Energy Finance Report

Jeffrey Karp

Jeffrey M. Karp is a partner in Sullivan & Worcester's Washington, D.C. office, where he heads the firm’s Environment & Natural Resources Group. The Group includes the following fields of practice: environmental compliance & litigation; climate-related business & technology; renewable energy & energy efficiency; water resources & conservation; pesticides & bioagra; and energy, infrastructure & finance. The Group brings together practitioners from across the firm’s legal disciplines in its offices in Boston, New York, Washington, D.C., London and Tel Aviv.

Mr. Karp’s practice focuses on assisting clients in resolving complex regulatory matters and high-stakes business disputes, and engaging in cutting-edge technology transactions. He advises clients on the full range of environmental regulatory compliance issues under federal and state laws, and provides defense in government investigations and enforcement actions. He also represents clients in litigating and resolving disputes under a variety of federal and state laws, and claims arising from transactional agreements.

Mr. Karp advises companies seeking to participate in water, renewable energy, and clean technology transactions and projects worldwide, with an emphasis on assisting Israeli companies seeking to commercialize their products, services, and technologies. Mr. Karp also has substantial experience assisting clients in addressing legal, contractual, and regulatory issues arising during the development of large-scale infrastructure projects, including obtaining government authorizations and negotiating project agreements.

Before entering private practice in 1990, Mr. Karp served as an environmental prosecutor at the U.S. Department of Justice where he litigated and supervised enforcement cases involving a variety of environmental laws.

Email: jkarp@sandw.com

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Recent Posts

A Possible Formula for Puerto Rico's Hurricane Recovery: Distributed Renewable Energy

Posted by Jeffrey Karp on 2/13/18 3:02 PM

By Jeffrey Karp, Zachary Altman, Ryan Rosenblatt and Kevin Fink

In September 2017, Hurricane Maria swept through the Commonwealth of Puerto Rico decimating the island, taking hundreds of lives and demolishing infrastructure on an enormous scale. In the hurricane’s immediate aftermath, Puerto Rico lost 100% of its power usage.

GettyImages-903919174.jpgThe energy infrastructure, which is 98% fossil fuel dependent, was severely damaged to the point that some observers considered repair impractical. In the first few months after the hurricane, power only had been restored to 70% of the Island’s residents. 

In addition to the destruction Hurricane Maria imposed on Puerto Rico’s energy infrastructure, the Puerto Rico Electric Power Authority (“PREPA”), the main governmental authority with jurisdiction over energy and infrastructure, exacerbated the problems. With $9 billion of debt, in July 2017, PREPA filed for bankruptcy relief due to the cumulative impact of years of mismanagement, mounting operation and maintenance problems, the failure to recover the costs of providing power to its customers, years’ long battles with creditors, and a diminished workforce. Further, PREPA was unprepared for a major storm of Maria’s magnitude. As Governor Ricardo Rosselló publicly acknowledged, none of the storm response plans could account for years of poor maintenance of a broken-down electric grid.

Following the hurricane, PREPA sought outside assistance to repair and improve the Island’s energy infrastructure; however, this effort was unsuccessful. On October 17, 2017, PREPA entered into a $300 million contract with Whitefish Energy to rebuild its power grid. Due to Whitefish’s small size, lack of credentials and some questionable contract terms, investigations were initiated by the House Committee on Natural Resources and the FBI, and, Governor Rosselló canceled the Whitefish contract on October 29.

In light of PREPA’s inability to restore power to its customers, in November 2017, the United States Army Corps of Engineers (“USACE”) assumed primary control of the energy recovery efforts. Armed with emergency funding allotments from the U.S. Congress, USACE entered into an $860 million contract with the Louis Berger Group to supply temporary power to residents through the end of September 2018, and an $831 million contract with Fluor Energy to help restore electricity to the Island’s residents via improved energy infrastructure.

More recently, in late January 2018, Governor Rosselló announced plans to privatize PREPA. Under the Governor’s proposal, although the Commonwealth would retain ownership of PREPA’s transmission and distribution systems, a private operator would be selected to operate the systems for a period of years. The privatization plan has been met with skepticism, in part based on the past failed attempt to privatize another Puerto Rico utility, the Aqueduct and Sewer Authority. Also, concerns were expressed that the savings promised by private operators may not materialize due to future economic development decisions being left in the hands of those primarily concerned with the return on investment to shareholders.

