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Key Takeaways | Commercial, Legal and Policy Responses to Commerce’s Anticircumvention Investigation

by Carl J. Fleming, Lynn G. Kamarck and Tyler Kimberly | Apr 6, 2022 | Power Markets, Project Development and Finance, Renewables

The US Department of Commerce (Commerce) recently initiated a circumvention investigation against solar cell and module imports from Cambodia, Malaysia, Thailand and Vietnam. This decision has the potential to profoundly impact the companies that import or rely on imported crystalline silicon photovoltaic cells (CSPs) in the United States. To help companies navigate this investigation, McDermott’s Carl Fleming, Lynn Kamarck and Tyler Kimberly were joined by Brett White, vice president of regulatory affairs for Pine Gate Renewables, for a fireside chat that covered, among other things, the specific issues Commerce will investigate, how to assess the risk of this decision across developer portfolios and the opportunities presented for improving current renewables legislation.

Below are key takeaways from the discussion:

1. Commerce’s decision to initiate a circumvention investigation into whether CSPs imported from Cambodia, Malaysia, Thailand or Vietnam are circumventing antidumping and countervailing duty orders on CSPs from China has generated market uncertainty for companies that import or rely on imported CSPs.

2. Whether any assessment of duties or penalties that result from the investigation will have retroactive effect is currently unclear. Applicable regulations do not require Commerce to apply duties retroactively, providing an opportunity for “interested parties” to offer feedback to Commerce as to why retroactive application would be unfair. (In this context, domestically, importers of record, businesses and trade associations and industrial users are generally recognized as interested parties.)

3. Major legal and factual issues may sway Commerce’s ultimate determination, while certain factual discrepancies in Auxin Solar Inc.’s petition to Commerce may lead to a preliminary decision by Commerce. (The deadline for the preliminary decision is August 29, 2022, and it’s unlikely that Commerce will act before this deadline.) Additionally, certain “country of origin” legal analyses are implicated in any ultimate determination Commerce makes.

4. Auxin’s petition and Commerce’s investigation have given more attention to the issue of importing CSPs and to the Build Back Better Plan (BBB), so there is optimism that this may push US Congress to act more quickly on the adoption of certain tax credits, domestic content credits and other incentives under the BBB.

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

Key Takeaways | African Markets and Opportunities for Cross-Border Investments in Renewable Energy

by Carl J. Fleming | Apr 1, 2022 | Power Markets, Project Development and Finance, Renewables

On March 30, 2022, Carl Fleming and Emeka Chinwuba, partners in McDermott’s Energy and Project Finance Practice Group, hosted Dr. Abdelilah Chami, head of sustainability Northern & Central Africa at Enel Green Power, and Jay Katatumba, investment director at Africa50 Infrastructure Fund, for a lively discussion on the renewable energy space in Africa and cross-border investments.

The transition to renewable energy in Africa has progressed impressively over the last decade, with many countries working to increase renewable energy capacity in recent years. Forecasts by the International Renewable Energy Agency (IRENA) indicate that with the right policies, regulation, governance and access to financial markets, sub-Saharan Africa could meet up to 67% of its energy needs by 2030. This is reflected by the fact that average annual investments in renewable energy grew ten-fold from less than half a billion dollars during the 2000 – 2009 period to $5 billion during 2010 – 2020.

Below are key takeaways from the webinar:

1. Development Financial Institution (DFI) participation in Africa’s power market is primarily driven by its mandate to make the cost of electricity more affordable, increasing access to electricity and improving the reliability of its power supply.

2. Energy access and consumption in Africa has global ramifications as we look to trade, commerce and development, future demographic trends and geopolitics with respect to energy costs and access.

3. From a power sector policy standpoint, each African country should be taking a holistic view when looking at the specific in-country and regional needs for energy, the entire value chain, related and existing infrastructure, local capabilities and local regulatory and governance frameworks.

4. In accessing various African jurisdictions for investment opportunities, private sponsors are focused on predictability, highest risk weighted returns, existing infrastructure and the whole value chain proposition for a specific asset.

5. Private sponsors are also looking for opportunities where projects are bankable and structured with very limited reliance on subsidies or other credit support from the host governments.

