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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.




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Six Takeaways: Shifting Market Dynamics in Corporate PPAs


On Thursday, May 7, McDermott Partners Ed Zaelke and Carl Fleming were joined by Christen Blum, head of the Renewable & Analytics Advisory practices at Edison Energy, to hear her thoughts on the current effects of COVID-19 on the corporate power purchase agreement (PPA) market.

Below are six takeaways from this week’s webinar:

    1. Despite COVID-19, there is still a strong appetite for corporate renewable procurement: market leaders (such as tech, pharma, and food and beverage companies) have been less impacted by COVID-19 and remain interested in renewable procurement. On the other hand, companies that have been hit the hardest by COVID-19 (such as services and hospitality businesses) have traditionally demonstrated limited interest in renewables; but industrial companies have seen the largest effect of COVID-19—they remain interested in renewables, but are delaying their procurement as they focus on their core business.

    2. Although the trend for buyer-friendly PPA terms remains strong, the market has seen a recent uptick in prices over 2019 such that they no longer remain as buyer-friendly as they have been in the recent past, but the impact of COVID-19 on these prices remains to be seen.

    3. In order to maintain more competitive PPA prices, developers are employing a number of price mitigation strategies, including price collars, upside sharing and developers bearing more merchant risk.

    4. Most corporate buyers are less time-sensitive than more traditional buyers; as such near-term wind projects are often losing out on opportunities to cheaper solar projects which are coming online later.

    5. Force majeure terms have become a major emphasis in PPA negotiations now.

    6. The best advice for developers is to treat their relationships with corporate partners as a long-term partnership and to act accordingly in negotiations.

Listen to the full webinar here.

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To access past webinars, please click here. 




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Community Choice Aggregators on the Rise as an Alternative Electricity Provider

Community choice aggregators (CCAs) are growing in popularity as an alternative electricity provider for communities that want more local control over their energy mix. And so, financiers, CCAs and other business leaders must assess what this growth means for the electric grid, utility business models and project finance. While there’s a primary focus on California, increasing energy loads being served by CCAs and other non-utility suppliers have been trending across the country.

The recent American Council on Renewable Energy (ACORE) Forum united dealmakers, policymakers and systems experts to confront the business opportunities, policy and regulatory issues, and technology challenges associated with integrating high-penetration renewable electricity on the grid. The goal of ACORE’s 2019 forum was to advance efforts for a modernized grid that values flexibility, reliability and resilience. One important session was Community Choice Aggregation: Impacts on Project Finance and Grid Management, which was moderated by Ed Zaelke of McDermott Will & Emery and included panelists Nick Chaset of East Bay Community Energy, Daniela Shapiro of ENGIE, N.A. and Britta von Oesen of CohnReznick Capital.

A Brief History

The first CCA formed in 2010 in Marin County, CA, and since then, the CCA movement has grown very quickly to 19 agencies (19 of California’s 58 counties). Notably, CCAs serve over 10 million Californians today. Helping local governments accelerate climate action is foundational to CCAs, with many seeing CCAs as a positive catalyst in promoting climate action, cleaner energy and finding ways to make the necessary energy investments to actuate transportation electrification and building electrification.

In a nutshell? They want to offer lower-cost energy that is cleaner and find ways to invest in local communities. (more…)




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Alta Wind: Federal Circuit Reverses Trial Court and Kicks Case Back to Answer Primary Issue

On July 27, 2018, the US Court of Appeals for the Federal Circuit in Alta Wind v. United States, reversed and remanded what had been a resounding victory for renewable energy. The US Court of Federal Claims had ruled that the plaintiff was entitled to claim a Section 1603 cash grant on the total amount paid for wind energy assets, including the value of certain power purchase agreements (PPAs).

We have reported on the Alta Wind case several times in the past two years:

Government Appeal of Alta Wind Supports Decision to File Suit Now

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Court Awards $206 Million to Alta Wind Projects in Section 1603 Grant Litigation; Smaller Award to Biomass Facility

Act Now To Preserve Your Section 1603 Grant

SOL and the 1603 Cash Grant – File Now or Forever Hold Your Peace

In reversing the trial court, the appellate court failed to answer the substantive question of whether a PPA that is part of the sale of a renewable energy facility is creditable for purposes of the Section 1603 cash grant.

Trial Court Decision

The Court of Federal Claims awarded the plaintiff damages of more than $206 million with respect to the cash grant under Section 1603 of the American Recovery and Reinvestment Act of 2009 (the Section 1603 Grant). The court held that the government had underpaid the plaintiff its Section 1603 Grants arising from the development and purchase of large wind facilities when it refused to include the value of certain PPAs in the plaintiffs’ eligible basis for the cash grants. The trial court rejected the government’s argument that the plaintiffs’ basis was limited solely to development and construction costs. Instead, the court agreed with the plaintiffs that the arm’s-length purchase price of the projects prior to their placed-in-service date informed the projects’ creditable value. The court also determined that the PPAs specific to the wind facilities should not be treated as ineligible intangible property for purposes of the Section 1603 Grant. This meant that any value associated with the PPAs would be creditable for purposes of the Section 1603 Grant.

Federal Circuit Reverses and Remands 

The government appealed its loss to the Federal Circuit. In its opinion, the Federal Circuit reversed the trial court’s decision, and remanded the case back to the trial court with instructions. The Federal Circuit held that the purchase of the wind facilities should be properly treated as “applicable asset acquisitions” for purposes of Internal Revenue Code (IRC) section 1060, and the purchase prices must be allocated using the so-called “residual method.” The residual method requires a taxpayer to allocate the purchase price among seven categories. The purpose of the allocation is to discern what amount of a purchase price should be ascribed to each category of assets, which may have significance for other parts of the IRC. For example, if the purchase price includes depreciable [...]

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