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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.

Access the article.

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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Six Takeaways from Wind Turbine Vendor Update: A Conversation with GE Renewable Energy


McDermott hosted GE Renewable Energy North America Services Sales Leader Ben Stafford, Commercial Director of Onshore Wind for the North Region Rob Bienick and Commercial Director of Onshore Wind for the West Region Matt Lynch on July 30 for a discussion about COVID-19’s impact to turbine supply chain and construction, the effects of the Production Tax Credit (PTC) safe harbor extension, and how GE is preparing for 2021 and beyond.

Below are key takeaways from this week’s webinar.

1. COVID-19 continues to impact both supply chain and construction – requiring more communication with customers, subcontractors, and within GE, but products continue to be manufactured, delivered, installed, and maintained.

2. The large wind project pipeline in the United States (even prior to the PTC extension) shows that there remains great optimism for the wind industry, despite the current PTC phase-out schedule.

3. The repowering market for wind is growing, providing many benefits including renewed PTCs, increased energy yield, increased reliability, lowered maintenance cost, and optimization of existing site infrastructure over greenfield development.

4. The trend toward longer blades continues, but logistics remain the largest hurdle to wider deployment.

5. Service agreements are trending towards longer terms with greater flexibility to meet customer needs, including opportunities to align interests with revenue and risk sharing terms.

6. GE is available to support both new and repowering projects with available safe-harbor equipment.

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Key Takeaways: Achieving Low-Cost Decarbonization Through Power Markets, Infrastructure and Grid Operations



McDermott hosted Rob Gramlich, Founder and President of Grid Strategies, LLC, on July 16 for a discussion of low-cost decarbonization strategies for the electricity sector. We framed the discussion around 2020 US Presidential Candidate Joe Biden’s recently announced goal of getting to zero carbon emissions from the electricity grid by 2035.

Here are three takeaways from our conversation:

1. Three Areas of Change. Rob highlighted three areas where improvements can be made to substantially increase the deployment of wind and solar resources: Power markets, grid infrastructure and grid operations. With respect to power markets, Rob emphasized that regional transmission organizations (RTOs) can play a bigger role in achieving very fast dispatch over large geographic areas. With respect to infrastructure, he emphasized that new transmission lines will be required to reach the best wind and solar resources, but also that many of those new lines can be built on existing rights-of-way. And with respect to grid operations, he emphasized that there are technologies and operating practices that can help us improve the efficiency of the grid.

2. Flexible FERC. Rob suggested that under a new Democratic administration, FERC would likely prioritize flexibility in pricing design and in FERC’s interactions with states. He emphasized the importance of a flexible design for the pricing of “capacity” services and suggested that a Biden administration would likely be supportive of state level efforts to promote renewable energy.

3. Transmission Costs vs. Electricity Costs. Rob suggested that over the next ten years transmission costs will become a greater share of the overall cost of electricity, but that building out transmission would help bring that overall cost down.




Five Takeaways: What’s New in Energy Private Equity? Trends and Developments in a Shifting Investment Landscape

McDermott recently hosted Andrew Ellenbogen of EIG Partners and Jeff Hunter of Apollo Global Management for a lively discussion about the trends and developments in today’s shifting investment landscape.

Below are key takeaways from this week’s webinar.

      1. The most impactful changes in energy investment over the last decade have been the drop in natural gas prices, the decrease in the cost of capital for renewable investments and the increase in renewable capacity factors (and a dramatic decrease in equipment pricing).
      2. As the energy market has become crowded for traditional operating assets, some investors are seeking opportunities in non-traditional spaces, such as investing in non-traditional technologies (such as solar plus storage or offshore wind) or investing in service providers or construction companies.
      3. In search of returns, some investors are continuing to take a greater amount of merchant risk or development risk than they previously would have accepted, and some investors are investing in platforms rather than projects.
      4. There are smart investments in power to be made in areas with higher barriers to entry (if you can make reasonable projections on the regulatory environment). For example, California peaking resources have provided interesting opportunities in recent years. Larger returns come from taking thoughtful positions on the market and taking carefully analyzed risks.
      5. Prudent investors pay attention to intrinsic risks of power investments, including risks that the market may not be pricing correctly. A successful investment in power assets requires realistic (and conservative) estimates of both basis risk and the merchant tail (and a view on back-end electricity prices).

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Three Takeaways: Tensions in the Renewable Energy and Environmental Markets


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.

