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Key Takeaways: SPACs and How to Plug into the Opportunities They Present in Renewable Energy and Green Infrastructure

On April 14, McDermott Will & Emery partners Tom Conaghan and Carl Fleming and Nicole Neeman Brady, CEO and director of the renewable energy SPAC, Sustainable Development Acquisition I Corp, discussed the rise of special purpose acquisition companies (SPACs), the opportunities they present in renewable energy and in the transition to green infrastructure and the complex legal and business challenges these vehicles present.

Below are key takeaways from the webinar:

  1. There has been an increase in SPAC activities in recent years, and this presents an opportunity for sponsors, investors and private companies. Each stakeholder has distinct advantages for entering into a SPAC transaction.
  2. Sponsors are able to take advantage of the industry experience they already have, including in the capital markets sector and the specific industry sector of the target company. Investors have downside protection with the money they invest, which may be refunded at a later date. Investors are also eligible to purchase warrants in connection with SPAC initial public offerings (IPOs), offering additional protection. Private companies are offered access to capital markets without having to undergo a traditional IPO, which is a burdensome process in complying with various regulations and underwriter requirements.
  3. Various SPACs consider different factors in making investments. Sustainable Development Acquisition I Corp, for example, looks for sustainability goals that balance profit and purpose as a B Corp. and prioritizes companies that have expertise and goals that are consistent with sustainable growth.
  4. Private companies that are hoping to do a SPAC transaction should prepare in advance to make sure it is ready to comply with public company laws and regulations. These rules are complex and will require long lead times before the company is in a position to be regulated as a public company. In particular, preparation of financial statements can be challenging to prepare. As there is an 18- to 24-month deadline for SPACs, private companies would benefit from getting a head start in preparation.
  5. The US Securities and Exchange Commission (SEC) has recently been more involved with IPOs conducted through SPACs, including publishing a primer on SPAC transactions and a statement on whether warrants should be treated as equity or liability for accounting purposes. In light of such recent developments from the SEC, all stakeholders should exercise more caution in performing SPAC transactions and avoid cutting corners.

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Seeing Beyond the Wall of Capital

In the United States, despite the continued spread of COVID-19 and the uneven approach to reopening, where that is even occurring, deals in the renewable energy sector are happening.

In a recent article for Project Finance International, Chris Gladbach and Seth Doughty discussed the state of the US market for renewable power projects, including how investments (and investment styles) have changed, new technologies and more.

Access the article.

Republished with permission from Refinitiv Project Finance International.




Six Takeaways: Developing and Financing Offshore Wind – Challenges and Opportunities

McDermott hosted James McGinnis, managing director at PJ Solomon, and Salvo Vitale, country manager at US Wind, on September 17 for an interactive discussion on the US offshore wind market.

Below are key takeaways from this week’s webinar.

1. The challenges facing the US offshore wind industry are similar to challenges that are faced with any newly-emerging industry: keeping the large number of stakeholders satisfied and maintaining support from the general public, which will need a concurrence of private interests towards common goals. Political winds in particular are subject to change, and therefore should be carefully monitored.  Policy ultimately aligning with industry to carry the industry forward will be critical.

2. Managing timing expectations can be particularly important. As a new industry, logistics and development processes are continuing to develop and there may be unexpected issues that influence timing (including logistical, technical and policy issues) that in turn affect stakeholders in various ways. To the extent possible, the industry should be prepared for these unknown risks.

3. Availability of tax equity will be critical and there are open questions as to whether that capacity will be available to support the large amount of capital that will be needed. Oil Majors and Strategic players will of course be advantaged in the near-term given these challenges. In the medium term, additional pools of tax-advantaged capital will need to be identified to fill the gap (or policy solutions will need to be employed to address this issue).

4. As the industry matures certain players such as certain equipment suppliers or service providers will likely become more prominent and sometimes the only reliable resource for such product or service. However, there are players in the market that may not be known in the US but are participants in the global market. The industry should continue to seek out other suppliers or service providers that are outside its comfort zone.

5. The enormity of capital needed to support all of the offshore development cannot be over-emphasized. Significant opportunities are and will become available for private equity investors to participate in a prudent and meaningful way (and to obtain outsized returns).

