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Insights for the Global Energy Industry
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Insights for the Global Energy Industry
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Key Takeaways | Carbon Capture Gets a Long Runway for Development

by and | Nov 18, 2022 | , , ,

Featured prominently in the Inflation Reduction Act of 2022 (IRA), carbon capture, utilization and storage (CCUS) is one segment of the energy industry that could most benefit from incentivized development. On November 17, McDermott Partners Parker Lee and Philip Tingle were joined by Laura Gieseke, senior counsel at Western Midstream, and Spencer English, director at Piper Sandler, for a discussion on the current CCUS market and how potential benefits in the IRA might play out in future CCUS development projects.

Below are key takeaways from the discussion:

1. Progress in the CCUS market requires buy-in from the oil and gas industry. This has been the case thus far given the industry’s existing technologies and desire to reduce its carbon outputs. New incentives within the IRA, such as direct pay credits, are expected to spur further investment.

2. The three primary components of CCUS are physical capture, transportation of carbon by pipeline and sequestration systems. There has been more investment and research into physical capture and transportation as those projects deal with pre-existing structures within the oil and gas industry. While direct air capture is not as popular as other carbon capture measures, the industry is devoting time to study the feasibility of such projects.

3. The IRA allows for developers to treat amounts paid in excess of their tax liability for certain tax credits as a refundable payment and receive a cash refund from the Internal Revenue Service (IRS). Specifically, Section 45Q permits both tax-exempt and non-tax-exempt entities to take advantage of this incentive for carbon oxide sequestration credits. This “direct pay” allows CCUS developers to monetize tax credits without partnering with tax equity investors and will allow for increasing the scale of CCUS projects. This provision will remain in effect until 2033. The monetization mechanism for the direct pay credits still needs to be developed and put into practice.

4. There are important questions that the IRS needs to consider during its comment period that will shape the future of the CCUS market and financing for it. For example: How is carbon sequestration defined? If an entity avoids producing CO2, does that qualify as carbon sequestration? How do we verify sequestration? How is sequestration documented?

5. Tax equity investors have a good sense of potential risks for wind and solar projects, but there is a desire to diversify into different technologies. While direct pay will permit the oil and gas industry to proceed with CCUS projects without tax equity partners, the industry expects tax equity partners to join down the road to allow for maximum utilization of the available tax credits.

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



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Key Takeaways | Update on the Solar Circumvention Proceeding and Discussion of Possible Comments in Response to Commerce’s Recent Memo

by , and | May 18, 2022 | , ,

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.



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Illinois Renewable Resources Procurement Plan Aims to Boost Renewable Energy Development

by | Oct 27, 2017 | ,

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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IRS Issues Additional Guidance on Beginning of Construction Rules for Renewable Projects

by , , and | Dec 21, 2016 | , , ,

On December 15, 2016, the Internal Revenue Service released Notice 2017-04, which provides welcome guidance on how to meet the “beginning of construction” requirements for wind and other qualified facilities. There has been much uncertainty about when construction of these types of facilities begins for renewable energy tax credit purposes. The Notice (1) extends the “Continuity Safe Harbor” placed in service date for projects that started construction before 2014; (2) provides that the “combination of methods” rule set forth in prior guidance only applies to facilities on which construction begins after June 6, 2016; and (3) clarifies that for purposes of the 80/20 Rule, the cost of new property includes all costs properly included in the depreciable basis of the new property.

Read the full article here.



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International Trade Actions Complicate Global Market For Renewable Energy Businesses, Particularly Solar Sector

by | Mar 8, 2013 | ,

by David J. Levine and Pamela D. Walther

The flurry of international trade disputes in the renewable energy field, particularly the solar sector, is complicating the business landscape for the renewable energy industry.  In their BloombergBNA analysis piece, McDermott international trade lawyers David Levine and Pamela Walther provide a detailed account of renewable energy trade actions in the domestic and international arenas.  As the long-term implications of these disputes raise serious strategic issues for providers, consumers and governments, those involved are well-advised to monitor developments and take an active role in proceedings to protect their interests.

To read the full article, click here.



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