Power Markets
Subscribe to Power Markets's Posts

Key Takeaways | Keeping the Lights On: Cyber Threat, Vulnerability and Oversight Considerations for the Energy Sector

During the latest webinar in our Energy Transition series, Partners Carl Fleming and Scott Ferber hosted PWC Principals Brad Bauch, US Power and Utilities Cybersecurity & Privacy Leader, and Mark Ray, Cybersecurity & Privacy, to discuss the cyber threat landscape that the energy sector currently faces, the US government’s oversight of cybersecurity and key considerations for building a robust compliance program.

Below are key takeaways from the webinar:

1. The Cyber Threat Landscape. Threat actors are continually evolving in the tactics, techniques and procedures they are deploying against their targets, making it a daunting threat landscape. Where nation state threat actors are involved, the risk of compromise is heightened. Ransomware continues to be, by far, the most prevalent issue organizations are contending with across all sectors and geographies—followed by supply chain attacks and zero-day exploits. Amid Russia’s invasion of Ukraine and the punishing sanctions being imposed, along with Russia’s demonstrated willingness to use malign cyber means against an array of targets, the energy sector should be on high alert for cyberattacks.

2. US Government Engagement. The US government is using a carrot-and-stick approach with the private sector to encourage and, in some instances, require robust cybersecurity, as well as information sharing. Bottom line, the government is expecting more of the private sector (particularly the energy sector) when it comes to dealing with cybersecurity.

3. Building a Robust Compliance Program. There are unique considerations when building a robust compliance program that encompasses both Information Technology (IT) and Operations Technology (OT) systems. As a starting point, companies should consider:

  • Benchmarking against cybersecurity compliance programs at peer companies and similar industries
  • Creating processes that are enterprise-wide, with a control standards-based approach
  • Avoiding program siloing
  • Ensuring active monitoring and controlled access of IT and OT systems
  • Developing strong protections for legacy OT software that is operationally essential.

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

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

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

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 [...]

Continue Reading




Key Takeaways | Energy Storage Opportunities and Challenges

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.




Key Takeaways | Outlook for Competitive Power in 2022

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 | The Growth of Early Stage Technology Company Investment and Development in Energy and Oil and Gas

How is technology affecting the energy industry? In the latest webinar in the Energy Transition series, McDermott Will & Emery Partner Parker A. Lee hosted Shawn Helms, co-head of McDermott’s Technology and Outsourcing Practice Group, Nadine Herrwerth, managing director at TWTG, and BJ Walker, managing director at Tudor, Pickering, Holt & Co for a 30-minute discussion where they opined on the current and future impact technology plays on conventional and renewable energy companies.

Below are key takeaways from the webinar:

1. Industrial Internet of Things (I-IOT). I-IOT products and services can be used to improve site safety and efficiency. I-IOT products have the capability to monitor equipment, such as valves and temperature sensors on machinery, and record data on external dashboards for analysis and alerting. Through the use of data analysis, data gathered by I-IOT products can identify trends, build models and detect future equipment failure. As a result, I-IOT products and services can increase the efficiency, reliability and safety of equipment.

Though the application of I-IOT devices is relatively new to the industry, these products are capable of being retrofitted to established and already operational sites.

2. Technology Companies and Energy. While technology companies are large consumers of energy output, they can also provide significant insights and intelligence in regard to energy use and production. Synergies between technology and energy industries are continuously evolving and providing improvements in energy investments, efficiencies and reliability. For example, drones are capable of leveraging artificial intelligence to increase efficiency and consistency of equipment monitoring and inspections, particularly equipment that is located in remote areas (such as offshore).

3. Investor Focus on the Energy Space. An important theme in the oil and gas industry is the recent focus on transforming the industry to a generator of cashflow. In attracting new investors to the energy industry, particularly as new technologies are introduced, investors should know there is typically a longer wait period to receive a return on investment than what a general investor would commonly expect. In addition to general investors, technology companies are investing in renewable energy sources for purposes of environmental responsibility and in order to power their own enterprise. It is expected that this trend will continue to grow in energy intensive areas, such as the cryptocurrency space.

4. Technology in Traditional Oil and Gas. Although not widely appreciated, the oil and gas industry has always been heavily reliant on technology and an area where revolutionary technologies are developed—and that is certainly the case today. Because oil and gas professionals are proficient with, and conversant in, the application of new technologies, look to those professionals to be industry leaders in the energy transition as new businesses and products are developed.

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




Key Takeaways | Lender Outlook on the Debt Financing of Renewables and Transactions

During the latest webinar in our Energy Transition series, McDermott Partners Robert da Silva Ashley and John Bridge hosted Paul Pace, SVP and team leader at KeyBank, and Andrew Chen, managing director at CIT, to discuss the current outlook of leading lenders in the US renewables and transactions space. More specifically, they focused on lender outlook regarding the state of debt market support for the growing range of renewable power generation and clean energy infrastructure projects.

Below are key takeaways from the webinar:

1. The financing market for renewable projects remains extremely competitive, compressing pricing for lenders and driving innovations in financing structures with credit increasingly given to shorter tenured power purchased agreements (PPAs) and earlier merchant tails.

2. Current supply chain delays and inflationary pressures are creating significant stress. Solar panels and other major equipment are stuck in ports and sharp rises in project costs (insurance, labor wages, operations and maintenance, etc.) are starting to have a noticeable effect on the viability of certain project developments.

3. Lenders have been leaning heavily on client relationships with established track records of successful project developments, strong financial footing and credibility with industry counterparties helping to navigate the current challenges.