Regardless of whether the Island’s electric utility is privatized, energy infrastructure experts have suggested that the focus shift to developing distributed renewable energy resources to be delivered both on an upgraded power grid and a series of microgrids. A microgrid is a segment of a larger electric grid that can detach and operate on its own to provide localized electricity during, for example, a larger grid shutdown or failure. When operating in tandem with the main grid, a microgrid’s ability to produce energy locally enables customers to draw far less power from the main grid, thereby reducing strain on the main grid. Microgrids also can operate independently, thus offering protection during peak usage hours, primary power outages, or if the main grid becomes unstable.

Additionally, wind, solar, biomass, geothermal and small hydro are more practical for use in microgrids because such renewable energy resources typically are decentralized, meaning that generation and transmission occur within a smaller service area. This decentralization lowers costs and reduces carbon emissions. In contrast, conventional power stations that operate on fossil fuel have higher carbon emissions and are centralized, requiring electricity transmission over longer distances at a higher cost.  

Puerto Rico has endured large-scale destruction, especially to its energy infrastructure. Critical regulatory and policy decisions must be made in the coming months. These decisions will impact the manner in which Puerto Rico redevelops its energy infrastructure and the energy resources that are deployed by the Commonwealth. Regardless of the outcome of the privatization efforts, the development of renewable energy sources and the use of microgrids appear to be a step in the right direction for Puerto Rico’s infrastructure renovation.

The New Administration’s Efforts to Deconstruct the Obama Climate Initiatives

Posted by Jeffrey Karp on 8/11/17 2:22 PM

President Trump is spearheading a government-wide roll back of Obama Era climate initiatives. The president and his EPA Administrator, Scott Pruitt, have delivered a one-two punch.  They both have denied the impact of human activity on climate change, while seeking to resurrect the moribund fossil fuel sector.  In March 2017, the President issued a wide-ranging “Energy Independence” Executive Order requiring review and reconsideration of any rule that might burden development of domestic energy sources, particularly oil, gas, coal and nuclear energy. After much drama, in June 2017, President Trump fulfilled a campaign promise to withdraw the United States from the Paris Climate Accord (“Accord”).  Moreover, in seeking to implement the new Administration’s energy independence strategy, government departments and agencies are pursuing delay or repeal of regulations aimed at curbing greenhouse gas (“GHG’) emissions, most notably EPA’s targeting for elimination the Clean Power Plan rule (“CPP”).

Under the Accord, the United States had pledged to reduce its greenhouse gas emissions 26-28% below 2005 levels by 2025, and to contribute up to $3 billion in aid to an international fund that helps the world’s poorest nations mitigate the effects of climate change.  It was expected that one of the President’s first acts following the inauguration would be to withdraw the country from the Accord.  On the campaign trail, Mr. Trump had not minced words about his view of the Accord, and his belief that climate change was a hoax.  Nonetheless, the President delayed his decision, while considering the views of many who advocated that the United States remain in the Accord, including several of his advisors, former Vice President Gore, the leaders of the G-7 nations, state governors and corporate executives.  President Trump, however, announced on June 2, 2017 the country’s withdrawal from the Accord, declaring the overarching need to protect United States workers and businesses from intrusive environmental restrictions, and negative impacts on economic growth.  In response to the President’s decision, a coalition of states, companies, and institutions have pledged to fulfill the United State’s emissions reduction commitment.

The withdrawal from the Accord appears unlikely to affect ongoing domestic efforts to reduce GHG emissions.  Currently, 29 states and the District of Columbia have enacted renewable portfolio standards (RPS) to increase the amount of electricity generated from renewable energy sources.  Since the beginning of 2016, seven states have even increased their commitments for additional wind and solar-generated power. 

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Furthermore, according to an EPA report, Inventory of U.S. Greenhouse Gas Emissions and Sinks: 1990–2015 (April 15, 2017), GHG emissions have decreased in all major economic sectors since 2005.

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Between 2005 and 2015, GHG emissions decreased by roughly 20% in the electricity sector, 10% in the transportation sector, 4% in the industry sector, and 0.7% in the agriculture sector.

