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Key Takeaways | Guidance on the Wage and Apprenticeship Provisions

The Navigating the New Energy Landscape webinar series came back last week for a special bonus session that focused on the just-released Internal Revenue Service (IRS) guidance on the wage and apprenticeship provisions included in the Inflation Reduction Act of 2022 (IRA).

During this webinar, McDermott Partners Heather Cooper and Philip Tingle walk through the new guidance, covering key issues and drilling down into the impact of the 60-day countdown clock for which developers have to implement these provisions or face the loss of critical tax benefits for their renewable energy projects.

Below are key takeaways from the discussion:

1. IRS Notice 2022-61 provides additional guidance on the prevailing wage and apprenticeship requirements included in the IRA, which apply to a broad range of energy tax credits. Projects that do not meet these requirements potentially face an 80% reduction to any applicable energy tax credits. However, due to the 60-day delay between the release of the guidance and when the rules take effect, projects that begin construction before January 30, 2023, will not be subject to the requirements.

2. Notice 2022-61 also provides clarification (largely by reference) to existing US Department of Labor (DOL) regulations and prior IRS guidance. For example, it clarified that the existing IRS framework for determining the beginning of construction will be preserved. Other developments include a contemporaneous recordkeeping requirement necessary to establish compliance with the prevailing wage and apprenticeship requirements, clarification on the good faith effort exception to the apprenticeship requirements, and a new DOL email address for questions regarding prevailing wage determinations.

3. Despite this guidance, many questions remain unanswered. While many key definitions and rules are clarified by reference to DOL rules, this has not eliminated uncertainty regarding their implementation. McDermott’s energy & project finance team is working closely with the Firm’s employment team to tap into their vast experience with the DOL.

4. These developments raise many new considerations for developers. Those that can start construction before January 30 may wish to determine how to meet the beginning of construction requirements promptly and effectively before the guidance takes effect. Those that cannot start construction before January 30 will need to consider how to manage potential risks that arise from the new rules. This could require additional transactional scrutiny when drafting and negotiating around compliance.

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.




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Key Takeaways | Carbon Capture Gets a Long Runway for Development

Featured prominently in the Inflation Reduction Act of 2022 (IRA), carbon capture, utilization and storage (CCUS) is one segment of the energy industry that could most benefit from incentivized development. On November 17, McDermott Partners Parker Lee and Philip Tingle were joined by Laura Gieseke, senior counsel at Western Midstream, and Spencer English, director at Piper Sandler, for a discussion on the current CCUS market and how potential benefits in the IRA might play out in future CCUS development projects.

Below are key takeaways from the discussion:

1. Progress in the CCUS market requires buy-in from the oil and gas industry. This has been the case thus far given the industry’s existing technologies and desire to reduce its carbon outputs. New incentives within the IRA, such as direct pay credits, are expected to spur further investment.

2. The three primary components of CCUS are physical capture, transportation of carbon by pipeline and sequestration systems. There has been more investment and research into physical capture and transportation as those projects deal with pre-existing structures within the oil and gas industry. While direct air capture is not as popular as other carbon capture measures, the industry is devoting time to study the feasibility of such projects.

3. The IRA allows for developers to treat amounts paid in excess of their tax liability for certain tax credits as a refundable payment and receive a cash refund from the Internal Revenue Service (IRS). Specifically, Section 45Q permits both tax-exempt and non-tax-exempt entities to take advantage of this incentive for carbon oxide sequestration credits. This “direct pay” allows CCUS developers to monetize tax credits without partnering with tax equity investors and will allow for increasing the scale of CCUS projects. This provision will remain in effect until 2033. The monetization mechanism for the direct pay credits still needs to be developed and put into practice.

4. There are important questions that the IRS needs to consider during its comment period that will shape the future of the CCUS market and financing for it. For example: How is carbon sequestration defined? If an entity avoids producing CO2, does that qualify as carbon sequestration? How do we verify sequestration? How is sequestration documented?

5. Tax equity investors have a good sense of potential risks for wind and solar projects, but there is a desire to diversify into different technologies. While direct pay will permit the oil and gas industry to proceed with CCUS projects without tax equity partners, the industry expects tax equity partners to join down the road to allow for maximum utilization of the available tax credits.

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.




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Key Takeaways | Hospitals and Renewable Energy: New Financial Incentives and Opportunities in the Inflation Reduction Act

During this webinar, Heather Cooper and Carl Fleming, partners in the McDermott’s energy & project finance group, teamed up with McDermott+Consulting’s Debra Curtis to break down the key opportunities and actionable steps that your in-house team stakeholders need to know about to take advantage of what the Inflation Reduction Act of 2022 (IRA) has to offer. Discussion topics included a highlight of important provisions in the IRA and the incentives they hold for hospitals, an update on how the Biden administration is approaching climate change and healthcare, how to track funding sources and apply for tax credits and deductions and more.

