ANNUAL REVIEW

Renewable Energy 2016

November 2016  |  SECTOR ANALYSIS

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Renewable energy is becoming a more prominent element of the global energy offering. Around the world, countries are awakening to the advantages of renewable sources of energy. In Canada, the sixth largest consumer of electricity in the world, renewable energy accounts for 65 percent of electricity generation. Furthermore, as technological advancements in the renewables space continue to gain momentum, regulatory and legislative measures are evolving to reflect the changing landscape. Ratification of the Paris Agreement and the stance on carbon emissions has set the world on an inexorable journey toward clean energy.

 

UNITED STATES

Todd E. Alexander

Chadbourne & Parke LLP

“There are three key trends that I would like to highlight. The first is the affect of rapidly declining prices for solar power. Recent examples include the $2.99 per kWh bid to develop an 800MW solar project in Dubai and only slightly higher bids by developers in Mexico’s most recent auction. In the US, we are seeing similar declines in pricing, although I have yet to see a contract as low as the ones announced in the Middle East. The second trend is the growth in the number of independent power producers who are bypassing the utilities and selling directly to private companies. In 2015, 3160MW of such power purchase agreements were signed. The third trend is the extension by the US Congress of the renewable energy tax credits on 18 December 2015.”

 

CANADA

Scott Whitby

Fasken Martineau Dumoulin LLP

“Over the last 12 to 18 months, we have seen continued consolidation among industry participants with larger developers acquiring projects from smaller independents as they approach or reach construction ready stage. Larger Canadian developers have also been looking abroad, for example to Europe, the US and Latin America, for opportunities to expand their portfolios, with fewer recent opportunities in local markets. There is now new or renewed interest in fossil-fuel based markets such a Alberta and Saskatchewan, which have recently implemented new policies committing to the development of renewables and that are intended to encourage new investment to replace retiring coal generation.”

 

CHILE

Gonzalo Jiménez

Cariola, Díez, Pérez-Cotapos & Cía Ltda

“In May 2014, the Chilean government published the Energy Agenda for the years ahead. This document contains the guidelines for implementing policies and regulations in the energy sector. By the time the Agenda was published, the generation industry was mostly controlled by four major generation companies and energy prices were among the highest in the region. The Agenda contemplated a more active role for the government in defining policies and new regulations. One of the declared purposes of the Agenda was to lower energy costs, introduce more competition to the market and increase efficiency and diversification in the energy industry. The Agenda was the basis of two new laws which were enacted in 2015 and 2016. The first introduced amendments to the bidding process for energy supply to distribution companies, promoting the participation of greenfield projects, and the second introduced major amendments to transmission regulations.”

 

UNITED KINGDOM

Munir Hassan

CMS Cameron McKenna LLP

“Over the last 12 to 18 months, we have seen early closure of the ‘renewables obligation’ (RO) to more established renewable technologies, with full closure of all new capacity imminent on 31 March 2017. We have also seen the introduction of the ‘contracts for differences’ (CfDs) scheme, with the results of the first auction published on 26 February 2015, which has brought with it myriad associated processes for qualification and participation in auctions. CfDs serve to cushion those projects which are successful from macroeconomic factors, as generators are able to invest in low carbon technologies but are not exposed to the volatility of wholesale prices.”

 

PORTUGAL

Ricardo Andrade Amaro

Morais Leitão, Galvão Teles, Soares da Silva & Associados

“The renewable energy sector in Portugal is undergoing a period of transition. The last renewable energy projects with guaranteed remuneration, via feed-in-tariffs (FiTs), are now reaching completion and no new remuneration schemes have been approved thus far by the government. This state of play, coupled with a low interest rate environment and the need for deleveraging for many of the traditional players in the sector, has resulted in M&A and asset rotation transactions. On the origination side, on the other hand, there have been requests for capacity injection in projects with no guaranteed remuneration, perhaps signalling the economic feasibility of renewables generation without FiT even in current wholesale prices. Unlike other European countries, in Portugal, FiTs for existing projects have been kept almost intact since their inception.”

 

JAPAN

Amane Kawamoto

Nishimura & Asahi

“While the low energy price has been affecting the global economy in several ways, there seems to be little influence on the development of renewable projects in Japan. Almost all of the renewable projects with project finance in Japan benefit from the feed-in-tariff (FIT) policy, where renewable projects can sell all of the generated electricity at a fixed-price irrespective of the market price for 10 to 20 years – the length depends on the types of renewable sources. Meanwhile, the macroeconomic trend of low interest rates has made renewable projects relatively attractive as investment assets, and that trend is supporting a robust flow of investments in the renewable sector.”

 

CHINA & HONG KONG

Nicholas A. Molan

Vinson & Elkins

“China continues to be a champion of renewable energy research and deployment, with renewable sector – excluding hydro – investment increasing by 17 percent in 2015 to a staggering $102.9bn. Such levels of investment, while impressive in pure fiscal terms, take on a deeper meaning relative to global trends; China’s level of investment represents 36 percent of the global total for renewables, and the country is the single biggest contributor to the near-unbroken uptrend for the developing world as a whole since 2004. China’s renewable energy sector, like the broader energy market, is dominated by state-owned entities and is highly regulated by central and provincial governments. In this environment, energy policy is a much stronger influence than market factors, including energy pricing and other macroeconomic factors; if anything, lower global commodity prices – notably for oil and coal – are putting pressure on the economics of many renewable and other cleantech projects.”

 

SINGAPORE

Karthik Kumar

Jones Day

“Historically and conventionally, energy prices have been high, and due to emissions from fossil fuels there is an increased interest in alternative sources of energy to supplement traditional sources. In Asia Pacific, fossil fuel costs such as thermal coal prices have been plummeting at a faster pace than tariff rates have been cut. For example, Datang International Power Generation recently announced that it expected to report a 50 to 60 percent increase in net profit this year, due to a lower cost of fuel arising from low energy prices, reduced expenses and lowered financing costs after refinancing debt. A number of large gas companies have recently monetised their Asia geothermal assets due to low commodity prices.”

                                                                                                  

NIGERIA

Sina Sipasi

Aelex

“The Nigerian power sector is plagued with a supply deficit. This is due mainly to the fact that most of Nigeria’s generation capacity depends on a single fuel – gas. However, gas infrastructure is inadequate. Equally, gas pricing is not competitive, which discourages gas producers from selling gas to power generation companies. Also, increased militancy in the country is causing repeated vandalism of gas pipelines. In response, the government is fast-tracking the pace of diversifying Nigeria’s energy sources by increasing the percentage of renewables in the energy mix. As such, steps are being taken to aid long term contracts for the sale of renewable energy.”


CONTRIBUTORS

Aelex

Cariola, Díez, Pérez-Cotapos & Cía Ltda

Chadbourne & Parke LLP

CMS Cameron McKenna LLP

Fasken Martineau Dumoulin LLP

Jones Day

Morais Leitão, Galvão Teles, Soares da Silva & Associados

Nishimura & Asahi

Vinson & Elkins


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