Project Development and Finance
Subscribe to Project Development and Finance's Posts

Key Takeaways | The Current State of the US P3 Market

On September 28, McDermott Partner Emeka Chinwuba and Star America Infrastructure Partners’ Michael Rueger and Kamil Seidl discussed the effects of the Infrastructure Investment and Jobs Act (IIJA) on the P3 market and what impact the Inflation Reduction Act will have on future energy projects. They also provided an outlook on secondary and brownfield assets and addressed barriers to bridging the funding gap.

Below are key takeaways from the discussion:

1. There has been an increase in capital raise activity amongst financial sponsors in anticipation of a robust pipeline of infrastructure projects as the impact of IIJA begins to permeate through the US P3 market.

2. Progressive P3 procurement models continue to gain traction as total procurement and project costs can be significantly reduced, especially since the risks can be better defined before pricing is locked in.

3. Political risks remain a concern, especially for user-fee-based infrastructure projects, and the need for P3 champions on a project-by-project basis remains essential to the growth and continued diversification of the market.

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




Federal Government Approves First $900 Million Toward Development of a National Network of Fast-Charging Electrical Vehicle Stations

The National Electric Vehicle Infrastructure (NEVI) Formula Program, sponsored by the US Department of Transportation’s (DOT) Federal Highway Administration (FHWA), will provide $5 billion in funding for states to establish an interconnected network of electric vehicle (EV) charging stations over the next five years beginning in 2022, with $1 billion in funds being dispersed each of those five years. This funding comes out of the much larger $1 trillion bipartisan Infrastructure Investment and Jobs Act, which passed back in November 2021.

KEY TAKEAWAYS

The EV charging stations must be (1) nonproprietary, (2) publicly available or available to authorized commercial motor vehicle operators from more than one company and (3) be located along interstate highways. The FHWA must distribute the NEVI Formula Program funds made available to it each fiscal year, through 2026, so that each state receives an amount equal to the state FHWA funding formula determined by 23 U.S.C. § 104. To receive funding, each state must submit a plan describing how it intends to distribute the NEVI Formula Program funds.

A DEEPER DIVE

On September 14, 2022, the Biden-Harris administration announced approval of 35 states’ plans, amounting to the first $900 million in US federal funding to build EV charging stations under the NEVI Formula Program. The approved funding comes from the allotted NEVI Formula Program funds to be disbursed throughout fiscal years 2022 and 2023. The FHWA expects to complete its review of the remaining states’ plans by September 30, 2022.

In addition, the Biden-Harris administration signaled that there would be an allotment of $2.5 billion in grants to be utilized for funding EV charging infrastructure in economically disadvantaged communities, rural towns and urban neighborhoods. Further, the recently passed Inflation Reduction Act of 2022 earmarks $3 billion for not only widespread EV adoption, but also ensuring that charging stations are located in underprivileged communities.

The NEVI Formula Program funding is designed to help build up to 500,000 EV chargers across approximately 53,000 miles of highway throughout the country. The proposed guidelines would require states to build at least one four port fast-charging station every 50 miles (some states may receive exemptions for a limited number of rural areas), with each station located within one mile of an off ramp. The program is designed to ease EV purchasers’ anxiety surrounding range capability on long road trips throughout the United States.

State DOTs were permitted to begin projects prior to approval. The recently approved funds may be used to reimburse the states for funds already spent on their respective projects, in accordance with their submitted plans. Eligible costs under the NEVI Formula Program includes almost any cost associated with getting chargers in the ground.

States and Territories with approved plans include Arizona, Arkansas, California, Colorado, Connecticut, District of Columbia, Delaware, Florida, Georgia, Kansas, Kentucky, Louisiana, Maine, Maryland, Massachusetts, Michigan, Minnesota, Mississippi, Montana, Nebraska, Nevada, New Hampshire, New Mexico, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Puerto Rico, Rhode Island, South Dakota, Tennessee, Utah, Washington and Wisconsin.

States that have submitted [...]

Continue Reading




Key Takeaways | Tax Credit Bonuses for Low-Income and Coal, Oil and Gas Energy Communities

On September 13, McDermott Partners Heather Cooper and Philip Tingle provided a detailed overview of the bonus tax credits under the Inflation Reduction Act of 2022 for projects satisfying low-income thresholds or built-in energy communities with ties to coal, oil and natural gas, including the technical requirements for each bonus and how these new rules will impact deal pipeline, planning and negotiations.

Below are key takeaways from the discussion:

1. There is an annual capacity limitation of 1.8 gigawatts direct current for low-income bonuses. It’s unknown whether this capacity will be allocated to projects on a first-come, first-served basis or shared amongst all applicants annually in the event capacity is reached. The Internal Revenue Service must provide guidance on this point within 180 days of enactment.

2. Projects that fail to satisfy relevant low-income/poverty metrics are subject to recapture (with a one-time opportunity to cure). It remains to be seen whether circumstances outside taxpayer control (e.g., local economic improvement) will trigger recapture.

3. At present, it is difficult to transact on the energy community bonus-based projects located in brownfield or MSA/non-MSA because of a lack of guidance. Projects located in census tracts with retired coal fired EGUs or coal mines, however, can be transacted based on the statute alone.