Below are key takeaways from the discussion:

1. Hospitals, Healthcare and Climate Change. Hospitals and the healthcare sector both have a role to play in climate change mitigation. The healthcare sector accounts for about 8.5% of all greenhouse gas emissions in the United States and about 4.5% of emissions worldwide. These emissions are generated mostly from running energy-draining facilities 24/7. Hospitals have an opportunity to not only track and report emissions, but also to reduce them.

2. Hospitals and Healthcare Systems Now Face Climate Change Operational Risk. While there may have been a lack of oversight and accountability on hospitals and the healthcare sector in regard to climate change, there are now several forces pushing hospitals—and the healthcare system more broadly—to undertake efforts to reduce their dependence on fossil fuels.

3. Health Sector Climate Pledge. On June 30, 2022, US President Joe Biden announced the “Health Sector Climate Pledge.” As a result, the US Department of Health and Human Services (HHS), in partnership with the White House, is mobilizing the healthcare sector to reduce emissions. Under the Pledge, 61 of the largest US hospital and health sector companies (which account for about 650 hospitals) committed to reducing greenhouse gas emissions by 50% by 2030. Additionally, in response to the Biden administration’s directive to federal agencies on climate change, the HHS has taken several other steps to address the issue. Internally, it has created small offices to examine climate change, health equity and environmental justice.

4. The IRA Is Historic. Perhaps the biggest incentive for hospitals to take action comes from the IRA, which President Biden signed into law back in August. The IRA is the largest climate change legislation ever enacted globally and provides for $369 billion in climate change programs and incentives with a 10-year timeframe (versus the prior one-to-three-year increments). It also greatly expands tax credits for US companies that adopt energy-saving renewable technologies and, for the first time, makes these credits available to nonprofits—a category that includes just over half of the nation’s hospitals.

5. The IRA Unlocks Opportunities for Hospitals. Under the IRA, hospitals now (1) have access to a new significant financial incentive for energy efficiency, (2) gain access to the previously restricted tax equity market via [...]

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Key Takeaways | A Deep Dive into Wage and Apprentice, Domestic Content, Transfer and Direct Pay

On August 31, McDermott Partners Heather Cooper and Philip Tingle provided a detailed review of the wage and apprentice, domestic content, transferability and direct provisions of the Inflation Reduction Act of 2022. They discussed the technical requirements for each of the new sections and offered insight into how these new rules will impact the deal pipeline, planning and negotiations.

Below are key takeaways from the discussion:

  1. The extension and expansion of the existing ITC and PTC by the Inflation Reduction Act (IRA) come with additional requirements, a critical component of which is the all-new wage and apprenticeship requirement (W+A) for 1MW or greater energy projects. Because of both the newness of the rules and the need for additional IRS guidance, the beginning construction rules are going to have continued relevance while taxpayers wait for the market to sort out how it will address W+A compliance.
  2. For projects beginning construction after the W+A guidance, taxpayers must consider how they will monitor W+A compliance, in particular with respect to wages paid to and labor provided by employees of contractors and subcontractors. Taxpayers should consider what types of covenants and representations they will require of contractors, how to draft indemnities to allocate the risk of default, costs to cure failures to meet W+A, and in the worst case the loss of 80% of the ITC or PTC.
  3. There is limited direct pay available to tax-exempts, government entities, Indian tribes, and the like, except for the credits for clean hydrogen, carbon capture and advanced manufacturing credits—which are available to non-exempt taxpayers.
  4. As an alternative to direct pay, taxpayers may elect to transfer their credits for cash. Those proceeds are tax-free, generally with no cap, phase-out, limitation or exception. For partnerships, the election is made at the partnership level, which creates planning complexities on who will control elections and make indemnities, and how remaining partnership items will be taxed and allocated. Taxpayers will need to plan around such situations, and transferability likely won’t simplify the financing of renewable projects.

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.




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Key Takeaways | In the Room Where It Happened

On August 25, McDermott Will & Emery kicked off its latest 10-part weekly webinar series focused on navigating the new energy landscape following the enactment of the Inflation Reduction Act of 2022 (the Act)—the largest and most important climate action in US history.

During the first webinar, McDermott Partners Carl Fleming and Edward Zaelke hosted Greg Wetstone, president and CEO of the American Council on Renewable Energy (ACORE), for a discussion on the conversations leading up to this historic legislation and its future impact on the renewable energy industry.

Below are key takeaways from the discussion:

1. The Act represents a major win for the renewable energy industry, particularly its extension of tax credits up to a 10-year (or potentially longer) period, allowing businesses in the energy sector to plan on stable tax platforms for longer than a couple of years—something that is truly unprecedented for the renewables industry. Other major highlights include the introduction of tax credits for energy storage and new technologies, such as hydrogen, programs to encourage domestic manufacturing and the monetization of tax credits. The McDermott Energy & Project Finance team has already seen a spike in standalone energy storage mergers and acquisitions (M&A) activity and a heightened interest in financing structures.