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

6 Key Takeaways from the M&A Activity in the Storage Market Panel at the Energy Storage USA Conference

by Carl J. Fleming | Mar 25, 2022 | Power Markets, Project Development and Finance, Renewables

Carl Fleming, a partner in McDermott’s Energy and Project Finance Practice Group and head of its energy storage team, hosted a panel of industry leaders from KKR & Co. Inc., CohnReznick Capital and Pine Gate Renewables that explored the opportunities and challenges currently facing the energy storage market, as well as the future of the market. Below are key takeaways from the discussion:

1. Valuation: The models underlying energy storage projects are complex, consist of a large number of variables and are mainly reliant on third-party data and analytics in an emerging technology. In uncertain times like now, it is critical that storage teams be extremely thorough in their diligence and flexible in their approach to valuations and developing the revenue stack for these projects.

2. Supply Chain Woes: Supply chain issues have altered the outlook of many in the storage sector in 2022. While demand remains robust, the storage sector is facing global supply chain issues (as is the entire industry) and competition within manufacturers as to whether cells will be allocated for storage or electric vehicles (EV). The accelerated growth of the EV market could negatively impact the growth of the storage market—unless suppliers find ways to ramp up production.

3. Buy or Wait: Right now, the cost of modules, cells, commodities and transportation are through the roof. At the same time, the demand for storage is equally high. It remains to be seen whether purchasing storage assets at a time of such volatility will be a winning or losing proposition. Some have speculated that now is the time to buy, while others have suggested staying on the bench for this round. However, based on the higher cost of solar assets from years ago and recent prices for the sale of those assets, it seems sitting out in this market would be a losing proposition.

4. Assets vs. Human Capital: In several transactions, we’re seeing parties more interested in acquiring the human capital and the team behind a platform of assets rather than acquiring the asset solely on its economic merits. The track record and make-up of the development team remains an essential point when buyers are considering the projects they are willing to purchase.

5. Standalone, Hybrid or Conversion: Although certain buyers are targeting a particular area of the energy storage market and standalone storage remains a hot topic, the industry as a whole has ready and willing buyers for all forms of energy storage projects (e.g., standalone storage, storage plus renewable hybrids, storage plus conventional hybrids).

6. Market FOMO: There is a pervasive sense of “FOMO” in the market right now. However, developers and investors need to remain disciplined and stay true to two essential prerequisites for a project to be purchased: line-of-sight on interconnection and line-of-sight on offtake revenues. These can be easy to lose sight of in today’s frothy market and in new markets that have shifting regulatory regimes for storage.

Carl Fleming and his team of energy [...]

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Key Takeaways | Post-Uri Hedge Products for Storage and Renewables

by Robert Lamkin and Jacob Hollinger | Mar 9, 2022 | Project Development and Finance, Renewables

During the latest webinar in our Energy Transition series, Partners Robert Lamkin and Jacob Hollinger hosted Louis Martinsen, vice president, origination at Boston Energy Trading and Marketing, for a 30-minute discussion concerning hedge product opportunities for renewables and storage projects one year after Winter Storm Uri impacted Texas’s power grid.

Below are key takeaways from the webinar:

1. A year after Winter Storm Uri, hedging products for renewables are moving toward “as generated” hedges, meaning the hedge settles based on how much power the renewable project actually generates rather than based on other possible metrics (such as proxy generation).

2. A potential alternative for renewable and storage developers are hedging projects that provide a revenue “floor,” which can be thought of as a minimum level of revenue scaled to ensure that the project will receive a minimum amount of revenue sufficient to meet its operating and maintenance costs, debt service and capital expenditures regardless of market prices for the products it sells or intends to sell.

3. The providers of these hedge products are also changing to include entities serving (directly or indirectly) retail load rather than purely wholesale trading entities.

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

The ESG Opportunity: Hydrogen, CCS and Decarbonization

by Carl J. Fleming | Mar 1, 2022 | Project Development and Finance, Renewables

Carl Fleming, a partner in McDermott’s Energy and Project Finance Group and leader in its Energy Transition Team, hosted a panel of industry leaders from Apex Clean Energy, Leyline Renewables and Pattern that explored the opportunities and challenges for ESG and hydrogen. Here are the key takeaways:

1. Various companies are looking to the environmental, social and governance (ESG) opportunity, particularly long haul trucking, overseas shipping and airlines, where the fuel needs far exceed those currently available for electrification and where recharging stations are limited or impossible. As a result, we are likely to see a mix of electric and hydrogen going forward where one technology may be slightly more advantageous than another. Or we may see the two complement one another in a larger strategy.

