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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 [...]

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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 [...]

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Key Takeaways: Decoding the Future Value of Behind-the-Meter Load for Cryptocurrency and Computing: A Conversation with Compute North Executives

On May 5, McDermott Will & Emery partners Ed Zaelke and Chris Gladbach hosted P.J. Lee, Dave Perrill and Jeff Jackson of Compute North to discuss the relationship between the rapidly expanding computing and cryptocurrency industries and the power sector.

Below are the key takeaways from the webinar:

  1. Compute North’s business model focuses on the power of distributed computing in cryptocurrency mining and large-scale data processing for uses with non-essential, flexible demand. By responding to real-time demand response signals and shutting down in less than 10 seconds, these distributed computing facilities can also participate in the demand response market and act as ancillary service resources.
  2. Modular computing facilities (similar to modular energy storage) allow distributed computing loads to be located nearer to generation, reducing congestion and curtailment risks and providing new customers for merchant facilities and other stranded power producing assets.
  3. Compute North’s distributed computing facilities are targeted at facilities as low as 20 MW in size, but are considering facilities of up to a full buildout of 1 GW.
  4. Although Compute North’s distributed computing currently requires higher use factors (and likely imports from the grid or separate generation assets), one of its long-term goals is to match the generation of a particular power producing facility.
  5. Successful cryptocurrency mining and other flexible distributed computing needs require computing facilities to be the lowest marginal cost producer. By providing services at 1/15th the cost of hypercomputing technologies, new data processing work cases are likely further increasing the demand for and power of distributed computing.

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




US Senate Committee Introduces Clean Vehicle Charging Legislation

Earlier this week, a group of cross-party US senators introduced the Securing America’s Clean Fuels Infrastructure Act (the Act) to promote investments in clean vehicle infrastructure. The types of infrastructure supported by the legislation include electric vehicle charging stations and hydrogen refueling stations for fuel cell vehicles.

The Act would enlarge the benefits of the existing Alternative Fuel Vehicle Refueling Property Investment Tax Credit (ITC) (found in Section 30C of the Internal Revenue Code), diminishing costs associated with clean vehicle infrastructure development. The legislation targets American automobile owners, as electric and clean energy vehicles supplant traditional gasoline power vehicles.

The new legislation encourages increased private investment by providing incentives to build the much-needed infrastructure to support the wide adoption of clean energy vehicles. According to its sponsors, the Act would accomplish three goals:

  1. Clearly state the 30C ITC can be applied to each item of refueling property (i.e., each charger) rather than per location.
  2. Increase the 30C ITC cap for business investments from $30,000 to $200,000 for each item of refueling property.
  3. Extend the 30C ITC tax credit for eight more years from the December 31, 2021, expiration date, which means the 30C ITC would apply to refueling property that is placed in service by December 31, 2029.

Nonprofit environmental groups, transportation associations, energy companies and major automakers all support the proposed cross-party bill. If passed, the bill will bring increased activity in the renewable energy market for developers, investors and lenders.




The Energy Market in 2021: From Crisis to Opportunity | Reenergizing after the Storm

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.




Five Takeaways: The Energy Market in 2021 – From Crisis to Opportunity

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 Greg Wetstone, president and CEO of the American Council on Renewable Energy (ACORE).


Below are key takeaways from this week’s webinar:

  • The renewable energy industry continued to grow throughout the Trump administration; 2020 was a banner year with 28.5 GW of new wind and solar (the previous record, in 2016, was just below 23 GW).
  • The renewable industry is likely to receive its first legislative action as part of the infrastructure bill (likely through the budget reconciliation process); however, it will likely not occur until after impeachment proceedings and a COVID-19 relief bill have been completed.
  • It is not clear that a clean energy standard could be passed through the budget-oriented reconciliation process or that carbon pricing would have sufficient votes to even pass the reconciliation process, so the best current option may be to continue and expand tax incentives for renewable energy.
  • The Biden administration has committed to a “whole of government” approach to clean energy, which is expected to include an aggressive Federal Energy Regulatory Commission (FERC) policy once a third commissioner is appointed in June; sweeping executive orders (some of which we have already seen); aggressive federal procurement targets; streamlined permitting; and broader Department of Energy guidance in innovation.
  • A refundable tax credit at 85% of the current value is very much on the table, but it remains to be seen whether there are sufficient votes in the Senate for this to make it through the reconciliation process.

To begin receiving Energy updates, including invitations to the webinar series, please click here.

Access past webinars in this series.




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.

Access the article.




COVID-19 Stimulus Bill Includes Key Renewable Energy Tax Credits

The US stimulus bill passed into law yesterday includes several key extensions and additions to the tax credits available for renewable energy. The bill had been agreed to by Congress early last week and was signed into law by the president last night.

Access the full article here.




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