In addition to negating the impact of global warming, the Trump administration seeks to resuscitate the fossil fuel sector by removing regulatory impediments to growth.  As noted, on March 28, 2017, President Trump issued an EO that instructed EPA to reconsider the CPP and “as soon as practicable, suspend, revise or rescind” the rule.  Promulgated in 2015 under the Clean Air Act, the CPP is expected to facilitate a reduction in carbon dioxide emissions from the utility power sector by 32 percent below 2005 levels by 2030.  However, the rule has been tied up in litigation.  Shortly after promulgation, the Supreme Court stayed the CPP’s implementation.  A ruling on the CPP’s validity is awaited from the United States Court of Appeals for the District of Columbia Circuit (“D.C. Circuit”)  following an en banc hearing in September 2016.  In the meantime, on April 4, 2017, EPA issued a notice of intent to review the CPP, while seeking to delay the D.C. Circuit’s impending decision on the rule’s validity.  On April 28, 2017, the court denied the EPA’s request to indefinitely delay the litigation while the Agency reconsiders the need for the CPP.  Instead, the D.C. Circuit agreed to hold the litigation in abeyance for 60 days, and ordered the parties to submit briefs addressing whether the court should continue to delay its decision or dismiss the litigation and remand the rule to the EPA.  After reviewing the parties’ briefs, on August 8, 2017, the court ordered that the cases remain in abeyance for an additional 60 days, and that EPA submit status reports in 30-day intervals. 

More recently, EPA attempted unsuccessfully to secure a lengthy delay in implementing another Obama Era emissions reduction regulation.  That rule requires that oil and gas companies fix methane leaks and upgrade equipment at extraction sites.  Siding with the NGOs, who challenged EPA’s announced two year delay, the D.C. Circuit ruled that EPA lacked authority under the Clean Air Act to stay the regulation while the Agency reconsiders it.  On August 10, 2017, the D.C. Circuit rejected industry groups and states’ request to reconsider the ruling.

Moreover, the President’s Energy Independence EO lifts the moratorium on leasing federal land for coal mining, and instructs the Department of Interior (“DOI”) to consider rescinding the 2015 regulation of hydraulic fracturing on federal and tribal lands.  In June 2016, a Wyoming federal judge struck down the rule, which subsequently was appealed to the Tenth Circuit.  DOI’s Bureau of Land Management (“BLM”) has requested the Tenth Circuit to stay the litigation while it reviews the need for the regulation.  On July 25, 2017, BLM published a proposal in the Federal Register to rescind the 2015 regulation, asserting that it  needlessly burdens industry with unjustified compliance costs.  The Tenth Circuit has yet to rule on BLM’s stay request.

To further assist the domestic energy sector, President Trump’s Energy Independence EO also seeks to ease permitting of fossil fuel energy projects.  In particular, the EO rescinds an Obama Era directive that federal agencies performing National Environmental Policy Act (“NEPA”) project reviews must consider GHG and climate change impacts.  Shortly after taking office, President Trump approved the permits for the TransCanada Corp’s Keystone XL pipeline and the Dakota Access pipeline.  In response, the Standing Rock Sioux Tribe and other Native American tribes challenged issuance of the final permit to complete construction of the Dakota Access pipeline in the U.S. District Court for the District of Columbia.  On June 14, 2017, the court ruled that aspects of the Army Corps of Engineers’ (Corps) environmental assessment were inadequate, and ordered the Corps to conduct further  review.  But, the court refused to grant the plaintiffs’ requested injunctive relief to halt oil pumping operations pending the Corps performance of further environmental review, which is expected to be completed by the end of the year.

Despite President Trump’s efforts to provide a “leg up” to the fossil fuel sector, it seems doubtful that the decline in coal-fired power generation will be reversed for several reasons. First, coal is not competitive with lower-priced and widely-available natural gas.  Second, the cost of developing renewable energy resources continues to drop.  Third, state RPS programs and corporate commitments to reduce greenhouse gas emissions continue to drive the growth of the renewables market.  Fourth, carbon emissions from power plants have fallen by 5% during each of the last two years, which is largely due to the switch by the utility sector, coal’s largest customer, to natural gas and renewables.  Currently, coal’s market share is in the low 30% range, and is unlikely to increase despite the new administration’s efforts to revitalize the industry.

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Furthermore, withdrawal from the Paris Climate Accord is unlikely to have short-term impacts in the United States.  Carbon dioxide emissions from United States’ energy sources are expected to hit a 25-year low in 2017, and to continue to decrease.  Thus, it appears that the train already has left the station regarding  the overriding support by many corporations and states for the increased development of renewable energy resources, and the ongoing conservation and sustainability measures to further reduce greenhouse gas emissions.  In light of the foregoing developments, it seems that market forces, not President Trump’s EO or government agencies’ efforts, will dictate the fate of the fossil fuel industry.