2. Midstream oil & gas operators are looking to increasingly transition to hydrogen, whether it is green, blue or turquoise hydrogen. Which shade of hydrogen prevails will be determined by the capital costs involved as well as ESG demands.

3. Transmission congestion is affecting the ability of many renewable energy developer to deliver power from some of the most resource-rich areas. However, hydrogen offers an excellent solution in some cases as it eases the need for transmission in those highly congested areas.

4. The high costs of hydrogen as well as the need to build out an infrastructure to properly transport are current challenges that are in the process of being overcome by a slew of developers who see the opportunity for hydrogen.

5. The Biden Administration’s support of hydrogen hubs and billions in hydrogen infrastructure should continue to spur further hydrogen development at a rapid pace.

Carl Fleming and his team in Houston are currently leading a large number of hydrogen transactions for leading developers. In particular, they are enabling a number of first-in-kind hydrogen transactions utilizing newer technologies and investment strategies.

Development Market Outlook in ERCOT

by Carl J. Fleming | Feb 28, 2022 | Project Development and Finance, Renewables

Carl Fleming, a member of McDermott’s Energy and Project Finance Group and head of its Energy Storage Team, hosted a panel of industry leaders from Vistra, UKA North America and Origis that explored the opportunities and challenges for utility-scale solar and standalone energy storage development in the Energy Reliability Council of Texas (ERCOT). Here are the key takeaways:

1. A huge wave of solar and standalone storage projects is hitting ERCOT. Per recent reports, as of September 2021, developers had more than 100GW of solar, 42GW of utility-scale battery storage, 22GW of wind and 13GW of natural gas in the queue.

2. It’s unclear what the future holds for the market due to transmission congestion, the impact of so much solar going online and its effects on the power price curve, as well as supply chain issues.

3. Transmission congestion is affecting the ability to deliver power from some of the most resource-rich areas. However, ERCOT remains more predictable than certain other markets that have recently announced temporary pauses in processing the transmission pipeline queue.

4. The large increase of solar on the system in such a short period of time is already having impacts on the power price curve. However, certain corporates in their efforts to meet environmental, social and governance (ESG) goals are willing to build for more than purely economic reasons and can help offset that volatility to a degree.

5. Supply chain issues continue and are expected to worsen, resulting in increased risks around projects costs and completion. While this has resulted in a number of developers having to revisit their power purchase agreements, those with robust procurement programs were able to mitigate this risk in advance and have been able to continue business as usual.

6. The use of quantitative analytics or “quants” in project development is growing and has enabled certain developers to optimize energy storage project location in ERCOT as well as optimize their project outputs. The key, however, is properly integrating the quantitative data into the project development decision making process.

Carl Fleming and his team in Houston are currently leading a large number of solar, wind and storage transactions across ERCOT for leading developers and private equity funds. In particular, they are enabling a number of first-in-kind battery storage transactions utilizing newer technologies and investment strategies.

Key Takeaways | Energy Storage Opportunities and Challenges

by James J. Salerno | Feb 22, 2022 | Power Markets, Project Development and Finance, Renewables

What are the opportunities and challenges facing those in the energy storage sector? During the latest webinar in our Energy Transition series, Partner Jim Salerno hosted Perfect Power’s CEO and President Alan Dash and Chief Commercial Officer Douglas Sherman for a 30-minute discussion where they opined on the importance of battery storage and the differences between regulated and unregulated markets within the energy storage industry.

Below are the key takeaways from this discussion:

1. Utility-scale battery storage is necessary for transitioning the grid from fossil fuels to renewables. The surge of renewables across grids has resulted in unpredictability, volatility and intermittency in the energy market, creating a need for a new form of peaking. Batteries are becoming the ideal peaking units as their fast ramping capabilities allow them to adapt to shortfalls in the grid and create stability.

2. Battery storage, unlike renewables, provides capacity as well as ancillary services. This concept is known as “value stacking.” In addition to storage capabilities, ancillary services allow batteries to manage volatility and uncertainty in the grid by providing tools that keep the system in balance and establish the ability to arbitrage the Real Time Market while creating predictability in the Day-Ahead Market.

