last week suggests strong support for these projects by Congress, the US Department of the Treasury and IRS.

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Five Takeaways: Utility Acquisition of Renewable Projects – A Discussion of the Legal and Tax Issues Regarding Utilities, Developers and Tax Equity

Increasingly, utilities are replacing older generation fleets with more cost-effective generation technologies. Renewables are cost-competitive alternatives in this effort for a number of reasons, including the current tax incentives. A utility’s acquisition of a renewable asset presents many issues not otherwise present in a non-utility acquisition, particularly if the utility intends to include its investment in rate base.

In our webinar, we discussed the legal and tax issues associated with renewable energy transactions based on our experience representing both utilities and developers.


Below are key takeaways from this week’s webinar:

  1. 2021 will bring an increase for the renewable energy industry, despite the effect COVID-19 has had on the market.
  2. Some issues to consider when creating a tax equity structure that involves a utility are: regulatory investment limitations, related party and normalization considerations.
  3. Utility build-transfer agreements should be executed well in advance of the notice to proceed. These agreements usually involve classic mergers & acquisitions (M&A) representations and warranties that are made in advance of the project beginning.
  4. Developers under a build-transfer agreement should consider ways to mitigate risk.
  5. Timeline is important. A utility will commonly use the interim period between entering into a build-transfer agreement and closing the transaction, to complete tax equity documents and make certain representations and warranties to the tax equity investor.

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Seeing Beyond the Wall of Capital

In the United States, despite the continued spread of COVID-19 and the uneven approach to reopening, where that is even occurring, deals in the renewable energy sector are happening.

In a recent article for Project Finance International, Chris Gladbach and Seth Doughty discussed the state of the US market for renewable power projects, including how investments (and investment styles) have changed, new technologies and more.

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Republished with permission from Refinitiv Project Finance International.



Six Takeaways: Developing and Financing Offshore Wind – Challenges and Opportunities

McDermott hosted James McGinnis, managing director at PJ Solomon, and Salvo Vitale, country manager at US Wind, on September 17 for an interactive discussion on the US offshore wind market.

Below are key takeaways from this week’s webinar.

1. The challenges facing the US offshore wind industry are similar to challenges that are faced with any newly-emerging industry: keeping the large number of stakeholders satisfied and maintaining support from the general public, which will need a concurrence of private interests towards common goals. Political winds in particular are subject to change, and therefore should be carefully monitored.  Policy ultimately aligning with industry to carry the industry forward will be critical.

2. Managing timing expectations can be particularly important. As a new industry, logistics and development processes are continuing to develop and there may be unexpected issues that influence timing (including logistical, technical and policy issues) that in turn affect stakeholders in various ways. To the extent possible, the industry should be prepared for these unknown risks.

3. Availability of tax equity will be critical and there are open questions as to whether that capacity will be available to support the large amount of capital that will be needed. Oil Majors and Strategic players will of course be advantaged in the near-term given these challenges. In the medium term, additional pools of tax-advantaged capital will need to be identified to fill the gap (or policy solutions will need to be employed to address this issue).

4. As the industry matures certain players such as certain equipment suppliers or service providers will likely become more prominent and sometimes the only reliable resource for such product or service. However, there are players in the market that may not be known in the US but are participants in the global market. The industry should continue to seek out other suppliers or service providers that are outside its comfort zone.

5. The enormity of capital needed to support all of the offshore development cannot be over-emphasized. Significant opportunities are and will become available for private equity investors to participate in a prudent and meaningful way (and to obtain outsized returns).

6. While some uncertainties and risks still exist in the US offshore wind industry, recent developments indicate that there is interest in the market and capital that is available to be deployed. As more projects move forward and permitting and other obstacles get resolved, barriers to additional capital deployment will be lowered.

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