texaslawyer.com ❘ January 23, 2020 w The Next Great Texas Energy Resource: Renewable Energy in the 2020s

By Matt Kapinos and Hayden Harms The discovery of oil at Spin- dletop started Texas on the path to becoming a dominant force in the global energy industry. Traditionally, at least in Texas, “energy” meant oil and gas, but the 2020’s will see renewable energy, technology once cham-

pioned only by those believ- Courtesy photo ing in unicorns and fairy dust, gain importance for Texas com- Matt Kapinos is a partner at Akin Gump and Hayden Harms is an associate at the firm, both located in Houston. They routinely advise energy and infrastruc- panies. Moves by traditional ture clients on a broad range of transactional matters. energy companies to diver- compromise (for example, the met its 2025 RPS target by 2009. sify their capital spend, the process that led to the establish- increasing importance of envi- Going forward, the U.S. Energy ronmental, social and gover- ment of Competitive Renew- Information Administration nance (“ESG”) considerations, able Energy Zones), Texas, with (“USEIA”) anticipates the U.S. and the continued decrease in its abundant flat, sunny, and will install approximately 800 costs to develop and purchase windy land, became a leader gigawatts of additional genera- renewable energy have and will in the development of renew- tion by 2050, with about 50% continue to facilitate greater able energy. Texas established of this generation coming from involvement with renewable a renewable portfolio standard wind and solar (see Annual energy for Texas companies. (“RPS”), via Public Utilities Energy Outlook 2019 with Pro- Maximizing Natural Commission action in 1999, set- jections to 2050, USEIA, Jan. Resources ting targets of installing 5,000 4, 2019); Texas will mimic this Whether an early believer in MW and 10,000 MW of new trend by doubling its share of renewable energy or an early renewable generation by 2015 the United States’ photovoltaic adopter by virtue of political and 2025, respectively. Texas solar generation by 2050 (from

considerations, this conclusion conclusion this considerations, currently valued at 26% for for 26% at valued currently long-term cost certainty for a a for certainty cost long-term

but, while those factors are are factors those while but, solar facility; the solar ITC is is ITC solar the facility; solar generation and this provides provides this and generation

factors causing these moves moves these causing factors age of their investment in the the in investment their of age associated with renewable renewable with associated

change activism as the major major the as activism change - percent a to equal liability to blow, there are no fuel costs costs fuel no are there blow, to

or the increase in climate- in increase the or credit against their federal tax tax federal their against credit shine and the wind continues continues wind the and shine

the rise of ESG measurement measurement ESG of rise the allows taxpayers to receive a a receive to taxpayers allows long as the sun continues to to continues sun the as long

A cynical viewpoint attributes attributes viewpoint cynical A investment tax credit (“ITC”) (“ITC”) credit tax investment land rights. Additionally, as as Additionally, rights. land

and purchase renewable power. power. renewable purchase and of wind energy produced. The The produced. energy wind of already controls the necessary necessary the controls already

duction or electric vehicles), vehicles), electric or duction credit annually for the amount amount the for annually credit — especially if the company company the if especially —

- pro bio-diesel to related those end of 2020 to receive a tax tax a receive to 2020 of end power oil and gas equipment equipment gas and oil power

reducing technologies (such as as (such technologies reducing started construction before the the before construction started upstream company needing to to needing company upstream

bon emissions, invest in carbon carbon in invest emissions, bon owners of wind projects that that projects wind of owners are a logical solution for an an for solution logical a are

- car their reduce to mitments credit for wind projects allows allows projects wind for credit and proven technology; they they technology; proven and

- com public make companies extended production tax tax production extended to develop and use reliable reliable use and develop to

major multinational energy energy multinational major investment). The recently recently The investment). projects are straightforward straightforward are projects

foreshadowed this as we saw saw we as this foreshadowed referred to as a “Tax Equity” Equity” “Tax a as to referred is an attractive option. Solar Solar option. attractive an is

the 2020s; the end of the 2010s 2010s the of end the 2020s; the renewable assets (commonly (commonly assets renewable the public), solar generation generation solar public), the

ber 8, 2019). This will change in in change will This 2019). 8, ber nerships that own qualifying qualifying own that nerships tricity not available for sale to to sale for available not tricity

- Octo Acuity, Energy (MW), ity - part in investing by grams - elec (i.e., generation meter the

- Capac by Texas in Companies - pro credit tax government’s replace distributed or behind behind or distributed replace

2019 Top 10 Renewable Energy Energy Renewable 10 Top 2019 take advantage of the federal federal the of advantage take For companies looking to to looking companies For

( industry energy traditional federal income tax liability can can liability tax income federal see increased electricity demands. demands. electricity increased

not significant players in the the in players significant not Companies with sufficient sufficient with Companies company attempting to satisfy satisfy to attempting company

or financial investors that were were that investors financial or provides a solution to any any to solution a provides Projects

able energy-specific companies companies energy-specific able Renewable generation also also generation Renewable Renewable in Investing

- renew largely were early years purchasing renewable power. renewable purchasing Opportunities

to surpassing its RPS goals 14 14 goals RPS its surpassing to a generation facility, and (iii) (iii) and facility, generation a Generation New

The companies that led Texas Texas led that companies The renewable projects, (ii) owning owning (ii) projects, renewable generation.

eration are (i) investing in in investing (i) are eration it competitive with fossil-fuel fossil-fuel with competitive it Renewable Energy Renewable

