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Key Takeaways | How Traditional Energy Funds are Shifting Toward Green Energy: A Conversation with Encap Investments and Quantum Energy Partners

The energy market has undergone significant change in the past 12 months, with even more on the horizon. Our webinar series explores how these changes have shaped—and will continue to impact—the energy industry, including discussions of what’s to come.

Our latest webinar featured McDermott partners Edward Zaelke and Parker Lee, as well as Shawn Cumberland, Managing Partner of Energy Transition of EnCap Investments, and Alex Jackson, Director at Quantum Energy Partners.

Below are key takeaways from the webinar:

1. Although energy transition investment funds may have different focuses, they generally take an all-of-the-above approach, with respect to investing, in the various subsectors of the energy transition and are willing to invest in any technology, in any portion of the energy industry (except for highly capital intensive projects with binary risk profiles).

2. Similar to the approach for conventional oil and gas investments, investment funds are focused on investing in strong management teams with a successful track record, which is manifested either through a management team that already has an interesting business plan or a management team that can successfully implement the investment fund’s strategy for a new business.

3. Environmental, social and corporate governance (ESG) policies have become pervasive in all industries—especially within the energy industry—and must permeate all aspects of an investment fund’s strategy. Effective ESG policies and proper environmental stewardship have become licenses to operate within the energy industry and without them, operating companies and investment funds will have extremely limited ability to gain legitimate interest from potential investment partners.

4. When developing a relationship between an investment fund and a management team for a new investment, it is critical for both parties to ensure there are aligned interests and expectations between the two parties.

5. Investment funds see abundant opportunities within the energy transitions space and are bullish on those investments’ capability to satisfy energy demand over the next two to three decades but are also looking to achieve diversification to protect their limited partners from the cyclical nature of energy investment.

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




Key Takeaways: Decoding the Future Value of Behind-the-Meter Load for Cryptocurrency and Computing: A Conversation with Compute North Executives

On May 5, McDermott Will & Emery partners Ed Zaelke and Chris Gladbach hosted P.J. Lee, Dave Perrill and Jeff Jackson of Compute North to discuss the relationship between the rapidly expanding computing and cryptocurrency industries and the power sector.

Below are the key takeaways from the webinar:

  1. Compute North’s business model focuses on the power of distributed computing in cryptocurrency mining and large-scale data processing for uses with non-essential, flexible demand. By responding to real-time demand response signals and shutting down in less than 10 seconds, these distributed computing facilities can also participate in the demand response market and act as ancillary service resources.
  2. Modular computing facilities (similar to modular energy storage) allow distributed computing loads to be located nearer to generation, reducing congestion and curtailment risks and providing new customers for merchant facilities and other stranded power producing assets.
  3. Compute North’s distributed computing facilities are targeted at facilities as low as 20 MW in size, but are considering facilities of up to a full buildout of 1 GW.
  4. Although Compute North’s distributed computing currently requires higher use factors (and likely imports from the grid or separate generation assets), one of its long-term goals is to match the generation of a particular power producing facility.
  5. Successful cryptocurrency mining and other flexible distributed computing needs require computing facilities to be the lowest marginal cost producer. By providing services at 1/15th the cost of hypercomputing technologies, new data processing work cases are likely further increasing the demand for and power of distributed computing.

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




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.

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




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.

To begin receiving Energy updates, including invitations to the webinar series, please click here.

Access past webinars in this series.




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