3. The current regulatory and merchant markets are evolving to facilitate renewables and storage project development. In unregulated markets, such as Texas, the integration of renewables into the grid has grown organically because of the efficiency, speed and economic benefits that are derived from renewables and battery storage. Meanwhile, highly regulated markets, such as California, are focusing on resource adequacy, market certainty and incentives to promote capital investment in the clean energy space—including battery storage.

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

McDermott Will & Emery Named 2021 Project Finance Group of the Year

by McDermott Will & Emery | Feb 18, 2022 | Featured, Project Development and Finance

We are pleased to share that our Energy & Project Finance Group was recently recognized as a 2021 Law360 Practice Group of the Year for Project Finance.

We have made impressive strides in 2021 with exponential team and matter growth globally. The group’s multifaceted experience in both renewable and conventional energy, as well as in the infrastructure sector, combined with the group’s excellent thought leadership, has led to this recognition.

From closing fast-moving energy deals to help drive a carbon-neutral economy to hosting industry experts for a bi-weekly discussion on how the Energy Transition is shaping our industry, the Energy & Project Finance Group is committed to providing comprehensive advice in any area of energy law.

Read the full article.

Key Takeaways | Outlook for Competitive Power in 2022

by Neil Levy and David G. Tewksbury | Feb 4, 2022 | FERC, Power Markets, Project Development and Finance, Renewables

On February 2, Neil Levy and David Tewksbury, partners in McDermott’s Energy Regulatory, Markets & Reliability Practice Group, hosted Todd Snitchler, president and CEO of the Electric Power Supply Association (EPSA), for an in-depth discussion about developments affecting the competitive power sector as we move into 2022.

Below are the key takeaways from this discussion:

Competition has benefited consumers by shifting risk from consumers to investors, lowering prices, and reducing emissions, while improving reliability. However, competitive power markets are facing challenges due to recent state actions and FERC decisions.
Carbon pricing would be one way to address concerns regarding emissions within a competitive market framework.
The federal government and states need to work together to preserve competition and ensure that state goals do not jeopardize reliability.
Steps must be taken to ensure that resources required for reliability are not pushed out of the market.
States have been focused on emissions reductions by subsidizing certain types of resources, which can result in lower market prices. At the same time, recent FERC actions have also reduced revenues for various resources.

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

Key Takeaways | Finding and Structuring Development Capital for Renewable Platforms and Projects

by Christopher Gladbach and Joel A. Hugenberger | Jan 21, 2022 | Project Development and Finance, Renewables

During the latest webinar in our Energy Transition series, McDermott Partners Christopher Gladbach and Joel Hugenberger hosted Angel Fierro, managing partner of PLEXUS Solutions, and Jorge Vargas, managing partner & co-founder of Aspen Power Partners, to discuss what financing is available to fund the development of projects before they reach notice to proceed (NTP). They also covered what capital providers and developers consider when approaching development capital to fund pre-NTP expenses and general business expansion and the challenges and opportunities associated with these financing products.

Below are key takeaways from the webinar:

1. The market for pre-NTP financing is expanding and diversifying. Traditionally, pre-NTP costs were covered by a developer using the development fee they received from selling a completed project or by granting preferred equity. Today, large credit funds, Environmental, Social and Corporate Governance (ESG) funds, boutique finance groups, family offices, oil and gas companies and corporations are all providing pre-NTP financing, and development loans are becoming a more common way for developers to cover pre-NTP costs.

2. Sponsors should look for development lenders that understand the typical risks and delays associated with the project development process. Development lenders need to be flexible and ready to accommodate development delays and other unexpected issues that arise as a project is brought to market. (This includes flexibility related to amendments and consents.) Lenders should be prepared to quickly provide amendments and waivers to address changes in a project’s timeline as it progresses toward NTP.

3. Price should not be the only thing developers consider when deciding which source of development capital to use. Developers should ensure that they and the capital providers are aligned when it comes to deadlines for NTP to occur, capacity to accommodate delays in the development process and the share of income generated from the project.

4. Development capital is essentially a bet on a development team, and in evaluating a development team, development lenders assess what experience management has and their success working together to bring projects to market. Development lenders want to see that a development team has people who know how to mitigate risk across the various segments of the development process (e.g., origination, site control, permitting, power marketing, etc.).

5. Power purchase agreements (PPAs) are becoming scarcer and shorter (10-year terms are replacing 25-year terms), and lenders and investors are getting more comfortable with providing capital to merchant projects and other projects that have traditionally struggled to obtain financing.

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