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Why 2030 is the New 2050 after the Leaders Climate Summit and What President Biden’s Accelerated Transition to a Sustainable Economy Means for Renewables Developers, Investors and Corporates

2030 is the new 2050 as US President Joe Biden has officially set a new goal for fighting climate change over the next decade in the United States. At the Leaders Climate Summit (the Summit) on Earth Day, he announced that America would aim to cut its greenhouse gas emissions at least 50% below its 2005 levels by 2030. If successful, this transition would lead to a very different America and would affect virtually every corner of the nation’s economy, including the way Americans get to work, the sources from which we heat and cool our homes, the manner in which we operate our factories, the business models driving our corporations and the economic factors driving our banking and investment industries. The effectiveness of this transition lies in the administration’s ability to pull on two historically powerful levers: Tax policy and infrastructure funding. However, tax policy will call upon multiple sublevers, such as increased tax rates, expanded tax credits, refundability, carbon capture, offshore wind, storage, transmission and infrastructure investment. All of this will be bolstered by the American corporate sector’s insatiable appetite for environmental, sustainability and governance (ESG) goal investment.

QUICK TAKEAWAYS

There were six key announcements at the Summit for renewables developers, investors and corporates to take note:

  1. The United States’ commitment to reduce its greenhouse gas emissions by 50% – 52% below its 2005 emissions levels by 2030
  2. The United States’ economy to reach net-zero emissions by no later than 2050
  3. The United States to double the annual climate-related financing it provides to developing countries by 2024
  4. The United States to spend $15 billion to install 500,000 electric vehicle charging stations along roads, parking lots and apartment buildings
  5. A national goal to cut the price of solar and battery cell prices in half
  6. A national goal to reduce the cost of hydrogen energy by 80%

President Biden’s goals are ambitious. It is clear from the history of renewable incentives in the United States as well as current developments that moving forward, the green agenda will predominately rely on two primary levers being pulled at the federal level: Tax policy and infrastructure funding. The federal tax levers mentioned above will not be pulled in a vacuum. Instead, they will be pulled in the midst of a tectonic shift among individual investors that now demand that institutional investors and corporations begin to create and meet ESG goals as individual customers are beginning to take a corporation’s climate goals and footprint into account when making purchasing decisions.

As a result, we discuss the following areas in greater detail below:

  1. Tax policy
    1. increased tax rates
    2. expanded tax credits
    3. refundability
    4. carbon capture
    5. offshore wind
    6. storage
    7. transmission
  2. Infrastructure bill
  3. ESG environment

DEEPER DIVE: BREAKING DOWN EACH LEVER AS WELL AS ITS OPPORTUNITIES AND CHALLENGES

  1. Tax Policy: The consistent message from the Biden Administration, at the Summit and elsewhere, makes clear that tax policy will likely play a significant role in the administration’s ambitious climate agenda. At [...]

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Senate Democrats Propose Overhaul of Clean Energy Incentives

US Senate Finance Committee Chairman Ron Wyden (D-OR) introduced the Clean Energy for America Act (the Act), along with two dozen Democratic co-sponsors, on April 21, 2021. The Act will likely be a starting point for the Biden administration tax proposals intended to limit carbon emissions. The Act would change the current system for incentives for the renewable energy industry to a technology-neutral approach for generation that is carbon free or has net negative carbon emissions. The Act would also provide tax incentives for qualifying improvements in transmission assets and stand-alone energy storage with the aim of improving reliability of the transmission grid. Instead of requiring that taxpayers who qualify for the clean energy incentives have current or prior tax liabilities, the Act would create a new direct pay option allowing for refunds of the tax credits.

The Act would replace the current renewable energy incentives with a new clean electricity production and investment credit, which would allow taxpayers to choose between a 30% investment tax credit (ITC) or a production tax credit (PTC) equal to 2.5 cents per kilowatt hour. The credit would apply to new construction of and certain improvements to existing facilities with zero or net negative carbon emissions placed in service after December 31, 2022. The Act would phase out the current system of credits for specific technologies. To provide time for transition relief and for coordination between the US Department of the Treasury (Treasury) and Environmental Protection Agency (EPA), the Act extends current expiring clean energy provisions through December 31, 2022.