6. While some uncertainties and risks still exist in the US offshore wind industry, recent developments indicate that there is interest in the market and capital that is available to be deployed. As more projects move forward and permitting and other obstacles get resolved, barriers to additional capital deployment will be lowered.

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Six Takeaways from Wind Turbine Vendor Update: A Conversation with GE Renewable Energy


McDermott hosted GE Renewable Energy North America Services Sales Leader Ben Stafford, Commercial Director of Onshore Wind for the North Region Rob Bienick and Commercial Director of Onshore Wind for the West Region Matt Lynch on July 30 for a discussion about COVID-19’s impact to turbine supply chain and construction, the effects of the Production Tax Credit (PTC) safe harbor extension, and how GE is preparing for 2021 and beyond.

Below are key takeaways from this week’s webinar.

1. COVID-19 continues to impact both supply chain and construction – requiring more communication with customers, subcontractors, and within GE, but products continue to be manufactured, delivered, installed, and maintained.

2. The large wind project pipeline in the United States (even prior to the PTC extension) shows that there remains great optimism for the wind industry, despite the current PTC phase-out schedule.

3. The repowering market for wind is growing, providing many benefits including renewed PTCs, increased energy yield, increased reliability, lowered maintenance cost, and optimization of existing site infrastructure over greenfield development.

4. The trend toward longer blades continues, but logistics remain the largest hurdle to wider deployment.

5. Service agreements are trending towards longer terms with greater flexibility to meet customer needs, including opportunities to align interests with revenue and risk sharing terms.

6. GE is available to support both new and repowering projects with available safe-harbor equipment.

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Key Takeaways: Achieving Low-Cost Decarbonization Through Power Markets, Infrastructure and Grid Operations



McDermott hosted Rob Gramlich, Founder and President of Grid Strategies, LLC, on July 16 for a discussion of low-cost decarbonization strategies for the electricity sector. We framed the discussion around 2020 US Presidential Candidate Joe Biden’s recently announced goal of getting to zero carbon emissions from the electricity grid by 2035.

Here are three takeaways from our conversation:

1. Three Areas of Change. Rob highlighted three areas where improvements can be made to substantially increase the deployment of wind and solar resources: Power markets, grid infrastructure and grid operations. With respect to power markets, Rob emphasized that regional transmission organizations (RTOs) can play a bigger role in achieving very fast dispatch over large geographic areas. With respect to infrastructure, he emphasized that new transmission lines will be required to reach the best wind and solar resources, but also that many of those new lines can be built on existing rights-of-way. And with respect to grid operations, he emphasized that there are technologies and operating practices that can help us improve the efficiency of the grid.

2. Flexible FERC. Rob suggested that under a new Democratic administration, FERC would likely prioritize flexibility in pricing design and in FERC’s interactions with states. He emphasized the importance of a flexible design for the pricing of “capacity” services and suggested that a Biden administration would likely be supportive of state level efforts to promote renewable energy.

3. Transmission Costs vs. Electricity Costs. Rob suggested that over the next ten years transmission costs will become a greater share of the overall cost of electricity, but that building out transmission would help bring that overall cost down.




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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Key Takeaways | Developments in the PJM Market

On June 18, 2020, McDermott partners Neil Levy and David Tewksbury were joined by Paul M. Sotkiewicz, PhD, of E-Cubed Policy Associates, LLC, to discuss recent developments in the markets operated by PJM Interconnection (PJM).

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Below are key takeaways from this week’s webinar.

