Annual Energy Conference Presentation May 2015

Skadden, Arps, Slate, Meagher & Flom LLP
1 9 T H A N N U A L
ENERGY PROJECTS
C O N F E R E N C E
Skadden, Arps, Slate, Meagher & Flom LLP
1 9 T H A N N U A L
ENERGY PROJECTS
C O N F E R E N C E
Annual Energy
Projects Conference
Overview by Douglas Nordlinger
May 12, 2015

19th Annual Energy Projects Conference | 2 Skadden, Arps, Slate, Meagher & Flom LLP
Magna Carta 800th Anniversary – June 15, 2015
King John of England signing the Magna Carta at Runnymede on June 15, 1215

Magna Carta 800th Anniversary - June 15, 2015
 ISSUED JUNE 15, 1215
 ABROGATED AUGUST 1215
 FIRST BARON’S WAR
 REISSUED (AFTER KING JOHN’S DEATH) NOVEMBER 2016
– “No free man shall be seized or imprisoned, or stripped of his rights or
possessions, or outlawed or exiled, or deprived of his standing in any
other way, nor will we proceed with force against him, or send others
to do so, except by the lawful judgment of his equals or by the law of
the land.
To no one will we sell, to no one deny or delay right or justice.”
 SOVEREIGN IS SUBJECT TO THE RULE OF LAW
– The Law of Unintended Consequences -- The Barons Certainly Did
Not Intend to Lay the Foundation for the American Declaration of
Independence

SKADDEN’S ANNUAL
ENERGY PROJECTS CONFERENCE
KEY THEMES IN DOMESTIC
AND
INTERNATIONAL ENERGY MARKETS
2015

Collapse of oil prices
 Beginning in September 2014
 Brent Prices Reached Mid-$50/Barrel and Has Since Recovered
To Mid-$60’s/Barrel
 Resulting From Increases in Supply and Saudi Resolve to
Maintain Market Share
 Exploration Budgets Cut by 30%
 U.S. energy producers have announced plans to curb their 2015
capex by more than $50 billion compared with last year’s
spending
 Result Could Be a Wave of Restructurings and M&A

U.S. Energy Self-Sufficiency
 EIA projects the U.S. will become a net energy exporter by 2030
and a net natural gas exporter by 2017
 Policy Debate is Whether to Allow Exports of U.S. Crude Oil and
Natural Gas
 Huge Economic and Geostrategic Impact
 Oil Price Collapse Directly Related
Source: U.S. Energy Information Administration (EIA)’s Annual Energy Outlook 2015 (AEO2015) Executive Summary,
released April 14, 2015

Natural gas is overtaking oil as the key fossil
fuel of the future
 Bloomberg (BNEF) expects over 50 GW of coal-fired capacity in
the U.S. to retire by 2020, while in the same period over 56 GW
of net gas-fired capacity additions is expected to come online
 Royal Dutch Shell’s $70 billion acquisition of BG Group
 Shell is betting that the Asian buyers will shift towards natural gas
instead of coal in light of international pressure to curb greenhouse gas
emissions
 ExxonMobil predicts LNG trade to more than triple by 2040 to
nearly 100 Bcf/d
Sources: Bloomberg New Energy Finance (BNEF) White Paper “Medium-term outlook for US power: 2015 = deepest
de-carbonization ever,” April 8, 2015; ExxonMobil’s “The Outlook for Energy: A View to 2040,” 2015

 Renewable Power Generation Continues to Grow in the U.S. and
Internationally, Unaffected by 50% Drop in Oil Prices
 Some 103 GW of renewable capacity is estimated to have
been built in 2014 worldwide
– Compares with 86 GW in 2013
– Comprised primarily of wind generation (49 GW) and PV solar (46
GW), both record figures
– Accounted for 48% of new global GW capacity in 2014
Growth of Renewable Energy Keeps Powering
On, Unaffected by Reduced Oil Prices
Source: “Global Trends in Renewable Energy Investment 2015,” March 2015 by the Frankfurt School – United Nations
Environment Program (UNEP) Collaborating Center and Bloomberg New Energy Finance (BNEF)