Jeffrey Karp is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: clean power plan, Climate change, Trump Administration, Energy Independence Executive Order, Paris Climate Accord

The New Administration’s Deregulatory Agenda and its Impact on Environmental & Energy Policy

Posted by Jeffrey Karp on 7/28/17 8:24 AM

As seen in the first six months of President Trump’s Administration, the country is on a rollercoaster ride.  There is much uncertainty regarding the implementation of new policies and the status of existing programs throughout the government.  Nowhere is this sentiment more evident than in the environmental and energy arenas.  President Trump is quickly trying to undo the Obama Administration’s programs through executive orders seeking to roll back regulations; the appointment of faithful supporters of deregulatory agenda to key positions; significant budget cuts that substantially reduce agencies’ head counts and defund targeted programs; and the helping hand of a Republican-controlled Congress.

However, achieving this desired goal is easier said than done.  President Trump’s objectives may be tempered by legal, procedural and resource constraints, bureaucratic resistance combined with delays in filling key agency decisions, and higher priority domestic agenda items and world events.  This article will examine what already has occurred and what may be in store on significant issues involving energy and the environment.  It also will highlight aspects of the Trump Administration’s deregulatory efforts and the proposed budgetary impacts.

Out of the gate, the new administration has pursued an aggressive deregulatory agenda. President Trump’s operative goal is to “deconstruct the administrative state.”  His administration is building on campaign rhetoric to “roll back” “economy-choking regulations,” and implementing his campaign promise to “Drain the Swamp” by reining in and shrinking the federal bureaucracy.  For example, in January 2017, President Trump issued the “2-for-1” Executive Order (EO) on Reducing Regulation and Controlling Regulatory Costs, which specifies that agencies must repeal two existing regulations for every new significant regulatory action.  The EO further requires cost balancing between new and repealed regulations and a net cost of zero for any new regulations.  In response, Non-Governmental Organizations (NGOs) and others, led by the Natural Resources Defense Council (NRDC), are challenging the validity of the EO in the U.S. District Court for the District of Columbia, arguing that the executive order is “arbitrary, capricious, an abuse of discretion, and not in accordance with law.”  In April 2017, the Department of Justice filed a motion to dismiss the complaint on the President’s behalf, and the NGOs moved for summary judgment in May.  Attorneys General from 14 states filed a brief in support of the EO.  The case is in limbo, as the court has not yet ruled on the parties’ motions.

In February 2017, President Trump issued another EO, on Enforcing the Regulatory Reform Agenda, which requires designation of regulatory reform officers and task forces in all agencies and departments.  Each task force must identify “all regulations that are unnecessary, burdensome and harmful to the economy.”  In addition to internal deliberations, the task forces have asked stakeholders to help identify troublesome regulations.  For example, the Commerce Department sought public comment on government regulations interfering with domestic manufacturing.  Of the 168 comments submitted, 79 called out the EPA, the majority of which cited the Clean Air Act (CAA) and Clean Water Act (CWA).

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President Trump is particularly focused on curtailing EPA programs from the Obama Administration’s regulatory agenda.  For example, the EO on Enforcing the Regulatory Reform Agenda requires EPA to review, and either rescind or revise, the Clean Water Rule promulgated by the Obama Administration in 2015 under the CWA.  The CWA regulates discharge of pollutants to “navigable waters,” defined as waters of the United States (WOTUS).  The 2015 WOTUS Rule was issued by EPA and the Army Corps of Engineers (Corps) after a series of court decisions failed to adequately clarify the EPA’s jurisdictional scope.  The 2015 WOTUS Rule created quite a controversy because it applies to streams serving as tributaries to navigable waters, as well as wetlands adjacent to traditional navigable waters or interstate waters.  For the rule to apply, the wetlands and tributaries must be “relatively permanent.”  Under prior court decisions, this means such water bodies could be “intermittent.”  The Sixth Circuit stayed the 2015 WOTUS Rule soon after its promulgation.  Therefore, it was never implemented or enforced.  On January 13, 2017, the U.S. Supreme Court agreed to resolve the jurisdictional dispute over whether a district court or a court of appeals should decide the rule’s validity.

On March 6, 2017, EPA’s “Notice of Intent to Review and Rescind or Revise the Clean Water Rule” was published in the Federal Register.  In Senate testimony delivered on June 27, 2017, EPA Administrator Scott Pruitt stated that the agencies intend to revoke the 2015 WOTUS Rule, contending that the rule has created substantial uncertainty for farmers, ranchers, and landowners because they cannot tell whether their streams or dry creeks are “relatively permanent.”  Pruitt further stated that the rule inhibits development because landowners face substantial civil penalties if they incorrectly assess the rule’s coverage and the property is determined to be subject to federal jurisdiction.  

