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Legal and

Commercial Trends

in Renewable Energy

Development

Jessie Robbins & Jenn Wnek

October 18, 2021

© Allen & Overy LLP | © Allen & Overy LLP | 2Legal and Commercial Trends in Renewable Energy Development

Meeting you today

October 18, 2021 |PLI

Vice President, Washington, D.C.

Generate Capital Inc.Tel +1 704 490 3644

[email protected]

Partner, New York

Allen & Over LLP

Tel +1 212 610 6315

[email protected]

© Allen & Overy LLP | 3Legal and Commercial Trends in Renewable Energy Development

The renewable project life-cycle


What makes a successful renewable generation

project?

Successful renewable generation projects meet the financial objectives and environmental and sustainability goals

(ESG) of the key stakeholders involved.


Key transaction participants

What makes a successful renewable energy

generation project?

‒ Developer

‒ “Cash” Equity Investor

‒ Sponsor (usually a partnership of Developer and Cash Equity Investor) (may be the

same entity as Developer)

‒ Tax Equity Investor

‒ Offtaker /Power Hedge Counterparty

‒ Construction/Term Debt Provider (Lender(s))

‒ Construction Contractors

‒ Operations and Maintenance (O&M) Contractor

‒ Asset Manager/Subscription Manager

‒ REC Purchasers (in some deals)

‒ Third Party Consultants (IE, Appraiser, power markets consultant, insurance

consultant, broker)


Stakeholder Goals


generation project?

• Obtain appropriately sized/priced financing for development and construction

• Revenue streams from operating projects

• Access to tradable products produced

Sponsor

• Sized based on cash flows (base case and downside case)

• Appropriate DSCR

• Back-leverage v. project level debt

• Access to cash for repayment: placement in waterfalls, sweep rights, loss proceeds

Debt Provider

• Tax credits (ITC, PTC), depreciation and losses

• Meet ESGs

• Placement in waterfall

• Minimize tax structure risk

• Return on investment

• Right to buy developed projects

Cash Equity

Provider


Common Mistakes


generation project?

‒ Ignoring future financing requirements

‒ Overlooking transactional regulatory requirements (e.g. CFIUS, HSR)

‒ Changing laws and regulatory schemes (e.g. Infrastructure Bill, REC program

transitions)

‒ Tax matters (e.g. ITC safe harboring requirements)

‒ Real property matters (title, unforeseen site conditions, bankability)

‒ Importance of Specialists

‒ Understanding the commercial deal (availability of RECs, etc.)


Infrastructure Bill-Items of Interest


generation project?

The current infrastructure financing and green energy bill proposed by the House Ways and Means Committee (the

“Bill”) builds upon the Build Back Better Act. Major Themes from the Bill affecting renewable projects are:

❑ Expansion and extension of ITC, PTC and 45Q Credit

❑ Direct Pay for tax credits

❑ Wage and Labor requirements

❑ Domestic content requirements

Credit Type Current Law Proposal (Without Domestic Content

Bonus)

Effective Date & Phasedown

PTC-Wind 60% for facilities that start construction

before 1/1/2022

100% PTC for qualified facilities

starting construction after 12/31/2021

and before 1/1/2032

Effective after 12/31/2021 with a 3 year

phase down starting in 2032

ITC-Stand Alone Energy None Eligible for ITC Effective after 12/31/2021

ITC-Solar 30%, 26% or 22% depending on when

construction began; drops to 10% for

project placed in service starting in

2026

30% for projects that start construction

before 1/1/2032 and place in service

after 12/31/2021

Effective after 12/31/2021 with a 3 year

phase down starting in 2032

Tax Credit-Industrial Carbon Oxide

Capture

Tax credits range from $17-35 per

metric ton starting in 2018 through

2026 and then are indexed for inflation

with a minimum size

Maintains the $35 per metric ton for

EOR storage and other utilization

processes and $50 per metric ton for

dedicated geological storage

Effective after 12/31/2021, start of

construction deadline now 1/1/2032

Tax Credit-Direct Air Capture Tax credits range from $17-50 per

metric ton starting in 2018 through

2026 and then are indexed for inflation

with a minimum size

Increased credit to $130 per metric ton

for utilization activities and to

$180 per metric ton for carbon securely

stored in geological storage

Effective after 12/31/2021, start of

construction deadline now 1/1/2032


What are the current trends in renewable

development?

Competition for deals

Movement into new technologies

Sustainability goals

Supply chain matters


Project Competition


development?

‒ Competition for down the fairway utility scale deals is rabid.

‒ Competition for portfolio and platform deals has hit its peak


Project Types & Technologies


development?

A project that sells its power to a utility but that receives bill credits that it can pass to utility customers who want to

synthetically purchase renewable power. The customer purchases the bill credits as an offset to their utility bill as a

means of “swapping” their utility power for renewables power.

Community

Solar

Larger projects that sell power to the grid and enter into a hedge or contract for differences with a counterparty.

The hedge is physically or financially settled. RECs from the renewable facility often retired or transferred to the

offtaker as part of the virtual PPA.

Virtual PPA

Battery energy storage systems enable energy from renewables to be stored and released at a later time.

If a microgrid, can disconnect from the electric grid to operate autonomously. Microgrids


Project Types & Technologies continued


development?

A project that uses hydrogen, natural gas or other fuels to produce electricity through an electrochemical reaction.

Typically these projects sell electricity to an onsite offtaker.Fuel Cell

Projects that involve injecting carbon oxide for secure permanent storage in underground geological formations,

using it in enhanced oil recovery or for a purposes for which a commercial market exists. The carbon oxide may be

captured from emissions of fuel-burning power plants but can be a by-product from the production of other

products such as LNG or ethanol.

Carbon

Capture

Projects that produce hydrogen from renewable energy, such as through water electrolysis powered by renewable

sources. This hydrogen is then used for other manufacturing processes, as a fuel source or as a means of storing

energy, and can be transported through existing natural gas pipelines.

Projects that utilize biogas (including gas from landfill, digester, wastewater treatment plants) in place of fossil

natural gas, including in thermal applications, to generate electricity, for vehicle fuel or as a bio-product feedstock.

Renewable

Natural Gas


Sustainability Goals


development?

‒ Scope 1, 2 and 3 emissions for greenhouse gas emissions

▪ Scope 1: Direct emissions (emissions from company-owned and controlled resources)

▪ Scope 2: Indirect emissions –owned (emissions from the consumption of purchased

energy)

▪ Scope 3: Indirect emissions-not owned (emissions from lined to the company’s operations

occurring in the value chain)

‒ Accounting (sophistication of projects)

‒ Focus on which stakeholder gets the environmental attributes (corporate PPA model)

‒ Corporate investors (expanding into providing tax equity as well as developing their own

projects and serving as an offtaker)


Supply Chain Matters


development?

❑ Border stops in connection with suspected forced labor in China

❑ US Department of Commerce expected to initiate an October investigation regarding

Chinese manufacturers moving production to Southeast Asia to avoid import taxes in

connection in connection with proposed new tariffs on solar equipment.

❑ Corporate pledges and policies incorporated into financing provisions

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15Legal and Commercial Trends in Renewable Energy Development

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