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

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

Below are key takeaways from this week’s webinar.

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

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Access past webinars in this series.




Illinois Renewable Resources Procurement Plan Aims to Boost Renewable Energy Development

On September 29, 2017, the Illinois Power Agency (IPA) released its Long-Term Renewable Resources Procurement Plan (Plan) to implement renewable energy goals set forth in Illinois’s Future Energy Jobs Act, which went into effect on June 1. Together, the new legislation and the Plan, among other things, make significant modifications to Illinois’s renewable portfolio standard (RPS) goal of 25 percent of retail electricity sales sourced from renewable energy by 2025. The Plan sets forth procurement programs designed to meet the state’s annual RPS targets until 2030 and will be updated at least every two years. These changes significantly expand renewable energy development opportunities in Illinois—by some estimates, leading to the addition of approximately 1,300 megawatts (MW) of new wind and nearly 3,000 MW of new solar capacity by 2030.

Expanding the Illinois RPS

While maintaining the same 25 percent renewable energy sourcing goal, the Future Energy Jobs Act functionally increases the state’s RPS target because Illinois’s RPS standard previously applied only to customers buying power through a utility’s default service, not customers taking supply through alternative retail suppliers or through hourly pricing. According to the IPA, in recent years, only 30-50 percent of potentially eligible retail customer load actually received default supply services, while competitive class customers (including larger commercial and industrial customers, which represent approximately half of total load) had no default supply option. Given this transition, meeting Illinois’s RPS goal of 13 percent of retail electric sales in the state sourced from renewable energy for the 2017–2018 delivery year will require the IPA to procure on behalf of the state’s electric utilities an additional 7.5 million renewable energy credits (RECs), which will gradually increase to a forecasted procurement of 31.5 million RECs for the 2030–2031 delivery year. One REC represents 1 megawatt hour (MWh) of generation produced by an “eligible renewable resource.” Eligible resources include wind, solar, thermal energy, biodiesel, anaerobic digestion, biomass, tree waste, landfill gas and some hydropower. Many other states, including California and Massachusetts, utilize RECs to demonstrate compliance with the state’s RPS program. (more…)




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