2. Of further noteworthy importance is the Act’s introduction of the ability to transfer tax credits. Although the direct pay provisions of the Act were not as broad as hoped for by many, Greg believes that the transferability provisions will have a significant impact on the renewable energy market. In his view, the constraints on transferability are minimal and allow for the monetization of credits without partnership flips or sale-leasebacks, although there may still be a role for these types of transactions. According to Greg, the market will likely see a mix of tax equity structures and other kinds of financing as there is now more latitude as to how to monetize these credits. The Energy & Project Finance team is currently advising on a number of innovative structures to allow clients to capitalize on this new game changer for tax credits.

3. Another notable feature of the Act is the ability to stack credits related to domestic content, energy communities and wage and apprenticeship requirements. Although further regulations and guidance are needed in these areas, it is agreed amongst industry specialists that appropriately stacking these incentives could make renewable energy projects much more lucrative while creating beneficial societal impacts, such as building a domestic workforce and supply chain and transitioning away from fossil fuel-driven economies. The Energy & Project Finance team is working with various clients to narrow down such requirements and to help properly “stack” these credits.

4. Reducing greenhouse gas emissions was a true driving force behind the Act and is a meaningful step toward addressing climate issues. However, the devil will be in the details regarding how [...]

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Key Takeaways | Legislative Update on Renewable Energy Tax Incentives

On November 17, McDermott Partners Philip Tingle and Heather Cooper were joined by Bill Parsons, COO of the American Council on Renewable Energy (ACORE), for a discussion on recent legislative activity regarding renewable energy tax incentives and how it will affect current tax credits as well as those in the center of the renewables space.

Below are key takeaways from the webinar:

1. Negotiations surrounding the Build Back Better Act and progress regarding the substance of the bill have been moving at a rapid pace. Despite some uncertainties, the hope is that something will be passed before year-end—and the tax credits component is likely to look very similar to the current proposal.

2. A shift in thinking has taken place in US Congress, specifically, the clean energy tax regime is now seen as a credible driver in achieving the Biden administration’s decarbonization and climate goals.

3. Industry participants are assessing whether the direct pay component of the Build Back Better Act will dramatically change the tax equity market. Several factors will determine how direct pay will affect said market, including the timing of payments, Internal Revenue Service (IRS) scrutiny, availability of depreciation and tax basis step-ups, permissiveness of waivers, congressional oversight and the proposed minimum book tax.

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




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An Update on Wind Farm Development along the US Coastline

On October 13, 2021, during a speech at American Clean Power’s Offshore WINDPOWER Conference & Exhibition, US Department of the Interior Secretary Deb Haaland announced a path forward for future offshore wind leasing along the US coastline. This announcement supports the Biden administration’s goal to install 30 gigawatts of offshore wind energy by 2030 and comes approximately five months after the Biden administration approved the 800 megawatt Vineyard Wind Project.

“The Interior Department is laying out an ambitious roadmap as we advance the Administration’s plans to confront climate change, create good-paying jobs, and accelerate the nation’s transition to a cleaner energy future,” Secretary Haaland said. As part of this roadmap, Secretary Haaland also announced plans for the Bureau of Ocean Energy Management (BOEM) to potentially offer up to seven new offshore lease sales by 2025 in the Gulf of Maine, New York Bight, Central Atlantic, Gulf of Mexico and offshore the Carolinas, California and Oregon.

Secretary Haaland shared that the Interior Department’s “timetable provides two crucial ingredients for success: increased certainty and transparency. Together, we will meet our clean energy goals while addressing the needs of other ocean users and potentially impacted communities. We have big goals to achieve a clean energy economy and [the Department of] Interior is meeting the moment.”

BOEM Director Amanda Lefton advised, “[w]e are working to facilitate a pipeline of projects that will establish confidence for the offshore wind industry…At the same time, we want to reduce potential conflicts as much as we can while meeting the Administration’s goal to deploy 30 gigawatts of offshore wind by 2030. This means we will engage early and often with all stakeholders prior to identifying new Wind Energy Areas.”

As we move closer to 2030, industry investors and developers should expect to see a steady increase of offshore wind activity due to the recent announcements and the Investment Tax Credit for projects that will start construction before 2026.




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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 [...]

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Key Takeaways | How Solar Industry Leaders are Addressing and Overcoming the US–China Trade War

The US-China trade war has caused a significant impact on the solar industry, and that impact is expected to grow. In this webinar, learn how solar industry leaders are handling the effects of the US–China trade war and how they are preparing for the future.

Our first webinar of this series featured McDermott Will & Emery partner Carl Fleming, Pine Gate Renewables Director of Regulatory Affairs Brett White, Vice President of Construction James Froelicher and Assistant General Counsel Jess Cheney.

