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Insights for the Global Energy Industry
ENERGY BUSINESS LAW
Insights for the Global Energy Industry
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The Energy Market in 2021: From Crisis to Opportunity | Reenergizing after the Storm

by and | Mar 22, 2021 | , , , ,

The energy market has undergone significant change in the past 12 months, with even more on the horizon. Our webinar series explores how these changes have shaped—and will continue to impact—the energy industry, including discussions of what’s to come.

Our latest webinar featured FTI Consulting’s Chris LeWand, Global Power & Renewables Leader and RJ Arsenault, Managing Director in the Clean Energy Industry Practice.

Below are key takeaways from the webinar:

  1. Project valuations will be impacted in both the short- and medium-term, but how much they are impacted depends on which side of the table they are on. Larger sponsors with the balance sheet to handle this issue will likely play this out and address these issues via the existing waterfall. However, smaller sponsors without the balance sheet will have to soon deal with hedge providers, debt and tax equity, each of which now find themselves in new positions within the capital stack.
  2. The lack of utility Power Purchase Agreements (PPAs) are both at the front and back of this. The lack of PPAs in Texas resulted in many developers going out and securing these hedge products in the merchant market at a high price. While effective at the time, we now see the downside of that pervasive structure in extreme weather events. So, we may see a rethinking of the PPA market in Texas as a result of this event and new means of securing offtake going forward.
  3. As far as how the market in Texas will react, things are temporarily slowing down or hitting the pause button when it comes to development, debt and tax equity. There is now a lot going on in Texas in terms of litigation, resignations and political oversight in addition to standard course project development and financing. While due diligence has always been heavy for these types of transactions, it will now get even heavier. Projects will take longer and be a little more costly to transact upon. This is not insurmountable, as most debt and tax equity providers are always evolving in their diligence requirements, and this can be viewed as a natural progression in a way to find solutions.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.



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New Resource Center: Navigating Change in the US Administration

by | Mar 19, 2021 | , , ,

Pandemic relief, taxes, income inequality, climate change, infrastructure, healthcare and civil rights: the new US administration is moving forward rapidly on President Joe Biden’s stated priorities. So how are these new policies affecting your business? We’re here to keep you informed!

McDermott Will & Emery’s multidisciplinary team of industry-leading lawyers are monitoring key legal areas to help you navigate and gain perspective on the most critical impacts of changing US policies. Access the latest updates in our new resource center.



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Michael Regan Confirmed to Lead EPA to Bolster the Biden Administration’s Agenda on Climate Change

by and | Mar 12, 2021 | , ,

Earlier this week, Michael Regan was confirmed as the head of the Environmental Protection Agency (EPA), winning US Senate approval by a 66–34 vote. Regan’s confirmation will serve as an asset to the Biden administration’s agenda on climate change. In his remarks, Regan noted that he plans to “move with a sense of urgency on climate change, and stand up for environmental justice and equity.” Such sense of urgency will play a major role in ensuring President Joe Biden’s Executive Orders on climate change are fulfilled.

Regan, having served as the secretary of North Carolina’s Department of Environmental Quality, is expected to have a good relationship with state environmental agencies. Prior to that role, Regan worked at the EPA in the air quality office through both the Clinton and Bush administrations.

Regan’s confirmation also reaffirms President Biden’s commitment to ensuring his administration and federal leadership looks like America. Regan will be the first Black man to lead the EPA in the agency’s 50-year history.



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The Carbon Tax Checklist

by , and | Feb 12, 2021 | , , , ,

Many stakeholders have called for the United States to adopt a carbon tax. Such a tax could raise billions of dollars in annual revenue while simultaneously reducing greenhouse gas emissions. Several carbon tax proposals were introduced in the last Congress (2019-2020 term), and it is likely that several more will be introduced in the new Congress. Several conservative economists have endorsed the idea, as has Janet Yellen, President Biden’s Secretary of the Treasury. But the details of a carbon tax matter—for revenue generation, emissions reductions and fairness. Because Congress is likely to consider several competing carbon tax proposals this year, this article provides a way to compare proposals with a checklist of 10 questions to ask about any specific legislative carbon tax proposal, to help understand that proposal’s design and implications.

1. What form does the tax take: Is it an emissions tax, a fuel tax or a production tax?

The point of a carbon tax is to reduce greenhouse gas emissions by imposing a price on those emissions. But there is more than one way to impose that price. Critically, the range of options depends, to a very large degree, on the type of greenhouse gas the tax is trying to address.