  • In December 2019, the US Federal Energy Regulatory Commission (FERC) issued an order requiring PJM to expand its Minimum Offer Price Rule (MOPR). Under the expanded MOPR, a capacity resource that receives a state subsidy will be subject to a minimum offer floor price in PJM’s capacity auctions, unless it is entitled to one of the exemptions set forth by FERC.
  • The expanded MOPR is not expected to have significant impacts on the results of PJM’s capacity auctions, particularly in the near term. There are at least three reasons for this: First, there are various exemptions to the expanded MOPR, including, but not limited to, exemptions for existing renewable resources, as well as for resources used for self-supply. Second, default offer floors are determined based on the technology of the resource, and certain of these default offer floor prices are low enough to allow resources to continue to clear in PJM’s capacity auctions. Third, and most importantly, a resource can submit offers below the default minimum offer floor price if it can demonstrate that its costs are below the default price.
  • FERC acted relatively quickly on requests for rehearing of its December 2019 order, and issued an order on rehearing in April 2020. Petitions for review of FERC’s orders are pending in the US Court of Appeals for the Seventh Circuit and the US Court of Appeals for the District of Columbia Circuit, and are expected to be consolidated in the Seventh Circuit.
  • PJM has made two compliance filings in response to the December 2019 and April 2020 orders. Given the speed with which FERC acted on rehearing, there is the possibility that FERC could also act quickly on the compliance filings. PJM has indicated that it intends to hold the Base Residual Auction for 2022/2023, which was originally scheduled to take place in May 2019, six and a half months after FERC issued an order accepting the compliance filings.
  • Various states are considering opting out of PJM’s capacity markets by using the Fixed Resource Requirement (FRR) alternative. The FRR alternative could give state regulators more control over the mix of resources in the state, but has historically resulted in higher costs for ratepayers in the FRR states.
  • FERC also recently approved modifications to PJM’s rules to provide additional compensation for operating reserves. At the same time, FERC also required PJM to adopt a forward-looking, rather than historical, methodology to calculate the energy and ancillary services offset (E&AS Offset) that is used in the capacity market. Notwithstanding the expected increase in energy and ancillary services revenues as a result of the operating reserves rule change, using a forward-looking methodology may not result in significant changes to the E&AS Offset in [...]

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Six Takeaways: Utilization and Structuring for Section 45Q Carbon Capture Credits

On Thursday, June 11, McDermott partners Phil Tingle, Heather Cooper and Jacob Hollinger were joined by Ken Ditzel, managing director at FTI Consulting, to discuss their insights into the proposed Section 45Q carbon capture and sequestration credit regulations.


The Treasury Department and IRS recently published proposed regulations implementing the Section 45Q carbon capture and sequestration credit. The regulations clarify some questions about the credit, though many questions remain. For further discussion, see our On The Subject.

Below are six key takeaways from this week’s webinar:

      1. Carbon capture projects are likely to be economically important moving forward. Ken Ditzel estimated there are more than 600 economically viable projects, including both secure geological storage at deep saline formations and enhanced oil recovery projects.
      2. The proposed regulations provide a compliance pathway for satisfying the reporting requirements. For long-term storage, taxpayers should comply with Subpart RR of the Clean Air Act’s greenhouse gas reporting rule. For enhanced oil recovery projects, taxpayers may choose either Subpart RR or alternative standards developed by the American National Standards Institute (ANSI).
      3. Taxpayers can claim the credit if they utilize the captured carbon for a purpose for which a commercial market exists, instead of storing it. Additional guidance is needed to determine what commercial markets the IRS will recognize and how they will go about making those determinations.
      4. The proposed regulations offer considerable flexibility to contract with third parties to dispose the captured carbon and to pass the section 45Q credit to the disposing party. Contracts must meet certain procedural requirements, including commercially reasonable terms and not limiting damages to a specified amount.
      5. If the captured carbon dioxide leaks, the carbon capture tax credit is subject to recapture by the IRS. The taxpayer who claimed the credit bears the recapture liability, but IRS guidance permits indemnities and insurance for credit recapture.
      6. The partnership allocation revenue procedure issued in February 2020 provides flexibility for the section 45Q credit relative to other tax equity structures, by only requiring 50% non-contingent contributions by an investor member. This may make projects easier to finance, especially in light of the other contracting flexibility in the proposed regulations.

Download the key takeaways here.

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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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The Senate’s New Base Erosion Tax: Highlights for Renewable Energy

On December 2, 2017, the Senate approved its version of the Tax Cuts and Jobs Act. The Senate Bill includes the base erosion and anti-abuse tax, a new tax intended to apply to companies that significantly reduce their US tax liability by making cross-border payments to affiliates. Given its potential to disrupt the financing of renewable energy projects, taxpayers in the renewable energy sector have been paying close attention to its developments.

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