Annual Energy Conference Presentation May 2015

Skadden, Arps, Slate, Meagher & Flom LLP

1 9 T H A N N U A L

E N E R G Y P R O J E C T SC O N F E R E N C E

Skadden, Arps, Slate, Meagher & Flom LLP

1 9 T H A N N U A L

E N E R G Y P R O J E C T SC O N F E R E N C E

Annual EnergyProjects ConferenceOverview by Douglas Nordlinger

May 12, 2015

19th Annual Energy Projects Conference | 2 Skadden, Arps, Slate, Meagher & Flom LLP

Magna Carta 800th Anniversary – June 15, 2015

King John of England signing the Magna Carta at Runnymede on June 15, 1215


Magna Carta 800th Anniversary - June 15, 2015

ISSUED JUNE 15, 1215

ABROGATED AUGUST 1215

FIRST BARON’S WAR

REISSUED (AFTER KING JOHN’S DEATH) NOVEMBER 2016

– “No free man shall be seized or imprisoned, or stripped of his rights orpossessions, or outlawed or exiled, or deprived of his standing in anyother way, nor will we proceed with force against him, or send othersto do so, except by the lawful judgment of his equals or by the law ofthe land.To no one will we sell, to no one deny or delay right or justice.”

SOVEREIGN IS SUBJECT TO THE RULE OF LAW

– The Law of Unintended Consequences -- The Barons Certainly DidNot Intend to Lay the Foundation for the American Declaration ofIndependence


SKADDEN’S ANNUALENERGY PROJECTS CONFERENCE

KEY THEMES IN DOMESTIC

AND

INTERNATIONAL ENERGY MARKETS

2015


Collapse of oil prices

Beginning in September 2014

Brent Prices Reached Mid-$50/Barrel and Has Since RecoveredTo Mid-$60’s/Barrel

Resulting From Increases in Supply and Saudi Resolve toMaintain Market Share

Exploration Budgets Cut by 30%

U.S. energy producers have announced plans to curb their 2015capex by more than $50 billion compared with last year’sspending

Result Could Be a Wave of Restructurings and M&A


U.S. Energy Self-Sufficiency

EIA projects the U.S. will become a net energy exporter by 2030and a net natural gas exporter by 2017

Policy Debate is Whether to Allow Exports of U.S. Crude Oil andNatural Gas

Huge Economic and Geostrategic Impact

Oil Price Collapse Directly Related

Source: U.S. Energy Information Administration (EIA)’s Annual Energy Outlook 2015 (AEO2015) Executive Summary,released April 14, 2015


Natural gas is overtaking oil as the key fossilfuel of the future

Bloomberg (BNEF) expects over 50 GW of coal-fired capacity inthe U.S. to retire by 2020, while in the same period over 56 GWof net gas-fired capacity additions is expected to come online

Royal Dutch Shell’s $70 billion acquisition of BG Group

Shell is betting that the Asian buyers will shift towards natural gasinstead of coal in light of international pressure to curb greenhouse gasemissions

ExxonMobil predicts LNG trade to more than triple by 2040 tonearly 100 Bcf/d

Sources: Bloomberg New Energy Finance (BNEF) White Paper “Medium-term outlook for US power: 2015 = deepestde-carbonization ever,” April 8, 2015; ExxonMobil’s “The Outlook for Energy: A View to 2040,” 2015


Renewable Power Generation Continues to Grow in the U.S. andInternationally, Unaffected by 50% Drop in Oil Prices

Some 103 GW of renewable capacity is estimated to havebeen built in 2014 worldwide

– Compares with 86 GW in 2013

– Comprised primarily of wind generation (49 GW) and PV solar (46GW), both record figures

– Accounted for 48% of new global GW capacity in 2014

Growth of Renewable Energy Keeps PoweringOn, Unaffected by Reduced Oil Prices

Source: “Global Trends in Renewable Energy Investment 2015,” March 2015 by the Frankfurt School – United NationsEnvironment Program (UNEP) Collaborating Center and Bloomberg New Energy Finance (BNEF)


Growth of Renewable Energy Keeps PoweringOn, Unaffected by Reduced Oil Prices (cont’d)

BNEF April 2015 White Paper:

– 2015 will see a national record for renewable build which will total 18.3GW including 9.1 GW from solar (of which 4.9 GW will be utility-scalesolar) and 8.9 GW from wind

