Hello and welcome to McDermott Will and Emery’s weekly half hour webinar on key issues impacting the renewable energy industry during the COVID 19 Crisis. I am Ed Zaelke. I am the global head of McDermott’s Energy Project Finance project. And today we’re going to be talking about shifting market dynamics in corporate PPAs. We are very fortunate to have joining us today, Cristen Blum, who is a head of Edison Energy’s Renewable Energy and in Analytics Group, which is one of the market leaders in arranging and structuring corporate PPAs. Over my 30 plus years in the industry, I’ve seen a few game changers that really impacted the industry, and certainly we would have to add the, the advent of corporate PPAs over the past several years as one of the game changers in the industry. But before we get started talking with Cristen, and I’m sure we’ll be interested to hear what she has to say today, as we always do, we have a few audience survey questions that we’d like to get started with. We’re going to start with the softball question. I know there are folks are stuck in quarantine fatigue and you’re thinking about traveling again. When will you feel comfortable taking an airplane flight? Now, 3-4 months from now, 5-7 months from now, you’re unsure, or you’ll fly when pigs can fly. You’re not interested to jump on an airplane. Curious to see what the answers are. A similar survey was held by the Meet the Press folks this past Sunday. And, we have about half are ready to either go now or in 3-4 months, which is encouraging. A few in 5-7 months. Many are unsure. The survey that the Meet the Press folks had on Sunday showed 42% of Americans were not ready to fly for at least seven months. So I think our group is a little ahead of most Americans, in our willingness to get out there, but that comes with this industry. Let’s go to the next, next topic, which is a little more directed to today’s discussion. In 2019, the US used 4.12 trillion kilowatt hours of electricity, according to the US GIA. How much usage decline do you think we will see in 2020? This is obviously relevant, one of the topics we will be talking with Cristen about is how a decline in our, our usage is going to impact the demand from the corporates who are covering at least a portion of their energy with, with renewable PPAs, either through a direct purchase or a contractor differences. Let’s see what the audience seems to think. And the answer is, a few in less than 2%. Seem to be evenly split that our production this year would be between 2-5 and 5-8, although there is a large number, 21%, thinking that we would be greater than 8%. So, so the folks on the line there in the industry are obviously seeing a healthy, or unhealthy, decline in power demand in the next, certainly next nine months, down this year. Let’s go to our final question. Final question is environmental and Social Goals or ESGs have been a big part of shareholder and corporate focus around the world for the past several years. Again, it maybe ties back into our discussion on corporate PPAs today. Which movie title do you think best describes the current attitude towards ESGs in the current environment? Giving you a few choices. The Silver Linings Playbook, Die Hard, The Titanic, or Star Wars, Episode Five: The Empire Strikes Back. And, you know, I will advise you to pick the movie that tracked the question, not just your favorite movie. So, let’s see what the answer is here, The Silver Linings Playbook. So we are still, think folks are going to be looking at ESGs as an important part of their life, that’s encouraging. Although, we did get a 34% for Star Wars, but maybe that’s just because its Star Wars. So, with that, let’s, let’s go to the, the program. Cristen Blum again, as I mentioned earlier, is the head of Edison Energies Renewable Energy and Analytic Advisory Group, formerly known as Altenex. They were, have been part of the Edison Energy family for some time, changed their name about a year ago. They are one of the leaders, in the legal firm are called one of the market leaders in corporate PPAs. And she heads a group in Boston and will be a great guest for us today. Leading the discussion today, joining me will be Carl Fleming, who is a good friend and a partner in McDermott’s Washington DC office. So with that introduction, welcome Cristen and Carl. Maybe we’ll start, start with you for the questioning. Great. Thank you for having me. Carl, you need to unmute yourself, please. There we go. Thanks, Ed. Hey, thanks for the introduction. Cristen, I think we’re going to start with a general question, if you don’t mind. It was going to be related to COVID 19 and the market stability. So, you know, both the commitment and credit worthiness of buying renewal energy and… PPAs are crucial for developer’s financial stability. In the current economic environment, there’s a lot of uncertainly around bank ability and likely less manpower and possibly attention in corporate to focus on sustainability. The question, I think, for you would be, have you seen reduced levels of corporate engagement in the PPA market, through either a loss of interest or the inability to remain creditworthy? Sure. So what we’re seeing is still a strong appetite from corporates to sign renewable transactions. And the two factors we’re really looking at right now are, what sector is the client in? You know, no, no, no surprise to anyone, certain sectors are being more hard hit right now than others. And I think the things we’re seeing is both the economic impact on the company, but also just the time and resources. Where their employees are having to put their time and effort right now. So sector is a big, big impact on whether or not companies are moving forward. And then the second would be, where are they in the renewable energy buying lifecycle? Are they new to the market? Are they far along in a transaction or on their second and third deal? So