Renewable Energy Market Drivers, Feasibility, Deal Structure and Disputes

By Dan Boyle
January 2024

In consideration of the increasing occurrence of utility scale renewable energy projects, numerous commercial issues arise:

1. Growing Deal Flow: One estimate put the renewable energy market for investment at $1.6 trillion in 2023 and the COP28 goal was set to triple the capacity installed globally by 2030. This fast pace means the number of deals will increase rapidly, and the number of potential disputes will expand in line with this explosive growth..
2. Deal Dependence on Incentives: Each jurisdiction and host entity controlling grid access or acting as power purchaser has its own set of incentives to stimulate the growth of renewables while retaining control of grid performance and standards. These include specific issues around the Inflation Reduction Act (IRA) and its focus on specific technologies and communities, investment and production tax credits scaled to labor rates and apprentice rules, as well as Buy America provisions; plus the vast array of state-level renewable portfolio standards, feed-in tariffs, pollution offsets and other mechanisms whose details determine project viability. Other countries have similar goals and incentives that need to be modeled and analyzed to capture market opportunities.
3. Deal Complexity: Renewable projects involve numerous interrelated contracts with between different parties with different terms but whose entirety constitute the deal arrangement. Each of these have to work for the projects to succeed. They include:
   1. The equity partner agreements creating the developer entity in a given jurisdiction
   2. Technology use and intellectual property license agreements for the underlying private and often protected proprietary intellectual property, as well as each technology's unique production profile, life cycle cost, and operation & maintenance considerations.
   3. The host agreement with site owner where the facilities (wind turbines, solar panels, geothermal plants, etc.) will be located,
   4. The Power Purchase Agreement to sell the generated power, whether bulk power is fed into the grid on utility scale projects or the consumer is the host at a major industrial facility. Hybrid arrangements are also involved.
   5. The interconnection agreement for grid access based on local rules, availability, the nature of the generation, the load flow considerations, competing priorities, numerous technical considerations, state and federal rules. Studies to analyze load flow, capacity calls on short notice (dispatchability), short circuit, reactive power contributions, grid stability, and protection settings form a subset of the technical performance standards and compliance to obtain permits.
   6. The Engineering, Procurement, and Construction (EPC) contracts to design and build the plants.
   7. Vendor and supplier agreements, especially those for critical components.
   8. The Operation and Maintenance (O&M) Agreement to operate the facility.
   9. Agreements with tax and other equity partners to optimize available energy tax credits and forms of accelerated depreciation.
   10. Financing Agreements from financing during construction to take out agreements during the tax amortization period, to a final take out financing agreement or lease agreement for the life of the project.
   11. All related insurance agreements, professional services agreements
4. Project Financing: All of the above deals need to be in place or near final negotiation based on deal terms and conditions acceptable to the underwriters in order to obtain favorable project financing. This is often done with a consortium of banks where one is the lead but all need to agree on the deal structure, return projections, parties involved, rates and terms.
5. Preference for Arbitration: The complexity of the deals and the parties desire to resolve disputes efficiently and without public disclosure of their proprietary approaches and deal documents usually leads to the inclusion of arbitration clauses. The dispute resolution clauses often have steps, with mediation prior to formal arbitration.

More experts and trained arbitrators are needed. The variability of the technologies and the range of incentives further add to the complexity of these deals. Each of the deals mentioned above can have different parties and terms and yet all have to pass underwriter guidelines and scrutiny at the outset. Naturally, each aspect presents the possibility of disputes.

The attached power point presentation walks through these issues at a high level. Contact us if you require further support.

Download PDF to review the power point: renewable_energy_power_point_january_2024.pdf