Norton Rose Fulbright is a global law firm providing services across a variety of industrial sectors, including the clean energy field. Its practice includes pioneering involvement in renewable energy initiatives across the globe. For this month's Q&A, we sat down with Deanne Barrow, a senior associate in the projects group at Norton Rose Fulbright, to discuss emerging trends in clean energy legal deals. Deanne's practice focuses on project development, financing, and M&A transactions for renewable energy and infrastructure projects.
(1) Green hydrogen is getting traction as a new clean energy source. What are the obstacles to doing some of these deals?
There is a lot of excitement about the prospect of green hydrogen in the United States. Private infrastructure companies, equipment manufacturers, and utilities have all shown interest, as have solar and wind developers, who could supply electricity for making green hydrogen through electrolysis. Despite the excitement surrounding green hydrogen, one of the key obstacles is that the technology remains expensive. Hydrogen producers and retailers can earn valuable credits under the California low-carbon fuel standard - called "LCFS" - to help cover the cost of projects. These credits can form the basis for a project financing. However, structuring transactions to get value for them takes work, especially where a developer wants the lender to assign value to them in the financing.
(2) Project developers still rely on long-term power purchase agreements (PPAs) to ensure the viability of projects. Have you seen PPAs change much over the past few years? If so, what has changed or what is different (term length), etc.
The lengths of PPAs have trended downward - particularly corporate PPAs, but also some utility PPAs. We see a lot of 15-year terms and some 10-year terms. Some PPAs with mixed technology (e.g., solar PV + battery storage) have different lengths for each component. The shorter term is seen as a benefit to sellers in some markets where the market price is forecasted to be higher than available PPA prices.
(3) What is the most surprising trend or thing you have noticed in the past six months?
The market is showing early signs of a stampede toward carbon capture and sequestration projects (CCS). The economics of CCS projects are heavily influenced by the availability of Section 45Q tax credits at the federal level. We have been advising clients on structuring transactions in this area. Interest could grow even more, depending on what is contained in any infrastructure bills passed by Congress.