EIA’s April 14, 2015 AEO2015:

– U.S. renewable generation will grow by 72% between 2013 and 2040(base case), with the overall share of renewables in the energy mixincreasing from 13% in 2013 to 18% in 2040. Solar and wind willaccount for nearly two-thirds of the increase

Sources: BNEF White Paper “Medium-term outlook for US power: 2015 = deepest de-carbonization ever,” April 8, 2015;EIA’s AEO2015 Executive Summary, April 14, 2015


Global investment in renewable energy reached near recordlevels in 2014 at $270.2 billion (up nearly 17% from 2013), due tothe availability of financing and strong investor appetite forrenewables

China dominated the investment landscape last year with arecord $83.3 billion

U.S. came in second with $38.3 billion last year (up 7% from2013), solar dominated with $14.8 billion, followed by wind at $6.9billion

U.S. public market activity in solar saw a 76% increase to $5.9billion with three of the top four deals related to yieldcos

Availability of Financing and Investor Appetitefor Renewables

Source: “Global Trends in Renewable Energy Investment 2015,” March 2015 by the Frankfurt School – United NationsEnvironment Program (UNEP) Collaborating Center and Bloomberg New Energy Finance (BNEF)


Importance of Government Policy

Uncertainty surrounding government support for renewables:

– In the U.S., e.g.,

• Production tax credit for wind expired at the end of 2014 and there is thelooming deadline for the drop-down in the 30% investment tax credit (to 10%at the beginning of 2017)

– President Obama’s FY 2016 Budget proposal seeks to make the federalrenewable energy tax credits such as the production tax credit and investmenttax credit permanent

– In Europe, the ‘first mover’ in renewable energy is in the process ofrestructuring the early support schemes, e.g.,

• Spain retroactively cut solar subsidies

• U.K. eliminated the Renewable Obligation Certificate support scheme forlarge-scale PV solar and introduced open tenders for Contracts forDifferences


EPA’s proposed Clean Power Plan to reduce by 2030greenhouse gas emissions at existing power plants by 30% from2005 continues to face opposition in the courts and Congress:

– Draft legislation introduced in Congress would bar the EPA fromimplementing the Clean Power Plan in States electing to opt out

– Challenges pending before the DC Circuit by 15 states, coal companiesand industry groups. The Court may delay action until after the finalrule is issued, expected this summer

– The North American Electric Reliability Corp. said that the EPA mighthave to push back compliance deadlines as widespread retirements ofcoal-fired power plants could potentially lead to widespread outages

U.S. EPA Clean Power Plan –Game Changer in Flux


Distributed Solar is Also a Game Changer Distributed solar continues to be a disruptive force with the latest

developments in battery storage, community solar and corporateAmerica becoming an ever more important customer. Already wehave seen, inter alia:

– First Solar invested in the largest player in the U.S. community solarmarket which works with utilities to develop community solar “gardens”

– Apple’s agreement to acquire 130 MW of PV solar from First Solar for$848 million - the largest-ever non-utility corporate solar procurementdeal

– Amazon, Facebook, Google and Microsoft with at least 1 GW of long-term wind power offtake deals between them

– As early as 2025, we could see companies procure at least acumulative 60 GW of new off-site capacity alone (currently it is only 4-5GW) (according to the Business Renewables Center)

What effect on Grid Reliability?


Solar plus storage – potentially far-reaching energy transformation

– “There’s a tremendous opportunity both in storage itself but also itsability to clear the path for a large-scale penetration of renewables inthe grid,” said Thomas Leyden, vice president for energy storagedeployment at SunEdison

The U.S. is forecasted to deploy 220 MW of energy storage in 2015 (upfrom 61.9 MW in 2014) and will reach 861 MW in 2019

Several big-name battery storage transactions have been in the headlinesinvolving AES, SunEdison, Sumitomo and Tesla

– Only this month, Tesla introduced the 10 kWh Tesla Powerwall and thelarger 100 kWh Tesla Powerpack. The batteries will eventually beproduced at Tesla’s new approx. $5 billion ‘giga-factory’ in Nevada

Development of Storage Technology –Tipping Point for Renewable Energy MarketPenetration, Especially Solar

Source: U.S. Energy Storage Monitor report by GTM Research and the Energy Storage Association, February 20, 2015

Annual Energy Conference Presentation May 2015

Documents

Transcript of Annual Energy Conference Presentation May 2015