4. Environmental, Social and Governance (ESG) remains a focus for banking institutions driven by regulatory and environmental factors.

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




Does the ADP in Your LNG SPA Meet Your Needs?

It’s that time of year again when the sellers and buyers of many of the world’s long-term liquefied natural gas (LNG) sales and purchase agreements (SPAs) must agree on the Annual Delivery Programme (ADP). In past years, this has typically been a mildly contentious process where both parties’ operations teams discuss, haggle and settle on an LNG delivery programme that roughly meets both parties’ needs. The discussions are framed by the terms of the applicable SPA but guided by cooperation and the goodwill generally found in long-term buyer-seller LNG relationships. Lawyers tend not to be involved. However, this is not the case this year.

With a global gas/LNG shortage and spot prices reaching record highs, there is a huge discrepancy between long-term LNG and spot LNG prices. At the time of drafting this article, Platts JKM is quoted at US$ 33.85 / MMBtu and Title Transfer Facility (TTF) is quoted at US$ 32.15/ MMBtu for January 2022 delivery. However, a long-term LNG SPA at a relatively good LNG price of 13.5% Brent would be at US$11.34/MMBtu with Brent at US$ 84/ bbl. An approximate US$ 20 / MMBtu difference or, for a mid-range LNG cargo size of 3,800,000 MMBtu, a US$76 million difference per cargo.

With this level of price difference, every cargo is vital. For sellers, any cargo that can be delivered spot rather than under a term SPA can provide significantly greater profits, and the converse is true for buyers. Many LNG buyers have recently adopted a strategy of buying a significant proportion of their LNG demand on a term basis but with spot purchases covering demand growth and swing. For these buyers, ensuring as many of their (currently lower priced) term cargoes arrive during the high demand, high cost winter months with lower price summer spot purchases making up any annual demand shortfall can significantly reduce their weighted average LNG purchase price.

The early long-term SPAs were developed for a point-to-point trade, often with a fleet of ships sailing continuously between a loading terminal and one or two particular receiving terminals serving a single SPA. Discussions on an ADP were relatively simple with both parties strongly incentivised to align delivery windows to reduce shipping and demurrage costs and ensure sufficient LNG supplies. But if the parties could not agree on a delivery programme, typically the seller had the final say.

However, the LNG industry has changed significantly since those early days, particularly with the advent of portfolio traders, diversion clauses (with or without profit sharing elements), upward and downward quantity tolerance and, most importantly, the spot market: all driving a more flexible, efficient and commercial LNG market. As the LNG market has developed, so has the drafting of the ADP provisions, with buyers increasingly wanting to set firmer delivery windows and have stronger rights for Upward Quantity Tolerance (UQT), Make-up and Make-Good cargoes.

So how does the gulf between spot and term prices and the development of LNG SPAs impact the ongoing ADP discussions? Instead of coordinated [...]

Continue Reading




Key Takeaways | The Latest Merger Control Developments under the Biden Administration

The Biden administration has placed an emphasis on antitrust enforcement that will create meaningful implications for future transactions, as well as those already consummated. In this webinar, hosted by McDermott Will & Emery partners Kevin Brophy and Lesli Esposito and associate Matt Evola, learn who the new leaders at the Federal Trade Commission (FTC) and US Department of Justice (DOJ) Antitrust Division are and how their approach to antitrust enforcement is already changing merger review process.

Below are key takeaways from the webinar: 1. Antitrust Agency Personnel Changes. The FTC and the DOJ Antitrust Division have recently seen leadership changes. At the FTC, US President Joe Biden appointed Lina Khan to chair, and she’s already making headlines for her efforts to “modernize” merger assessments. Chairwoman Khan has indicated that she wants the FTC to focus on addressing the “rampant consolidation” that has resulted in dominant firms across markets. She has also advocated for a holistic approach to identifying harms, a focus on power asymmetries and a need for the agency to be forward-looking. The changes she has implemented have significantly impacted merger review. At the DOJ, President Biden appointed Jonathan Kanter, who has not yet taken office but is also expected to take an aggressive approach to enforcement, to lead the Antitrust Division. 2. President Biden’s Executive Order on Antitrust. In a July executive order, President Biden indicated that antitrust enforcement would be a top priority for his administration. The order calls for a whole-of-government approach, encompassing 72 initiatives directed at more than 12 separate agencies. The order directed the FTC and the DOJ to vigorously enforce the antitrust laws by toughening the review of future mergers and revisiting anticompetitive mergers that went unchallenged. 3. Policy Changes with Practical Implications. The FTC has been especially active in announcing new policies and procedures that will likely extend the merger review timeline and open previously consummated transactions to further scrutiny. Among these changes are:

  • The suspension of early termination for the 30-day Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) waiting period: Early termination has always been discretionary, but the FTC’s Premerger Notification Office has suspended early termination in 2021 with no resumption in sight.
  • Warning letters sent at the conclusion of the HSR Act waiting period: These “close at your own risk” letters indicate that while the waiting period has concluded, the agencies may challenge the transaction post-closing.
  • Increased requests for “pull-and-refiles”: This process restarts the HSR Act waiting period, granting agencies an additional 30 days to review a transaction, and are being requested at an increasing rate.
  • Procedural and timing changes aligning the FTC with the DOJ: Changes made at the FTC are bringing the agencies into alignment on certain procedures for second requests, and these changes are likely to extend the timeline required for responding to second requests.

To access past [...]

Continue Reading




STAY CONNECTED

TOPICS

ARCHIVES