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Five Takeaways: Early Moves and Current Trends in Energy Storage

McDermott continues its dialogue with renewable industry leaders to provide the latest market updates on the disruption, challenges and opportunities COVID-19 presents to the industry. This week, we focused on the energy storage market and hosted Chris McKissack, CEO at GlidePath Power Solutions. Glidepath was an early mover in energy storage. GlidePath is now one of the largest energy storage developers and independent power producers in the US, with over 100MW of commercially operating battery projects, 445 MW of battery storage and renewable energy projects, and 2.1 GW of greenfield development pipeline of battery storage projects across the US. We had an engaging discussion spanning the benefits of being an early mover in the storage space, the current state of the dynamic energy storage market, and successful strategies you can use to approach the opportunities and challenges stemming from COVID-19.

1. Batteries Can Now Serve as “Shock Absorbers” for the Grid

Batteries are capable of doing much more than just “energy shifting,” where a developer simply stores energy from a solar project from one time of day and dispatches it onto the grid at another time of day. For instance, we are now able to place stand-alone batteries closer to load than most large-scale wind and solar projects. This provides an opportunity for frequency response and regulation in that it allows grid operators to dispatch generators more efficiently. This is important to today’s market. 60 years ago, we had an unpredictable load, but very predictable generation. You could ramp-up and ramp-down generation by turning a dial. Today, we have more and more intermittent resources and renewables dispatching the grid resulting in more demand response. We now have both unpredictable load and unpredictable generation, making it much more difficult for the operators of the grid to balance the two. There is an opportunity for batteries act like shock absorbers for the grid and keep things stable.

2. Batteries Remain Key to Energy Shifting and Financial Energy Arbitrage

Despite the versatility of batteries, energy shifting remains an important use for batteries, particularly for financial energy arbitrage. Batteries provide an opportunity for load customers to marry their purchase of energy with their load and shape it to a particular financial profile. We see a lot of this usage by datacenters today and this trend will continue.

3. Early Movers in Energy Storage Will Likely Emerge from COVID-19 Even Stronger

The battery energy storage market was poised for a period of sustained growth in 2020 and 2021, but it is unlikely to emerge totally unscathed from COVID-19. According to some forecasts, market growth is now forecast to decline for 2020. The pace of the recovery will depend how quickly the COVID-19 crisis is resolved. However, depending on the agility of the company’s management and the status of the development of its projects going into COVID-19, some battery storage companies may come out of COVID-19 even [...]

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Five Takeaways: Navigating President Trump’s Executive Order on US Bulk Power System Electric Equipment

President Trump’s May 1, 2020 Executive Order prohibiting certain transactions involving bulk-power system electric equipment developed, manufactured or supplied by a foreign adversary could have far-reaching implications for both the renewable and conventional power industries. It has also raised a high level of uncertainty and risk while the industry awaits the actual implementation of the Executive Order. This interim period, as well as the breadth of the Executive Order, raises key questions and concerns for sponsors and developers of energy projects, construction contractors and energy project investors. Read our latest On the Subject for more in-depth information.

Yesterday, after the Department of Energy’s stakeholder call, we hosted a webinar that addressed important considerations as to how the Executive Order may impact your business. In particular, our hosts provided a step-by-step framework on navigating the Executive Order based on their prior US Government experience in this area and current “boots on the ground” in Washington, DC on this issue.

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Six Takeaways: Shifting Market Dynamics in Corporate PPAs


On Thursday, May 7, McDermott Partners Ed Zaelke and Carl Fleming were joined by Christen Blum, head of the Renewable & Analytics Advisory practices at Edison Energy, to hear her thoughts on the current effects of COVID-19 on the corporate power purchase agreement (PPA) market.

Below are six takeaways from this week’s webinar:

    1. Despite COVID-19, there is still a strong appetite for corporate renewable procurement: market leaders (such as tech, pharma, and food and beverage companies) have been less impacted by COVID-19 and remain interested in renewable procurement. On the other hand, companies that have been hit the hardest by COVID-19 (such as services and hospitality businesses) have traditionally demonstrated limited interest in renewables; but industrial companies have seen the largest effect of COVID-19—they remain interested in renewables, but are delaying their procurement as they focus on their core business.

    2. Although the trend for buyer-friendly PPA terms remains strong, the market has seen a recent uptick in prices over 2019 such that they no longer remain as buyer-friendly as they have been in the recent past, but the impact of COVID-19 on these prices remains to be seen.

    3. In order to maintain more competitive PPA prices, developers are employing a number of price mitigation strategies, including price collars, upside sharing and developers bearing more merchant risk.

    4. Most corporate buyers are less time-sensitive than more traditional buyers; as such near-term wind projects are often losing out on opportunities to cheaper solar projects which are coming online later.

    5. Force majeure terms have become a major emphasis in PPA negotiations now.

    6. The best advice for developers is to treat their relationships with corporate partners as a long-term partnership and to act accordingly in negotiations.

Listen to the full webinar here.

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