social and corporate governance Archives

Key Takeaways | Finding and Structuring Development Capital for Renewable Platforms and Projects

During the latest webinar in our Energy Transition series, McDermott Partners Christopher Gladbach and Joel Hugenberger hosted Angel Fierro, managing partner of PLEXUS Solutions, and Jorge Vargas, managing partner & co-founder of Aspen Power Partners, to discuss what financing is available to fund the development of projects before they reach notice to proceed (NTP). They also covered what capital providers and developers consider when approaching development capital to fund pre-NTP expenses and general business expansion and the challenges and opportunities associated with these financing products.

Below are key takeaways from the webinar:

1. The market for pre-NTP financing is expanding and diversifying. Traditionally, pre-NTP costs were covered by a developer using the development fee they received from selling a completed project or by granting preferred equity. Today, large credit funds, Environmental, Social and Corporate Governance (ESG) funds, boutique finance groups, family offices, oil and gas companies and corporations are all providing pre-NTP financing, and development loans are becoming a more common way for developers to cover pre-NTP costs.

2. Sponsors should look for development lenders that understand the typical risks and delays associated with the project development process. Development lenders need to be flexible and ready to accommodate development delays and other unexpected issues that arise as a project is brought to market. (This includes flexibility related to amendments and consents.) Lenders should be prepared to quickly provide amendments and waivers to address changes in a project’s timeline as it progresses toward NTP.

3. Price should not be the only thing developers consider when deciding which source of development capital to use. Developers should ensure that they and the capital providers are aligned when it comes to deadlines for NTP to occur, capacity to accommodate delays in the development process and the share of income generated from the project.

4. Development capital is essentially a bet on a development team, and in evaluating a development team, development lenders assess what experience management has and their success working together to bring projects to market. Development lenders want to see that a development team has people who know how to mitigate risk across the various segments of the development process (e.g., origination, site control, permitting, power marketing, etc.).

5. Power purchase agreements (PPAs) are becoming scarcer and shorter (10-year terms are replacing 25-year terms), and lenders and investors are getting more comfortable with providing capital to merchant projects and other projects that have traditionally struggled to obtain financing.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.

Key Takeaways | How Traditional Energy Funds are Shifting Toward Green Energy: A Conversation with Encap Investments and Quantum Energy Partners

The energy market has undergone significant change in the past 12 months, with even more on the horizon. Our webinar series explores how these changes have shaped—and will continue to impact—the energy industry, including discussions of what’s to come.

Our latest webinar featured McDermott partners Edward Zaelke and Parker Lee, as well as Shawn Cumberland, Managing Partner of Energy Transition of EnCap Investments, and Alex Jackson, Director at Quantum Energy Partners.

Below are key takeaways from the webinar:

1. Although energy transition investment funds may have different focuses, they generally take an all-of-the-above approach, with respect to investing, in the various subsectors of the energy transition and are willing to invest in any technology, in any portion of the energy industry (except for highly capital intensive projects with binary risk profiles).

2. Similar to the approach for conventional oil and gas investments, investment funds are focused on investing in strong management teams with a successful track record, which is manifested either through a management team that already has an interesting business plan or a management team that can successfully implement the investment fund’s strategy for a new business.

3. Environmental, social and corporate governance (ESG) policies have become pervasive in all industries—especially within the energy industry—and must permeate all aspects of an investment fund’s strategy. Effective ESG policies and proper environmental stewardship have become licenses to operate within the energy industry and without them, operating companies and investment funds will have extremely limited ability to gain legitimate interest from potential investment partners.

4. When developing a relationship between an investment fund and a management team for a new investment, it is critical for both parties to ensure there are aligned interests and expectations between the two parties.

5. Investment funds see abundant opportunities within the energy transitions space and are bullish on those investments’ capability to satisfy energy demand over the next two to three decades but are also looking to achieve diversification to protect their limited partners from the cyclical nature of energy investment.

To access past webinars in this series and to begin receiving Energy updates, including invitations to the webinar series, please click here.

Key Takeaways | Finding and Structuring Development Capital for Renewable Platforms and Projects

Key Takeaways | How Traditional Energy Funds are Shifting Toward Green Energy: A Conversation with Encap Investments and Quantum Energy Partners

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