The Secretary of Treasury, in consultation with the Administrator of the EPA shall establish greenhouse gas emissions rates for types or categories of facilities which qualify for the credits. To incentivize additional emissions reductions from existing fossil fuel power plants and industrial sources, the Section 45Q tax credit would be extended until the power and industrial sectors meet emissions goals. The Act would modify the qualifying capture thresholds to require that a minimum percentage of emissions are captured. Once certain emissions targets are met—namely, a reduction in emissions for the electric power sector to 75% below 2021 levels—the incentives will phase out over five years.

Qualifying transmission grid improvements are also eligible for the 30% ITC including standalone energy storage property. Storage technologies are not required to be co-located with power plants and include any technologies that can receive, store and provide electricity or energy for conversion to electricity. Transmission property includes transmission lines of 275 kilovolts (kv) or higher, plus any necessary ancillary equipment. Regulated utilities have the option to opt-out of tax normalization requirements for purposes of the grid improvement credit. However, the Act does not include a similar option to opt-out of the tax normalization provisions for other types of qualifying facilities, such as solar or wind projects.

Under the Act, investments qualifying for the clean emission investment credit, grid credit or energy storage property in qualifying low-income areas qualify for higher credit rates. The Act also includes new provisions requiring [...]

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Key Takeaways: SPACs and How to Plug into the Opportunities They Present in Renewable Energy and Green Infrastructure

On April 14, McDermott Will & Emery partners Tom Conaghan and Carl Fleming and Nicole Neeman Brady, CEO and director of the renewable energy SPAC, Sustainable Development Acquisition I Corp, discussed the rise of special purpose acquisition companies (SPACs), the opportunities they present in renewable energy and in the transition to green infrastructure and the complex legal and business challenges these vehicles present.

Below are key takeaways from the webinar:

  1. There has been an increase in SPAC activities in recent years, and this presents an opportunity for sponsors, investors and private companies. Each stakeholder has distinct advantages for entering into a SPAC transaction.
  2. Sponsors are able to take advantage of the industry experience they already have, including in the capital markets sector and the specific industry sector of the target company. Investors have downside protection with the money they invest, which may be refunded at a later date. Investors are also eligible to purchase warrants in connection with SPAC initial public offerings (IPOs), offering additional protection. Private companies are offered access to capital markets without having to undergo a traditional IPO, which is a burdensome process in complying with various regulations and underwriter requirements.
  3. Various SPACs consider different factors in making investments. Sustainable Development Acquisition I Corp, for example, looks for sustainability goals that balance profit and purpose as a B Corp. and prioritizes companies that have expertise and goals that are consistent with sustainable growth.
  4. Private companies that are hoping to do a SPAC transaction should prepare in advance to make sure it is ready to comply with public company laws and regulations. These rules are complex and will require long lead times before the company is in a position to be regulated as a public company. In particular, preparation of financial statements can be challenging to prepare. As there is an 18- to 24-month deadline for SPACs, private companies would benefit from getting a head start in preparation.
  5. The US Securities and Exchange Commission (SEC) has recently been more involved with IPOs conducted through SPACs, including publishing a primer on SPAC transactions and a statement on whether warrants should be treated as equity or liability for accounting purposes. In light of such recent developments from the SEC, all stakeholders should exercise more caution in performing SPAC transactions and avoid cutting corners.

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




The Energy Market in 2021: From Crisis to Opportunity | Tax Credit for Carbon Capture Products

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 Ken Ditzel, Senior Managing Director and Fengrong Li, Managing Director, who are both in the Economic and Financial Consulting Practice.