Revising or revoking rules is not a perfunctory or simple process. The agency that promulgated the rule must follow the same Administrative Procedure Act (APA) notice and comment procedures to rescind or change it.  Thus, an agency cannot simply revoke a rule and subsequently replace it to satisfy the policies of a new administration.  Rather, an agency first must create an Administrative Record (AR) that supports revoking an existing rule, and then the agency must conduct a separate rulemaking proceeding to promulgate a new revised rule.  Ultimately, the AR must justify a different outcome than the record upon which the existing rule was issued.  This same process must be followed for each rule that an agency desires to abolish or revise.

On June 27, 2017, EPA and the Corps announced a plan to replace the 2015 WOTUS Rule in two steps: 1) repeal the stayed Obama-era rule, and 2) commence a second rulemaking to replace it.  However, on July 12, 2017, a House subcommittee approved an energy and water spending bill that would allow EPA and the Corps to withdraw the 2015 WOTUS Rule “without regard to any provision of statute or regulation that establishes a requirement for such withdrawal.”  Essentially, if the bill is passed, the agencies could bypass the APA procedures, including the public notice and comment period, and repeal the 2015 WOTUS Rule.  The House is expected to vote on the bill in the next few weeks.  The Senate Appropriations Committee’s version of the energy and water bill does not include language allowing the Trump Administration to bypass APA procedures.  Thus, a reconciliation of the bills likely will be necessary.

The Administration’s effort to eradicate Obama Era environmental regulations is further complicated because many rules presently are tied up in court proceedings awaiting oral argument or court rulings.  The EPA sought to stay challenges to such rules while the new administration reconsiders their scope and breadth.  In several cases in which oral arguments have not been heard yet, the requested relief was granted.  However, the agency’s strategy was foiled in the case challenging the Clean Power Plan, the most contentious of the Obama Era rules.  In that case, an en banc ruling is pending in the D.C. Circuit.  On April 28, 2017, rather than grant EPA’s request for an indefinite stay, the court agreed only to hold the litigation in abeyance for 60 days, while ordering the parties to file briefs addressing whether the case should remain on hold, or whether the court should close it and remand the rule to EPA for disposition.  On May 15, 2017, both parties submitted their briefs.  The motions are pending.

President Trump also is seeking to use the budget process to pursue his deregulatory goals.  The Administration’s 2018 proposed budget, sent to Congress on May 23, 2017, would reduce EPA’s funding by nearly one-third, eliminate thousands of jobs, and scrap dozens of existing programs.  The budget proposal would increase funding in a select few areas — for water and air rulemaking, and the TSCA-Chemical risk review and reduction program; however, it is expected that much of the additional TSCA funding would be offset by a “pay to play” scheme under which the companies requesting such reviews would be required to pay for them.  On the other hand, government wide programs that address climate change and global warming would be obliterated.  The Integrated Risk Information System (IRIS) program, which assesses the health risk of toxic chemicals, is specifically targeted for termination.  The Science Advisory Board is recommended for an 85% cut, and EPA’s categorical grants to states to operate and enforce delegated programs are slated for a 45% reduction.  The Chesapeake Bay and Great Lakes initiatives would be eliminated, as would programs supporting energy efficiency and R&D, and loan guarantees for clean energy technologies.  Nevertheless, Congress has the final say over President Trump’s budget proposals, and it remains to be seen whether there is sufficient support for his substantial proposed budget cuts.

We anticipate a steady stream of lawsuits will be filed by NGOs and, perhaps, some activist states challenging the Trump Administration’s deregulatory actions.  We also expect an uptick in “citizens suits” seeking to enforce environmental laws and regulations due to EPA’s diminished role as the “cop on the beat.”  Further, the impact of President Trump’s budget proposal largely will depend on the willingness of the Republican majority in Congress to eliminate or reduce funding for programs with traditional bi-partisan support.

Jeffrey Karp is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Energy Policy, Environmental Policy, Trump Administration, Deregulatory Agenda, Executive Orders

Renewables Can Play a Big Role in Puerto Rico's Fresh Start

Posted by Jeffrey Karp on 6/27/17 11:23 AM

This article originally appeared on Recharge.

Just two years ago, the future seemed promising for renewable energy development in Puerto Rico. Much of the groundwork was established, numerous developers had entered into Power Purchase Agreements (PPAs) with the state-owned utility, PREPA, and discussions were ongoing with funding sources.

