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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 | 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.




Key Takeaways | Energy Storage Opportunities and Challenges

What are the opportunities and challenges facing those in the energy storage sector? During the latest webinar in our Energy Transition series, Partner Jim Salerno hosted Perfect Power’s CEO and President Alan Dash and Chief Commercial Officer Douglas Sherman for a 30-minute discussion where they opined on the importance of battery storage and the differences between regulated and unregulated markets within the energy storage industry.


Below are the key takeaways from this discussion:

1. Utility-scale battery storage is necessary for transitioning the grid from fossil fuels to renewables. The surge of renewables across grids has resulted in unpredictability, volatility and intermittency in the energy market, creating a need for a new form of peaking. Batteries are becoming the ideal peaking units as their fast ramping capabilities allow them to adapt to shortfalls in the grid and create stability.

2. Battery storage, unlike renewables, provides capacity as well as ancillary services. This concept is known as “value stacking.” In addition to storage capabilities, ancillary services allow batteries to manage volatility and uncertainty in the grid by providing tools that keep the system in balance and establish the ability to arbitrage the Real Time Market while creating predictability in the Day-Ahead Market.

3. The current regulatory and merchant markets are evolving to facilitate renewables and storage project development. In unregulated markets, such as Texas, the integration of renewables into the grid has grown organically because of the efficiency, speed and economic benefits that are derived from renewables and battery storage. Meanwhile, highly regulated markets, such as California, are focusing on resource adequacy, market certainty and incentives to promote capital investment in the clean energy space—including battery storage.

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




Key Takeaways | Finding and Structuring Development Capital for Renewable Platforms and Projects

During the latest webinar in our Energy Transition series, McDermott Partners Christopher Gladbach and Joel Hugenberger hosted Angel Fierro, managing partner of PLEXUS Solutions, and Jorge Vargas, managing partner & co-founder of Aspen Power Partners, to discuss what financing is available to fund the development of projects before they reach notice to proceed (NTP). They also covered what capital providers and developers consider when approaching development capital to fund pre-NTP expenses and general business expansion and the challenges and opportunities associated with these financing products.

Below are key takeaways from the webinar:

1. The market for pre-NTP financing is expanding and diversifying. Traditionally, pre-NTP costs were covered by a developer using the development fee they received from selling a completed project or by granting preferred equity. Today, large credit funds, Environmental, Social and Corporate Governance (ESG) funds, boutique finance groups, family offices, oil and gas companies and corporations are all providing pre-NTP financing, and development loans are becoming a more common way for developers to cover pre-NTP costs.

2. Sponsors should look for development lenders that understand the typical risks and delays associated with the project development process. Development lenders need to be flexible and ready to accommodate development delays and other unexpected issues that arise as a project is brought to market. (This includes flexibility related to amendments and consents.) Lenders should be prepared to quickly provide amendments and waivers to address changes in a project’s timeline as it progresses toward NTP.

3. Price should not be the only thing developers consider when deciding which source of development capital to use. Developers should ensure that they and the capital providers are aligned when it comes to deadlines for NTP to occur, capacity to accommodate delays in the development process and the share of income generated from the project.

4. Development capital is essentially a bet on a development team, and in evaluating a development team, development lenders assess what experience management has and their success working together to bring projects to market. Development lenders want to see that a development team has people who know how to mitigate risk across the various segments of the development process (e.g., origination, site control, permitting, power marketing, etc.).

5. Power purchase agreements (PPAs) are becoming scarcer and shorter (10-year terms are replacing 25-year terms), and lenders and investors are getting more comfortable with providing capital to merchant projects and other projects that have traditionally struggled to obtain financing.

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




Key Takeaways | Lender Outlook on the Debt Financing of Renewables and Transactions

During the latest webinar in our Energy Transition series, McDermott Partners Robert da Silva Ashley and John Bridge hosted Paul Pace, SVP and team leader at KeyBank, and Andrew Chen, managing director at CIT, to discuss the current outlook of leading lenders in the US renewables and transactions space. More specifically, they focused on lender outlook regarding the state of debt market support for the growing range of renewable power generation and clean energy infrastructure projects.

Below are key takeaways from the webinar:

1. The financing market for renewable projects remains extremely competitive, compressing pricing for lenders and driving innovations in financing structures with credit increasingly given to shorter tenured power purchased agreements (PPAs) and earlier merchant tails.

2. Current supply chain delays and inflationary pressures are creating significant stress. Solar panels and other major equipment are stuck in ports and sharp rises in project costs (insurance, labor wages, operations and maintenance, etc.) are starting to have a noticeable effect on the viability of certain project developments.

3. Lenders have been leaning heavily on client relationships with established track records of successful project developments, strong financial footing and credibility with industry counterparties helping to navigate the current challenges.

4. Environmental, Social and Governance (ESG) remains a focus for banking institutions driven by regulatory and environmental factors.

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




Key Takeaways | Conventional Energy Companies Pivot to Renewables

How will traditional energy companies compete as the world transitions to renewable energy? In the latest webinar in our Energy Transition series, McDermott Will & Emery Partner Jack Langlois hosted Philip Tingle, global co-head of McDermott’s Energy and Project Finance Practice Group, and Michael Hanson, managing director of energy transition at Truist Securities, to answer exactly that. During the 30-minute discussion, they assessed the future for conventional energy companies, including key issues surrounding decarbonization and current tax credit frameworks.

Below are key takeaways from the webinar:

1. Timeline and Decision-Making. There is a broad divergence of views in how quickly the transition to renewable energy will happen, but changes in law and policy could accelerate that timeline. Conventional energy companies are taking small steps to get acclimated to new renewable opportunities because there are multiple factors they need to consider before deciding whether to enter into the renewable energy space: Strategic fit, materiality, profitability and risk. Many conventional energy companies that have successfully pivoted to renewable opportunities have done so by reutilizing their existing assets.

2. Carbon Capture. Carbon capture is often a strategic fit for oil and gas companies. However, companies, investors and banks are still struggling with the profitability of carbon capture because without government incentive, carbon capture is not profitable. The current incentive structures do not compel a sufficient amount of activity because they only compensate capture equipment owners, leaving out all the necessary downstream affiliates. Until this business model is corrected, banks especially will struggle with how to finance carbon capture.

3. Reconciliation Bill. Carbon capture incentives may be around for a while longer. In the reconciliation bill, there is a provision that would extend the Section 45Q carbon capture tax credit through the year 2032. However, the bill would also modify the tax credit to provide for wage and apprenticeship requirements. Companies will need to find ways to assure financing parties that they have met these additional requirements. If they can accomplish this, the extension period will allow greater opportunities for conventional energy companies to enter the space.

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




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.

View the full issue here.




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