Below are key takeaways from the webinar:

  1. The carbon capture and sequestration tax credit under section 45Q is an important source of predictable revenue for carbon capture projects. The section 45Q credit was substantially expanded in 2018 and is worth up to $50 per metric ton for carbon permanently sequestered and up to $35 per metric ton for carbon used as a tertiary injectant in connection with an enhanced oil or natural gas recovery project. Internal Revenue Service (IRS) guidance released last year and final regulations promulgated in January have provided more certainty for the market to move forward with carbon capture projects and claim the enhanced section 45Q credit.
  2. There are currently about 32 strong contender carbon capture projects in the US market. About half of the carbon capture projects are traditional power generation and another third of projects are ethanol projects. Deep saline formations represent almost 90% of carbon sequestration storage capacity with enhanced oil recovery representing most of the remaining storage capacity.
  3. Tax equity investors—including banks, financial institutions and energy companies—are closely monitoring and have expressed interest in carbon capture projects. To date, there are no closed transactions that include tax equity structures. Rather, project sponsors have claimed the section 45Q credit against their own tax liabilities. The recapture lookback period was reduced from five to three years in the final section 45Q regulations, which may encourage tax equity investments.

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.




Biden Administration Takes Aim at Advancing Gender Equity and Equality – Complementing Several Renewable Energy Private Sector Initiatives

On International Women’s Day, US President Joe Biden signed an Executive Order establishing the White House Gender Policy Council. The council, which was formerly called the White House Council on Women and Girls under the Obama administration, seeks to advance the equality of opportunity while simultaneously combating systematic biases and discrimination against women. The council plans to do this by coordinating federal government efforts to increase economic support, promote gender equity in leadership, prevent all forms of gender-based violence and bolster initiatives to empower women, both domestically and internationally. Although the election of Kamala Harris as the first female vice president in American history disrupted gender norms, the revival of this council serves as a salient reminder that there is still much to do to combat systemic biases and advance gender equality.

The federal government is not alone in its endeavor to combating gender inequity. Renewable energy has proven to be an industry where there is significant potential to break institutional biases. The renewable energy workforce, for example, comprises 32% women, whereas the larger energy sector workforce only employs 22% women. Although this is a notable start, these numbers illustrate that there is still progress to be made in achieving gender equality across industries and that these goals should be prioritized moving forward.

The renewable energy industry has several initiatives prioritizing gender equality that should continue to be lauded and supported. One such program is the Women of Renewable Industries and Sustainable Energy (WRISE) program, which supports the educational, professional development and advancement of women in the renewable energy sector with the aspiration of combating systemic inequities. The Women in Renewable Energy (WIRE) Network is a network of women working in renewable energy and combating existing structural gender inequities that could be exacerbated by the consequences of climate change. The Clean Energy Council’s Women in Renewables initiative serves as a platform to champion women working in renewable energy as they advance to become leaders of industry. Other notable programs and initiatives include:

  • Powered by Women, which consults with renewable energy companies on how they can sustainably build growth and close gender gaps at their respective organizations.
  • The Clean Energy Trust, a nonprofit supporting female or minority-owned startups aspiring to innovate in the realm of clean energy and sustainability.
  • The American Solar Energy Society, which is recognizing women who have contributed extraordinary developments to the technological developments or wide-spread advancement of solar energy.
  • The Department of Energy, which has sought to recruit more women into the clean energy field and recognize accomplished women for their contributions and leadership through the US Clean Energy Education & Empowerment (C3E) Initiative.
  • The Solar Energy Industries Association, which has developed the Diversity Best Practices Guide for the Solar Industry, aims to build a diverse workforce by providing guidance to companies as they navigate diversity and inclusion efforts.

The establishment of the Gender Policy Council displays a commitment by the United States to ensure that [...]

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Biden Administration Continues to Shift National Infrastructure and Transportation Networks to Pave the Way for Electric Vehicles

On Tuesday, US National Climate Advisor Gina McCarthy publicly underscored President Joe Biden’s commitment to supporting the electric vehicle (EV) industry and other industries aimed at tackling the climate crisis. She noted the administration’s goal is to build more than 500,000 EV chargers. The electric vehicle charging station market size is projected to surpass around USD $39.2 billion by 2027 and witness a compound annual growth rate of 40.7% from 2020 to 2027.