However, decades of fiscal irresponsibility and bad deals finally caught up with Puerto Rico, leading to a terrible debt crisis. The government defaulted on bonds, sales taxes escalated to 11% (higher than any mainland state), and businesses began fleeing the island.

The generous incentives that initially had attracted development dried up. For the last couple of years, energy investment has been at a virtual standstill, with the exception of Oriana Energy’s solar plant that commenced operations in May 2017.

Despite these setbacks, and with the Commonwealth’s [government's] bankruptcy filing in May 2017, the Puerto Rican government now has a second chance to regain its financial footing, and the development of renewable energy may play an integral part in accomplishing such a task.

In 2010, the Commonwealth enacted Renewable Energy Portfolio Standards (REPS) that required 12% of the island’s electricity to come from renewable sources by 2015 and 20% by 2035. Following the enactment of the REPS, utility PREPA entered into dozens of PPAs with renewable energy developers agreeing to purchase the power to be generated. By the end of 2015, Puerto Rico had 318MW of renewables in place, according to latest available data from the International Renewable Energy Agency.

However, as Puerto Rico became mired in its debt crisis, developers were unable to secure financing as investors grew fearful of funding long-term energy deals with PREPA. Adding to the uncertainty, due to PREPA’s financial woes, the utility serially renegotiated the terms of developers’ PPAs, which only served to make investors more jittery about financing the underlying renewable energy projects. Eventually, most of the agreements expired before the power plants could be financed or built.

Despite its financial travails, Puerto Rico’s commitment to renewable energy has not waned. In June 2016, Congress passed the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). The legislation, intended to provide Puerto Rico with a pathway out of its debt crisis and establish a baseline for fiscal responsibility, also established the framework within which investment may occur. In providing a blueprint for interested investors, PROMESA also reaffirmed Puerto Rico’s commitment to renewable energy.

Recognizing that PREPA was incapable of shouldering the burden of energy development entirely on its own, PROMESA emphasized the need for public-private partnerships that shifted the initial funding burden to private investors. In April 2017, a P3 Summit was held to encourage developers and investors to collaborate with the Commonwealth on a wide variety of infrastructure projects, including energy, water, waste management, and transportation. The presentation on the energy sector reaffirmed Puerto Rico’s commitment to achieving the REPS of 20% renewable energy by 2035.

In setting the stage for infrastructure investment, PROMESA created an Oversight Board, which has authority over revitalization and infrastructure development. Importantly, the Oversight Board may “fast-track” projects deemed “critical,” such as projects that reduce the Commonwealth’s reliance on oil and diversify its energy sources. Moreover, the Oversight Board gives priority to privately-funded projects.

Following PREPA’s recent settlement with its bondholders, we understand the utility is ready to reengage with developers to amend PPAs that have been in limbo for several years. Many of these developers already have performed much of the engineering for these renewable energy projects. Once PREPA amends the extant PPAs, the underlying projects would qualify as “existing projects,” which would enable the Oversight Board to prioritize them.

In light of these recent fiscal and regulatory developments, investors again are inquiring about “shovel ready” renewable energy projects that require funding. Investors also may have gained a level of comfort having seen Oriana Energy successfully reengage in Puerto Rico. Since May 2017, the company is operating the largest solar plant in the Caribbean at 58MW, the power from which PREPA is purchasing pursuant to a renegotiated PPA.

Puerto Rico appears primed for renewed interest by energy investors. For several years, investors have been unwilling to accept the risks inherent in financing long-term energy projects in which PREPA is the counterparty. More recently, these concerns have shown signs of abating as PREPA has successfully engaged with its bondholders, and the Oversight Board created by the PROMESA legislation appears to have imposed an acceptable level of fiscal discipline on the Commonwealth.

With solar energy on the cusp of coming to Puerto Rico, the question is which financiers will enter the market soon enough to bathe in the sunlight.

Jeffrey Karp is a partner in the Washington, D.C. office of Sullivan & Worcester LLP and leader of the firm’s Environment, Energy & Natural Resources practice group. Zachary Altman, an associate, and Paul Tetenbaum, an intern at the firm, were co-authors of this article.