The most ubiquitous greenhouse gas is carbon dioxide (CO2) and the largest source of CO2 emissions is the combustion of fossil fuels. Those emissions can be addressed by imposing a fee on each individual emission source or by taxing the carbon content of the fuel—because carbon content is a reliable predictor of CO2 emissions across different combustion circumstances. Most carbon tax proposals are fuel tax proposals; they impose a tax on fuel sales, corresponding to the amount of CO2 that will be emitted when the fuel is burned.

For CO2 emissions, the fuel tax approach has one significant advantage over the emissions fee approach. The fuel tax can be imposed “upstream,” rather than “downstream,” thereby reducing the total number of taxpayers and the overall administrative burdens associated with collecting the tax. A tax imposed on petroleum products as they leave the refinery, for example, is a way to address CO2 emissions from motor vehicles without the need to tax every individual owner of a gasoline-powered car. Most CO2-related carbon tax proposals work that way—they are upstream fuel taxes rather than downstream emissions taxes.

But not all greenhouse gas emissions can be addressed through a fuel tax, because not all greenhouse gas emissions come from fossil fuel combustion. Methane, for example, is released in significant quantities from cows, coal mines and natural gas production systems. A carbon tax directed at those emissions is likely to take the form of an emissions fee imposed on the owner or operator of the emission source. Many carbon tax proposals, however, simply ignore methane emissions or expressly exempt agricultural sources.

Fluorinated gases are yet another type of greenhouse. If they are subjected to a carbon tax, that tax is likely to take the form of a production tax, which would be imposed [...]

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$40 Billion Available through Biden’s Department of Energy’s Loan Program Office for Innovative Technologies

by , , and | Jan 28, 2021 | , ,

With Democrats taking over the White House and the Senate, many eyes are on climate change and the role that the federal government can take to combat it. A variety of proposals have been floated about the best way for Congress to enact legislation to help in the fight against climate change, but certain actions can be taken immediately. One such action is to deploy $40 billion in loan capacity that was previously allocated to the Department of Energy as part of the 2009 stimulus package. This money is already available to the Department of Energy’s Loan Program Office (the LPO”) to spend at any time as a loan or a loan guarantee for qualified projects.

Any new loans would follow $30 billion of loans and loan guarantees previously provided by the LPO under these same programs (most notably under the Obama administration and one large loan associated with a nuclear reactor project under the Trump administration). Under the Biden administration, there is strong optimism that the unallocated funds may be more readily available for qualifying projects. The LPO, recognizing some of the challenges with government credit support programs, has taken steps to better engage interested parties, including providing no-commitment preconsultations to walk potential applicants through the process to ensure that the LPO and the project will each be prepared when the LPO application process begins in earnest. Additionally, in light of the innovative projects that exist in 2021, the LPO is examining the opportunities for offshore wind and the offshore wind value chain as well as looking at vehicle solutions that might qualify under the LPO’s programs.

The $40 billion in loan capacity, including $4.5 billion for renewables alone, is available for applicants seeking financing for innovative fossil energy projects, nuclear energy projects or renewable energy and energy efficiency projects; for fuel-efficient, advanced technology vehicle manufacturers; or for Tribal energy development projects.

To qualify for the renewable energy or energy efficiency loans or loan guarantees, under Title XVII of the Energy Policy Act of 2005, a project must meet all of the following requirements:

  • Employ new or significantly improved technologies as compared to commercial technologies in service in the United States at the time the guarantee is issued.
  • Avoid, reduce or sequester anthropogenic emissions of greenhouse gases.
  • Be located in the United States (foreign ownership or sponsorship of the projects is permissible as long as the projects are located in one of the 50 states, the District of Columbia or a US territory).
  • Provide a reasonable prospect of repayment.

Interested applicants should be aware that the timeline for LPO loan origination is typically longer than in the commercial financing market—roughly 90 days should be added to a typical project financing timeline for the LPO to diligence program eligibility and obtain internal approvals. However, for innovative projects that meet the other LPO eligibility requirements, the loans or loan guarantees available through the LPO may be a viable option. For instance, for offshore wind projects, long-duration energy storage, green [...]

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Final Section 468A Regulations Issued at Last

by and | Sep 11, 2020 | ,

On September 4, 2020, the Internal Revenue Service (IRS) and the US Department of the Treasury (Treasury) published in the Federal Register final regulations under section 468A of the Internal Revenue Code (the Code) that address three issues raised by the nuclear electric industry concerning qualified nuclear decommissioning funds (“qualified funds”). These final regulations conclude a many years-long regulation project to clarify the rules relating to decommissioning costs and self-dealing rules. McDermott submitted multiple sets of comments throughout the process, and Marty Pugh provided vital testimony during an IRS hearing on the proposed regulations.

