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 the [...]

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Key Takeaways | Renewables Tax Takeaways from the Manchin-Schumer Deal on Taxes, Climate and Energy

On August 1, McDermott Partners Philip Tingle and Heather Cooper hosted a webinar to address the climate bill, dubbed the Inflation Reduction Act of 2022, which unexpectedly came back on the table on July 27. Click here for a summary of the bill.

Below are key takeaways from the presentation:

  • Last week’s surprise Congressional bill incorporates many of the same features we saw in last year’s Build Back Better bill, including an extension of the existing PTC and ITC, to be replaced by a technology-neutral PTC and ITC available for any energy producing projects or storage technology with net zero greenhouse gas emissions. Those new credits would remain in place without phase down until at least 2032.
  • If enacted, taxpayers need to consider how the proposal impacts their pipelines. Taxpayers may no longer need to worry about “begin construction” for purposes of locking in the tax credit phase-down under the current law, but will still need to think about “begin construction” rules vis a vis the new wage and apprentice requirements, and also think about placed-in-service dates for purposes of eligibility for the new domestic content bonus and transferability provisions.
  • The bill doesn’t offer the much-desired direct pay feature for most projects, but offers a transfer optionality that could dramatically change how facilities are financed. Developers will need to consider how the transfer mechanism impacts timing of getting paid for the credits, stranded depreciation, tax basis step-up valuations, and the discount rate for selling the credits, and whether it still makes sense in some cases to bring in tax equity.
  • There are lots of different incentives scattered throughout the bill and market players will need to carefully assess how these incentives may refocus how and where they build projects. For instance, new credits for storage and hydrogen, and significant credit boosts for projects in low-income, coal and other traditional energy communities.



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.




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