Topics: Energy Finance, Renewable Energy, Energy Investment, Puerto Rico, Power Purchase Agreements, Renewable Energy Portfolio Standards

Opportunities Abound in the U.S. Offshore Wind Market

Posted by Jeffrey Karp on 5/30/17 12:52 PM

Offshore wind projects have taken root in America. The country’s first operating offshore wind farm, in Block Island, Rhode Island, began contributing energy to the power grid in December 2016. Now, more than 23 offshore wind projects — collectively expected to produce 16,000 MW of power — reportedly are being planned. Thus, opportunities abound for developers, contractors, and investors in the U.S. offshore wind market.

The recent spike in offshore wind activity has been fueled largely by a surge of political interest. Some critics have decried President Trump’s apparent lack of commitment to renewable energy, but the U.S. Department of the Interior (DOI) has proved to be a willing partner in offshore wind energy development. In March 2017, DOI leased 122,000 acres off the coast of North Carolina to Avangrid, a subsidiary of Iberdrola, a Spanish company. Recently, DOI also finalized a lease with a Norwegian company, Statoil, for Long Island, New York waters. DOI evidently sees a future for U.S. offshore wind. According to a spokesperson, the Bureau of Ocean Energy Management currently is receiving annual rent payments of over $4 million for offshore wind project leases.

State activities also have primed the pump for offshore wind development. In August 2016, Massachusetts Governor Charlie Baker signed a law requiring utilities to procure 1,600 MW of electricity from offshore wind facilities by 2026. In May 2017, the Commonwealth’s Department of Energy Resources issued a request for proposals to develop up to 800 MW of offshore wind. New York Governor Andrew Cuomo announced that the state would commit to installing 2,400 MW of offshore wind by 2030, furthering his goal that renewable energy resources would supply 50% of New York’s power. To that end, in January 2017, Governor Cuomo approved Deepwater Wind’s 90 MW, 15 turbine South Fork Wind Farm project, which is expected to power 50,000 Long Island homes.

Moreover, the Maryland Public Service Commission recently awarded two developers, U.S. Wind and Skipjack Offshore Energy, contracts to build offshore wind farms totaling 368 MW. The projects are expected to create 9,700 new direct and indirect jobs.

With each completed project the supply chain grows stronger and developers become more efficient, making each successive project more cost-effective. For example, the estimated total cost of the South Fork project already has decreased 25% since Deepwater Wind’s first projections, and the energy generated is expected to cost 30% less per unit than at Block Island. Furthermore, the Department of Energy predicts that the cost of offshore wind energy will fall 43% by 2030. As this trend continues, there will be greater incentives to promote offshore wind as a clean energy resource.

Also, each successful project increases investor confidence. Deepwater Wind, developing its second offshore wind project, is owned by D.E. Shaw, a hedge fund and private equity firm managing over $40 billion in assets. Moreover, both Citigroup and HSBC have expressed interest in financing future offshore wind projects.

The U.S. offshore wind market is growing rapidly and approaching maturity. State and federal government actions appear to support a long-term horizon for offshore wind development. With every completed project, production and financing costs will continue to drop, the market will grow, and new jobs will emerge. The question now is whether the players in the renewable energy market — developers, investors, contractors, and vendors — are well-positioned to reap the rewards of this burgeoning industry.

Jeffrey Karp is a partner, Zachary Altman is an associate, and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Energy Finance, Renewable Energy, Energy Investment, Energy Project Finance, Offshore Wind, Wind Energy, Energy Project

SunEdison: A Cautionary Tale?

Posted by Jeffrey Karp on 9/27/16 9:53 AM

Cautionary_SunEdison.jpgU.S. Bankruptcy Judge Stuart Bernstein recently approved SunEdison’s proposed sale of $144 million of solar and wind assets to NRG Energy. The sale continues SunEd’s string of dispositions this year following its April bankruptcy filing. The company’s stunning descent has followed an equally aggressive rise over the preceding three years. According to The Wall Street Journal, citing its filing, the company “…spent more than $18 billion on acquisitions and raised $24 billion in debt and equity between 2013 and 2016.” While it’s acquisition strategy was highly aggressive, many point to two deals which did not occur - the proposed acquisitions of Vivant and Latin America Power - as the final straws in a failed strategy.

 

SunEdison, one of the “old-line” companies in the solar surge of the past decade, will undoubtedly serve as a cautionary tale to many. While the company bears the name of the Jigar Shah-founded pioneer in power purchase agreements, it’s DNA runs much deeper; MEMC, the company that acquired Shah’s company in 2009, was formerly an arm of Monsanto Company with history stretching to the 1950’s. Whether fairly or not, companies will likely consider the current woes of this former powerhouse before undertaking similarly acquisitive strategies in the future.