Growth of Renewable Energy Keeps Powering
On, Unaffected by Reduced Oil Prices (cont’d)
 BNEF April 2015 White Paper:
– 2015 will see a national record for renewable build which will total 18.3
GW including 9.1 GW from solar (of which 4.9 GW will be utility-scale
solar) and 8.9 GW from wind
 EIA’s April 14, 2015 AEO2015:
– U.S. renewable generation will grow by 72% between 2013 and 2040
(base case), with the overall share of renewables in the energy mix
increasing from 13% in 2013 to 18% in 2040. Solar and wind will
account for nearly two-thirds of the increase
Sources: BNEF White Paper “Medium-term outlook for US power: 2015 = deepest de-carbonization ever,” April 8, 2015;
EIA’s AEO2015 Executive Summary, April 14, 2015

 Global investment in renewable energy reached near record
levels in 2014 at $270.2 billion (up nearly 17% from 2013), due to
the availability of financing and strong investor appetite for
renewables
 China dominated the investment landscape last year with a
record $83.3 billion
 U.S. came in second with $38.3 billion last year (up 7% from
2013), solar dominated with $14.8 billion, followed by wind at $6.9
billion
 U.S. public market activity in solar saw a 76% increase to $5.9
billion with three of the top four deals related to yieldcos
Availability of Financing and Investor Appetite
for Renewables
Source: “Global Trends in Renewable Energy Investment 2015,” March 2015 by the Frankfurt School – United Nations
Environment Program (UNEP) Collaborating Center and Bloomberg New Energy Finance (BNEF)

Importance of Government Policy
 Uncertainty surrounding government support for renewables:
– In the U.S., e.g.,
• Production tax credit for wind expired at the end of 2014 and there is the
looming deadline for the drop-down in the 30% investment tax credit (to 10%
at the beginning of 2017)
– President Obama’s FY 2016 Budget proposal seeks to make the federal
renewable energy tax credits such as the production tax credit and investment
tax credit permanent
– In Europe, the ‘first mover’ in renewable energy is in the process of
restructuring the early support schemes, e.g.,
• Spain retroactively cut solar subsidies
• U.K. eliminated the Renewable Obligation Certificate support scheme for
large-scale PV solar and introduced open tenders for Contracts for
Differences

 EPA’s proposed Clean Power Plan to reduce by 2030
greenhouse gas emissions at existing power plants by 30% from
2005 continues to face opposition in the courts and Congress:
– Draft legislation introduced in Congress would bar the EPA from
implementing the Clean Power Plan in States electing to opt out
– Challenges pending before the DC Circuit by 15 states, coal companies
and industry groups. The Court may delay action until after the final
rule is issued, expected this summer
– The North American Electric Reliability Corp. said that the EPA might
have to push back compliance deadlines as widespread retirements of
coal-fired power plants could potentially lead to widespread outages
U.S. EPA Clean Power Plan –
Game Changer in Flux

Distributed Solar is Also a Game Changer
 Distributed solar continues to be a disruptive force with the latest
developments in battery storage, community solar and corporate
America becoming an ever more important customer. Already we
have seen, inter alia:
– First Solar invested in the largest player in the U.S. community solar
market which works with utilities to develop community solar “gardens”
– Apple’s agreement to acquire 130 MW of PV solar from First Solar for
$848 million - the largest-ever non-utility corporate solar procurement
deal
– Amazon, Facebook, Google and Microsoft with at least 1 GW of long-
term wind power offtake deals between them
– As early as 2025, we could see companies procure at least a
cumulative 60 GW of new off-site capacity alone (currently it is only 4-5
GW) (according to the Business Renewables Center)
 What effect on Grid Reliability?

 Solar plus storage – potentially far-reaching energy transformation
– “There’s a tremendous opportunity both in storage itself but also its
ability to clear the path for a large-scale penetration of renewables in
the grid,” said Thomas Leyden, vice president for energy storage
deployment at SunEdison
 The U.S. is forecasted to deploy 220 MW of energy storage in 2015 (up
from 61.9 MW in 2014) and will reach 861 MW in 2019
 Several big-name battery storage transactions have been in the headlines
involving AES, SunEdison, Sumitomo and Tesla
– Only this month, Tesla introduced the 10 kWh Tesla Powerwall and the
larger 100 kWh Tesla Powerpack. The batteries will eventually be
produced at Tesla’s new approx. $5 billion ‘giga-factory’ in Nevada
Development of Storage Technology –
Tipping Point for Renewable Energy Market
Penetration, Especially Solar
Source: U.S. Energy Storage Monitor report by GTM Research and the Energy Storage Association, February 20, 2015

Annual Energy Conference Presentation May 2015

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