McCarthy made her comments during a meeting with key stakeholders and influential policymakers in the EV and EV charging industries, including senior staff of the Department of Transportation, chief executive officers of companies producing electric vehicle charging infrastructures, the National Economic Council and the Council of Environmental Quality.

This is a further demonstration by the administration that it will rely upon the insight of renewable energy leaders to produce, navigate and accelerate the production of national renewable energy infrastructure. The administration also sees the modification of our national renewable energy infrastructure as a means to strengthen American manufacturing, create new employment opportunities and speed economic recovery through the pandemic crisis.

McCarthy’s remarks are part of a growing trend to find executive and legislative avenues to addressing the climate crisis. Democrats in the US House of Representatives have introduced legislation that aims to reduce economy-wide greenhouse gas emissions to net-zero by 2050. This emphasis has similarly carried over into the realm of domestic infrastructure. The CLEAN Future Act aims to require all retail electric providers to generate 100% of their power from zero-emissions resources by 2035, and 80% by 2030.

The federal government is not the only actor racing to find ways to meet the anticipated demand for electric vehicles and the subsequent infrastructural changes that will be required. A conglomerate of utilities has committed to cooperating to create a “seamless network” of charging stations along major highways.

These efforts across industries and branches of government indicate the inevitability of growth in the renewable energy industry and that the desire for opportunities for electric vehicles across the country will continue to be fueled.




Granholm Confirmed as Energy Secretary

Today, Jennifer Granholm was confirmed as secretary of energy, winning US Senate approval by a 64–35 vote. Granholm’s confirmation serves as another boost to President Joe Biden’s plan to tackle climate change and develop clean energy across the United States. Granholm, who is an advocate for electric vehicles and other low-carbon technologies, will join Pete Buttigieg, the secretary of transportation, as a member of President Biden’s cabinet selected to further a green economy and green infrastructure.

Granholm, who served two terms as the governor of Michigan, worked with the automotive industry during her term to obtain more than $1 billion in federal funding for Michigan companies to manufacture electric vehicles and batteries. Under Granholm’s leadership, Michigan also adopted standards requiring utilities to utilize renewable energy sources. Granholm promoted the use of wind and solar technology during her confirmation hearing by telling senators, “We can buy electric car batteries from Asia or we can make them in America. We can install wind turbines from Denmark or we can make them in America.” She believes investing in renewable energy technologies will create more American jobs and boost the US economy.

Granholm’s confirmation will likely serve as encouragement for developers, lenders and investors in the renewable energy industry, as this will create more opportunities for renewable energy projects across the country and amplify the need for clean energy.




Buttigieg Confirmation Signals Increased Investment in Renewable Energy Infrastructure and Electric Vehicles

Today, Pete Buttigieg was sworn in as secretary of transportation after his nomination passed the US Senate 86-13. His confirmation means a likely boon for investment in US infrastructure, particularly for those investing in renewable energy infrastructure, electric vehicle infrastructure and electric vehicles. In an email distributed to his staff today, he advised them that “…we will break new ground: in ensuring that our economy recovers and rebuilds, in rising to the climate challenge and in making sure transportation is an engine for equity in this country.”

US President Joe Biden has made similar pledges about infrastructure. Last week he signed an Executive Order that took bold steps to combat the climate crisis both at home and throughout the world, creating a number of opportunities for developers, lenders and investors in the renewable energy space.

Buttigieg’s confirmation is noteworthy since it is another concrete step by the Biden-Harris administration to implement its climate change agenda. For instance, the Biden-Harris administration has committed to replacing all government cars and trucks, including the fleet of United States Postal Service vehicles, with clean zero-emission electric vehicles. This would require replacing more than 645,000 vehicles, which reflects the most recent amount of government vehicles reported by the General Services Administration in 2019.

Buttigieg will now be responsible for overseeing the nation’s transportation system and creating safer roadways. The 86-13 vote signals that rebuilding the nation’s infrastructure will receive cross-party support. Buttigieg’s former experience as mayor of South Bend, Indiana, will likely aid him in impacting the local levels.




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