My Transition into Renewable Energy
I work in the legal department at an electric and natural gas utility company with an ambitious goal to achieve net-zero carbon emissions by 2045. A large fraction of my work focuses on providing legal service to my company's renewable energy projects. When I graduated from law school, I would not have guessed that I would find myself in this field. My goal had been to practice construction law, and I directed my career into the construction practice group at a large, regional law firm. After spending several years in that practice, I developed an itch for an in-house role. Upon reading a job posting seeking an attorney to draft construction contracts for a utility company, I applied and was lucky enough to get the job. After a few years of drafting construction and other contracts, I was asked to get involved in negotiating an EPC agreement for the construction of a small solar power plant that was self-developed by my employer. Once I had experience with one solar project, I was then asked to negotiate build-transfer agreements for the acquisition of larger, utility-scale solar projects.
A Utility's Approach to Developing Renewable Energy Projects
As customer demand for renewable energy continues to grow, many electric utilities are seeking to replace aging fossil-fuel plants with wind and solar plants. My employer is in the process of transitioning its electricity generation fleet, which historically has relied mostly on coal-fired power plants, into a heavy mix of wind, solar, battery storage and other low-carbon generation projects. Just as it took decades to build the fossil-fuel powerplants that energized most of the U.S. grid during the 20th century, the transition to renewable generation will take decades for several reasons. Currently, a single wind or solar power plant typically produces a fraction of the electricity than can be produced from a fossil-fuel power plant (even one that is decades old). Typical on-shore wind and solar generation plants have peak capacities of 400 megawatts or less. Conversely, many coal-fired power plants have peak capacities of 500 to 2,000 megawatts. Additionally, production from wind and solar generation plants is weather-dependent and less consistent than coal-fired power plants such that wind and solar plants yield less energy relative to their nameplate capacity as compared to coal. For example, a 300 MW solar plant would be expected to yield less than half the energy of a 600 MW coal fired power plant due to the solar plant's intermittency (no sunlight at night). For these reasons, a larger number of renewable projects are needed to counter-balance this lower capacity and production. Additionally, utility-scale solar projects, which often span over 1,000 acres of land, take several years to move from initial concept to commercial operation. Finally, the transition to renewable generation requires the addition of large and complex transmission infrastructure that spans multiple state and county jurisdictions.
To acquire large, utility-scale renewable projects (e.g., over 100 megawatts in capacity), utility companies will often contract with renewable energy developers to build and sell a solar or wind power plant. These contracts are often a hybrid between a merger and acquisition agreement and a construction agreement. The developer usually creates a single-purpose LLC or special purpose vehicle that is often referred to as the "project company". The project company will hold title to all project assets (chiefly permits and land rights such as leases and easements). The project company will enter into several contracts for the acquisition of solar panels, wind turbines, inverters and other equipment, along with a construction contract for the assembly of the parts and procurement of other materials (this is often called the balance of plant or balance of systems agreement). The utility company will then buy the developer's project company. Utility companies can buy the project company shortly before or after the completion of the project. This approach is referred to as a build-transfer transaction (and the associated contract is called a build-transfer agreement or BTA). Utilities can also buy the project company just before construction commences and this transaction is referred to as a develop-transfer transaction. Build-transfer and develop-transfer agreements are part of a broader class of "offtake agreements," which are agreements between the buyer and seller. Offtake agreements also include power purchase agreements, which is a different style of transaction where only the energy (and not the power plant) is sold to the buyer.