Is Renewable Energy in Puerto Rico Back On Your Radar?

Posted by Jeffrey Karp on 9/1/16 5:30 PM

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Renewable energy deal discussions centered on projects in Puerto Rico have been difficult – particularly for project owners – over the past few years. The foundations of most of the projects on the island were power purchase agreements (PPAs) with PREPA, the utility which, as an organ of the government was capable of issuing its own bonds and faced the same credit issues as the island itself. Therefore most projects have teetered along on life support for some time as financiers were unwilling to even open discussions with such a poor credit offtaker in the mix. However, interest in the island seems to have been heating up lately.

Proposals for behind-the-meter projects with private offtakers and wheeling scenarios have been popping up. Even old PREPA deals, many of which had died slow deaths in the wake of missed debt payments, may be in the process of resurrection. Why? Some may have missed it during the dog days of summer, but the main reason is the passage of PROMESA – the Puerto Rico Oversight, Management and Economic Stability Act. Among other things, the legislation: 1) created a fiscal control board; 2) granted the control board the power to force a debt restructuring; and, 3) allowed for the minimum wage to be lowered.

The Democrats on the Obama-appointed board are: Arthur Gonzalez, a senior fellow at New York University’s School of Law; Jose Ramon Gonzalez, president and chief executive officer of the Federal Home Loan Bank of New York; and Anna Matosantos, a financial and budget consultant at the Public Policy Institute of California. The Republicans are: Carlos Garcia, founder and chief executive officer of Bay Boston, a minority owned private equity firm; Andrew Biggs, a resident scholar at the American Enterprise Institute; and David Skeel, a University of Pennsylvania law professor; and Jose Carrion III.

While many – including some lawmakers who voted on the bill – have criticized PROMESA, and while it does not directly address solar deals on the island, it has seemingly given the island – and the solar industry along with it – a lifeline. If it hasn’t already, don’t be surprised if Puerto Rico shows back up on your radar very soon . . . .

NREL Report: Wind and Solar Could Supply 30% of the Eastern Grid without Increasing Reliability Concerns

Posted by Jeffrey Karp on 9/1/16 12:39 PM

East_Coast.jpgA recent National Renewable Energy Laboratory (NREL) report noted that wind and solar, despite being intermittent sources, could supply 30% of the annual power for the Eastern grid without increasing reliability concerns. Noting that wind and photovoltaic are the fastest growing electricity sources in the U.S., the authors determined that “under the study assumptions, generation from approximately 400 GW of combined wind and PV capacity can be balanced on the transmission system at a 5-minute level.”  However, despite what many renewable energy advocates would consider to be good news, it was also clear that to do so would mean much more frequent start-ups and shut downs of fossil fuel plants – activities that can put stress – and increase maintenance costs – on these facilities. That said, the authors also left demand response and storage solutions out of their assumptions, which could increasingly counterbalance potential negatives of an increasingly green energy supply mix. The study itself can be found here.

Utility Merger Goals in a Decentralized Energy Future

Posted by Jeffrey Karp on 8/25/16 4:36 PM

Iceberg.jpgAccording to Investopedia, mergers are typically undertaken to meet one of three major goals; 1) expand a company’s reach; 2) expand into new segments; or, 3) gain market share. While some of the $43.5 billion of utility deal activity in Q2’16 is undoubtedly linked to those goals, there is also a key question underlying recent deals from around the globe: how do utilities prepare for a cleaner, decentralized future?

If you believe that the answer to that question will remain a moving target for some time, it would seem likely that recent merger activity is only just the tip of the iceberg…

Solar Roofing Captures the Imagination – But is that Enough?

Posted by Jeffrey Karp on 8/24/16 2:36 PM

"What if we can offer you a roof that looks way better than a normal roof? What if we could offer you a roof that lasts far longer than a normal roof? Now, it's a different ballgame." – Elon Musk on solar roofing.

Rooftop_Solar.jpg

While the development of building-integrated photovoltaic (BIPV), and specifically solar roofing, technologies is a natural evolutionary step in an increasingly solar-centric world—and while such technologies hold a wow factor for many—whether they are commercially viable remains an open question. While it is hard to bet against a man who is simultaneously involved in sports car, advanced battery and spaceship companies, Eric Wesoff makes a pretty compelling argument that the history of solar roofing might have a few more pitfalls than the always aspirational Mr. Musk would like to publicly admit. For an interesting take on the challenges facing solar roofing manufacturers, see Wesoff’s piece on Greentech Media.

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