- gen renewable with ment renewable generation to make make to generation renewable in Players Initial

renewable power projects?” power renewable - involve greater demonstrating driving down the costs to build build to costs the down driving

will develop all of these new new these of all develop will Three ways companies are are companies ways Three from renewable sources, and and sources, renewable from

this begs the question of “who “who of question the begs this amount of electricity provided provided electricity of amount Entrants

com/gridinfo/resource). All of of All com/gridinfo/resource). try, dramatically increasing the the increasing dramatically try, Opportunities for New New for Opportunities

ERCOT, http://www.ercot. ERCOT, latest opportunity. latest - indus renewable the starting

Type Charts, December 2019, 2019, December Charts, Type adapting to and embracing this this embracing and to adapting - jump by goal their achieved

(see Capacity Changes by Fuel Fuel by Changes Capacity (see Texas energy companies are are companies energy Texas remain at 10%. The tax credits credits tax The 10%. at remain

in the next three years alone alone years three next the in is a profitable enterprise, and and enterprise, profitable a is 2022 when it will settle and and settle will it when 2022

new wind and solar generation generation solar and wind new simply, renewable generation generation renewable simply, will step-down every year until until year every step-down will

installing over 21,400 MW of of MW 21,400 over installing of renewable generation. Quite Quite generation. renewable of tion before the end of 2020 and and 2020 of end the before tion

4% in 2018 to 8% in 2050) and and 2050) in 8% to 2018 in 4% diminishes the larger potential potential larger the diminishes - construc started that projects

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of transactional matters. transactional of out how to turn on the sun or or sun the on turn to how out hedges, providing interested interested providing hedges,

structure clients on a broad range range broad a on clients structure resources, we have yet to figure figure to yet have we resources, physical and financially settled settled financially and physical

- infra and energy advise tinely ing the benefit of our energy energy our of benefit the ing ERCOT market allows for both both for allows market ERCOT

- rou They Houston. in located - maximiz to comes it when are to hedge the transaction. The The transaction. the hedge to

is an associate at the firm, both both firm, the at associate an is perfect; as creative as Texans Texans as creative as perfect; that allow one or both parties parties both or one allow that

and Gump Akin Renewable generation is not not is generation Renewable Hayden Harms Hayden or complex trading structures structures trading complex or

is a partner at at partner a is Matt Kapinos Kapinos Matt vide long-term cost certainty certainty cost long-term vide Conclusion

renewable generation assets. generation renewable - pro that electricity of purchases

able energy industry. energy able to develop, own, and operate operate and own, develop, to Corporate PPA’s can be pure pure be can PPA’s Corporate

- renew the in involvement their further increasing their ability ability their increasing further directly from the generator. generator. the from directly

continue this trend and increase increase and trend this continue tional revenue streams, thereby thereby streams, revenue tional purchase renewable energy energy renewable purchase

ways for Texas companies to to companies Texas for ways - addi projects renewable of ers sumer to bypass the utility and and utility the bypass to sumer

forth in this article are but a few few a but are article this in forth - own and developers provide - con a allow that PPAs”) rate

the 2020s, the opportunities set set opportunities the 2020s, the renewable generation and also also and generation renewable - (“Corpo agreements purchase

renewable energy. As we enter enter we As energy. renewable additional capital towards towards capital additional number of corporate power power corporate of number

implementation, and use of of use and implementation, allowing companies to deploy deploy to companies allowing seen a significant rise in the the in rise significant a seen

be a leader in the development, development, the in leader a be able energy development by by development energy able The last few years have also also have years few last The

profitability) positioned Texas to to Texas positioned profitability) - renew in roles important an RECs

focused on innovation (and (and innovation on focused PPAs and the sale of RECs play play RECs of sale the and PPAs Corporate PPAs: Power and and Power PPAs: Corporate

tion and an industry constantly constantly industry an and tion ing opportunity. Corporate Corporate opportunity. ing projects of this size. this of projects

- regula to approach practical a - trad or investment an as or ations will continue to impact impact to continue will ations

solar resources, combined with with combined resources, solar larger carbon off-set program program off-set carbon larger - consider line transmission and

that Texas’ natural wind and and wind natural Texas’ that tification regimes as part of a a of part as regimes tification take their energy), congestion congestion energy), their take

the past 20 years demonstrates demonstrates years 20 past the eration under one or more cer more or one under eration - ing producers to pay buyers to to buyers pay to producers ing

able generation in Texas over over Texas in generation able - gen its qualifies facility energy prices turned negative (requir negative turned prices -

- renew of history The eration. are created when a renewable renewable a when created are summer of 2019 when power power when 2019 of summer

- gen fossil-fuel for need the certificates (“RECs”) which which (“RECs”) certificates ever, as we saw during the the during saw we as ever,

improving will not eliminate eliminate not will improving purchasing renewable energy energy renewable purchasing - how projects, wind and solar

the technology, while rapidly rapidly while technology, the tion risks. Companies are also also are Companies risks. tion option for new utility-scale utility-scale new for option

our use of renewable energy, but but energy, renewable of use our - conges transmission against continue to be an attractive attractive an be to continue

as a potential game changer in in changer game potential a as structures that allow for hedges hedges for allow that structures growing Texas economy will will economy Texas growing

storage looms on the horizon horizon the on looms storage porate PPA options, including including options, PPA porate and maintenance costs. The The costs. maintenance and

make the wind blow. Battery Battery blow. wind the make buyers with a number of Cor of number a with buyers - renewable project’s operation operation project’s renewable

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