Access the full article here.



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New York Announces One of the World’s Largest Procurements for Offshore Wind and Onshore Renewable Energy Projects.

by , , and | Jul 24, 2020 | , ,

On July 21, 2020, New York Governor Andrew Cuomo announced the largest combined clean energy solicitation ever issued in the United States, seeking up to 4 GW of renewable capacity. This capacity is broken up into 2500 MW of offshore wind and 1500 MW of onshore large-scale renewable energy projects.

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Six Takeaways: Utilization and Structuring for Section 45Q Carbon Capture Credits

by , , and | Jun 12, 2020 | , , , ,

On Thursday, June 11, McDermott partners Phil Tingle, Heather Cooper and Jacob Hollinger were joined by Ken Ditzel, managing director at FTI Consulting, to discuss their insights into the proposed Section 45Q carbon capture and sequestration credit regulations.


The Treasury Department and IRS recently published proposed regulations implementing the Section 45Q carbon capture and sequestration credit. The regulations clarify some questions about the credit, though many questions remain. For further discussion, see our On The Subject.

Below are six key takeaways from this week’s webinar:

      1. Carbon capture projects are likely to be economically important moving forward. Ken Ditzel estimated there are more than 600 economically viable projects, including both secure geological storage at deep saline formations and enhanced oil recovery projects.
      2. The proposed regulations provide a compliance pathway for satisfying the reporting requirements. For long-term storage, taxpayers should comply with Subpart RR of the Clean Air Act’s greenhouse gas reporting rule. For enhanced oil recovery projects, taxpayers may choose either Subpart RR or alternative standards developed by the American National Standards Institute (ANSI).
      3. Taxpayers can claim the credit if they utilize the captured carbon for a purpose for which a commercial market exists, instead of storing it. Additional guidance is needed to determine what commercial markets the IRS will recognize and how they will go about making those determinations.
      4. The proposed regulations offer considerable flexibility to contract with third parties to dispose the captured carbon and to pass the section 45Q credit to the disposing party. Contracts must meet certain procedural requirements, including commercially reasonable terms and not limiting damages to a specified amount.
      5. If the captured carbon dioxide leaks, the carbon capture tax credit is subject to recapture by the IRS. The taxpayer who claimed the credit bears the recapture liability, but IRS guidance permits indemnities and insurance for credit recapture.
      6. The partnership allocation revenue procedure issued in February 2020 provides flexibility for the section 45Q credit relative to other tax equity structures, by only requiring 50% non-contingent contributions by an investor member. This may make projects easier to finance, especially in light of the other contracting flexibility in the proposed regulations.

Download the key takeaways here.

To begin receiving Energy updates, including invitations to the Renewables Roundtable and Q&A Webinar Series, please click here.

To access past webinars, please click here.



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Three Takeaways: Tensions in the Renewable Energy and Environmental Markets

by | Jun 5, 2020 | , , , , ,


McDermott recently hosted Jonathan Burnston, Managing Partner of the energy sector financial services firm Karbone, for a discussion of recent developments affecting environmental, social and governance (ESG) investing, renewable energy and carbon offsets.

Three takeaways from this week’s webinar below:

      1. Interest in ESG investing is unlikely to fade. ESG indices have performed relatively well in the COVID-19 environment and the concerns that motivate ESG investing are not going away.
      2. ESG investing is different from reducing emissions or pursuing carbon neutrality. Positive returns from ESG investments do not themselves reduce emissions or mitigate the impacts of climate change.
      3. Corporate interest in becoming “carbon neutral” is also likely to continue. Due to recent economic disruptions, there may be some delays in achieving some previously announced commitments. However, the pressures and concerns that have motivated the interest in carbon neutrality remain powerful forces.

Listen to the full webinar.

To begin receiving Energy updates, including invitations to the Renewables Roundtable and Q&A Webinar Series, please click here.

Access past webinars in this series.



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How Energy Company Buyers Can Limit Environmental Liability Risk

by and | Jun 1, 2020 | , , , ,

Many energy companies may be driven into bankruptcy because of the COVID-19 pandemic. Third parties seeking to purchase those companies’ assets may be concerned about potential successor liability for the seller’s environmental obligations. This article highlights some steps that asset purchasers in bankruptcy can take to reduce the risk of such liability.

Successor liability exists under each of the major federal environmental laws. Four especially important statutes for energy companies are the Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA, the Resource Conservation and Recovery Act, the Clean Water Act and the Clean Air Act.

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