Below are key takeaways from the webinar:

1. Withholding Release Order. The US Customs and Border Protection (CBP) issued a withholding release order (WRO) against Hoshine Silicon Industry Co. Ltd., a company located in China’s Xinjiang Uyghur Autonomous Region wherein all silica-based products made by Hoshine and its subsidiaries are to be detained at all US ports of entry. Because of this WRO, manufacturers have been moving outside of the Xinjiang Uyghur Autonomous Region in order to avoid being subject to it.

There have been numerous detentions of silica-based products at multiple ports across the United States, and it is expected that the detention of materials will continue. In order to combat this, suppliers and industry leaders are presenting documentation to show that the materials are not being produced from forced labor or Hoshine and its subsidiaries.

Although the WRO was expected to cause significant disruption, it is not having as large of an impact as feared because many suppliers had already left the Xinjiang Uyghur Autonomous Region.

2. Anti-Dumping and Countervailing Petition. Anti-Dumping and Countervailing Petitions filed in August 2021 requested that the US Department of Commerce (DOC) include additional tariffs against solar panel imports from Malaysia, Thailand and Vietnam. The petitioners requested additional tariffs ranging from 50% – 250%. The DOC has yet to decide whether to investigate based on the petition, however, the impacts of the petition are already being felt with disruptions to the supply chain. If the DOC were to investigate, the solar industry would likely see a severe slowing of projects in 2022 and 2023 as neither suppliers nor developers are willing to bear the economic risk of the potential tariffs.

3. The DOC and the Biden Administration. The DOC and the Biden administration are expected to make decisions regarding tariffs, as well as anti-dumping and countervailing duties, that will directly affect the solar materials supply chain.

The Biden administration hopes to increase the domestic supply of solar materials, however, domestic manufacturers currently only produce approximately 25% of the overall demand for solar materials. As a result, the solar industry cannot immediately divert to purchasing solar materials from domestic manufacturers as the supply simply is not available. As an incentive to increase domestic manufacturing, solar industry leaders hope tax credits can be offered to companies that manufacture solar materials.

The Biden administration is expected to decide whether the 18% tariff on imported solar panels [...]

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International News: Spotlight on the Energy Industry

US RENEWABLES: INVESTMENT OPPORTUNITIES PERSIST IN UNCONVENTIONAL PLACES

Christopher Gladbach | Seth B. Doughty

Apart from a few challenges, the sellers’ market in renewable energy is accelerating under the Biden administration, leading international investors to seek opportunities in non-traditional investments. Read more.

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THE US $2.3 TRILLION AMERICAN JOBS INFRASTRUCTURE PLAN

Elle Hayes | Dominique J. Torsiello | Carl J. Fleming | Ranajoy Basu

In March this year, US President Joe Biden unveiled the American Jobs Plan, the first of a two-part infrastructure package to revive the economy after the COVID-19 pandemic and the second stage of President Biden’s “Build Back Better” agenda. Read more.

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RECENT DEVELOPMENTS IN THE SOUTH EAST ASIA RENEWABLES MARKET

Ignatius K. Hwang | Merrick White

Despite considerable challenges, South East Asia is pulling out all the stops to transition to primarily renewable energy in the coming years. Read more.

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GREEN AMMONIA: AT THE INTERSECTION OF PETROCHEMICALS AND THE ENERGY TRANSITION

John Bridge | Parker A. Lee

As the world seeks to transition to a lower carbon economy, replacing traditional hydrocarbon-based transport fuels in the automobile, aviation, and shipping industries will be important. Read more.

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CLEAN ENERGY EMPLOYERS ARE THE NEW TARGET FOR ORGANISED LABOUR

Ellen M. Bronchetti | Ron Holland | Saniya Ahmed

Employers in the clean energy sector should be prepared to consider how changes to the US labour landscape are likely to impact their workforce. Read more.

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COMPETITION POLICY AND THE EUROPEAN GREEN DEAL: A PATHWAY TOWARDS CLEAN ENERGY AND ENERGY EFFICIENCY

Hendrik Viaene | David Henry | Karolien Van der Putten

EU competition rules—particularly State aid, merger control, and antitrust rules—are playing a key role in supporting the goals of the European Green Deal. Read more.

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NOT YET THE END FOR HYDROCARBONS

Merrick White

There has there been significant activity in the Asian upstream market this year. Who is buying mature oil fields, and why? Read more.

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ENGLISH HIGH COURT SANCTIONS RESTRUCTURING OF DTEK GROUP

Mark Fennessy | Sunay Radia | Alexander Andronikou

The recent restructuring of DTEK Group provides guidance regarding the English High Court’s position on challenges to the international effectiveness of schemes of arrangement and/or restructuring plans post-Brexit. Read more.

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