4. Projects will require researching, tracking and targeting areas where coal mines closed, coal fired EGUs retired and (after relevant guidance is released) brownfields are located.

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




Key Takeaways | Update on the Solar Circumvention Proceeding and Discussion of Possible Comments in Response to Commerce’s Recent Memo

On May 17, 2022, Carl Fleming, Lynn Kamarck and Tyler Kimberly from McDermott’s Energy and Project Finance and International Trade teams hosted Solar Energy Industry Association (SEIA) General Counsel and Vice President of Market Strategy John Smirnow for a roundtable discussion that provided substantive arguments, best practices and other advocacy strategies for US solar developers who are preparing to submit collective and individual responses to the US Department of Commerce (Commerce) this week following Auxin Solar Inc.’s petition and Commerce’s subsequent memorandum.

Below are key takeaways from the discussion:

1. To reach an affirmative circumvention determination, Commerce must confirm that the processing occurring in the target countries (i.e., Cambodia, Malaysia, Thailand and Vietnam) is “minor or insignificant.” While Commerce’s precedent establishes that the processing required to make a wafer into a module (including cell production) is not “minor or insignificant,” it has suggested the opposite during this circumvention inquiry.

2. Commerce could terminate the circumvention proceeding on the basis that including cells or modules completed in the target countries within the scope of the existing Chinese orders would not be “appropriate.” However, there is no clear indication as to what “appropriate” means.

3. What developers need the most right now is certainty. Because of the uncertainty surrounding the amounts of cash deposits and the final assessment of import duties, some developers are unable to make key business decisions. While Commerce tried to provide some of this certainty in its May 2 proposal, it did not accomplish that goal.

4. Developers can share their views regarding the investigation by submitting comments to Commerce by 5:00 pm EDT on May 19, 2022. Comments can include discussion of any difficulties complying with Commerce’s proposed certifications and whether such certificates would be useful to the company, the treatment of cells or modules manufactured in non-targeted countries and inconsistencies between prior Commerce decisions and the investigation at hand.

5. SEIA is calling for a Public Interest Requirement in anti-circumvention investigations to prevent similar petitions from being filed and moving forward in the future.

McDermott is currently preparing comments for a number of US solar developers and also providing additional feedback on comments prepared by other US solar developers to ensure that they are putting their best foot forward during this critical period.

For more insight on this topic, please watch our recent webinar recording where our executive leadership panel discussed the commercial, legal and policy responses to Commerce’s anti-circumvention investigation.




Key Takeaways: Risks, Opportunities and Disclosures in the Era of Climate Change

On April 27, members from McDermott’s ESG, Impact & Sustainability Group, including Counsel David Cifrino and Partners Thomas Dawson, Carl Fleming and Jacob Hollinger, hosted a webinar on risks, opportunities and disclosures in an era of climate change.

Below are key takeaways from the webinar:

  • There is intense industry and investor interest in new rules the United States Securities and Exchange Commission (SEC) has proposed on climate-related risk disclosure and how they harmonize with international sustainability standards. The proposed disclosure is very specific and detailed and would apply to companies in all sectors. The disclosure can be divided into three separate categories: a separate non-financial “Climate-Related Disclosure” section in annual reports and registration statements on climate-related governance, risk management, strategy, and goals; detailed reporting of greenhouse gas emissions, and financial statement climate-related metrics.
  • The SEC proposal for greenhouse gas reporting has many differences from the Environmental Protection Agency’s (EPA) existing Greenhouse Gas Reporting Rule, although the two sets of requirements are not necessarily inconsistent. Some aspects of the SEC proposal that are not in the EPA rules include: required reporting from the SEC registrant rather than being facility or supplier specific; no reporting threshold; contains no set mandatory calculation methodology; and has a third-party attestation requirement.
  • US insurers face separate specific considerations with respect to the rules. Of the approximately 5,000 insurers in the US, only about 110 are SEC registrants. States are typically the primary regulators for insurers and some states have existing annual climate disclosure requirements. Currently 35 states do not have such requirements, but it remains to be seen whether the SEC proposal will push more states to require submission of annual climate disclosures or to modify other disclosure filing requirements to include specific climate risk disclosure items.
  • The main “megatrend” in the market is toward decarbonization which impacts valuations, operations, employees and markets. Renewable energy is expected to continue its record growth through 2050. Several factors driving this growth includes technology improvements, decreasing costs, improved battery storage and a supportive policy environment.
  • Independent power producers are potential partners in helping Fortune 100 companies, tech giants and governments “go green.” For entities that cannot produce green energy but want to ensure their energy comes from green sources, corporate power purchase agreements with independent power producers provide a way of doing so.
  • Corporations bought a record 31.1 gigawatts of clean energy through power purchase agreements, or PPAs, in 2021. This is up nearly 24% from the previous year’s record of 25.1GW.

Read more on “SEC Proposes Landmark Standardized Disclosure Rules on Climate-Related Risks” and “Climate Change Regulatory Update for US Insurers”.




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 | Post-Uri Hedge Products for Storage and 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.




STAY CONNECTED

TOPICS

ARCHIVES

Ranked In Chambers USA 2022
GCR 100 global elite