starting first with the sectors, you know, those that have been most hard hit, and all of us are well aware, are hospitality, retail, travel, entertainment. Those are not sectors that traditionally have been very active in renewable energy buying. And in fact, when I look at our client base, they don’t make up a large percentage of our renewable clients. When I look at our client base, you know, the sectors that are most represented are technology, pharmaceuticals, industrials, large food and bev. Those companies are still faring very well, and we anticipate, you know, their creditworthiness will be maintained, and they’ll be able to do transactions. And what we’re seeing is some of those companies were actually even seeing this time as a time that they really take advantage of being a strong buyer in the market. And so some of them are accelerating their buying, are at least continuing in the transactions they were already working on. Of our client base, the ones that have maybe slowed a little bit are those in the industrial segment. Some of those clients have had to do some furloughing, some rotating of schedules. Generally, those clients are not pulling back under commitment to signing deals but may be slowing the transactions or slowing their process. This is disappointing to see, because when we looked at 2020 back in 2019, we saw industrials as one of the biggest areas for renewable buyers in 2020. Again, don’t see that really stopping over time, but definitely some of those companies are needing to focus on their core business right now, and there will be a delay in their ability to continue to sign transactions. So that’s really looking at the different sectors. And then I would say, in terms of where buyers are in their journey, those clients that are far along in transactions, you know, they’re exchanging term sheets they’re already in negotiations, they’re certainly being discerning about price and terms and confidence in milestones. But they’re continuing to move forward in those transactions. The ones that have slowed are definitely those buyers that are new to the market. We’ve signed up some new clients during the pandemic and right before, and what we’re finding is that it is challenging to do some of those early stages of the process. We focus a lot of education at the beginning, stakeholder alignment. It’s hard to get on people’s calendars right now, quite frankly, for some of those executives that are focused on COVID 19 issues. So those plans that are new to the market, again, we don’t see them pulling back, but their ramp up to do transactions will be slower. You know, we were anticipating they might have been watching … in the summer, that might be later this year, or even into 21. So, the key message, I think, really, is that we are still seeing strong corporate demand, but it will be dependent on what sector the clients is in, and where they are in that process and their ability to transact now or maybe a little bit later this year, into next year. Cristen, just to kind of follow up on that. How about the flip side of the equation. From the developer’s perspective, are they worried that certain corporate buyers, you know, they are willing corporate buyers, would be unsatisfactory to their lenders with their tax equity because of credit issues? You mentioned, you know, hotel and travel industry, and while there aren’t many, if one were to show up would the developer just show no, no interest? Yeah, that’s a great question. I think we don’t have a ton of clients that fall into that category to know. But I do anticipate there is going to be a flight to quality. You know, corporates are looking for developers that track records, that they are confident can uphold their end of the deal. Same thing is going to happen on developers’ side. So I do think those buyers that are more credit worthy are in the driver’s seat, and that there are some buyers that, you know, they may see higher credit asks. They may not be the top one in mind the developer would want to transact with. But the other flip side of that is those are companies that might not be looking to sign 10-year deals right now. You know, if they’re in a position where their industry is going through massive upheaval, treasury is not going to be necessarily interested in signing a 10-year plus deal at this point. So, kind of goes both ways. Thank you. Sure. Thanks, I think, switching to a different topic here. You have, you know, the actual terms and provisions we want to discuss. For the past two years it’s been a buyer’s market for corporate PPAs in terms have continued to lean towards the benefit of corporate buyers and more towards risk shifting onto to developers. And we see this in hire security deposits, project completion timing risks, basis risks, and changing law risk being born by the developers. Have you seen that trend changing? Whether it was before COVID and maybe things have changed during COVID. And if you have, why do you think that may be? Sure. So, you’re right. It’s been a buyer’s market for quite some time, particularly for corporate buyers. But we were starting to see some shifting dynamics even before the pandemic hit, and particularly in those markets that are the most popular for corporate buyers. So one thing that comes to mind, you know Solar in Texas. So, not shocking anyone on this call, we’ve seen rapid growth in corporate interest in signing PPAs. So in 2019, the C&I market signed 9.3 gigawatts of transactions. And we anticipate, going into 2020, that that would continue, that level of demand. And again, those corporates often go to the same markets, which has been driving up overall demand for projects that had some upward pressure on pricing in recent months. But also just projects are being pulled from the market more quickly, and so buyers had to be educated and ready to go in that market. In addition to corporate demand, we were also seeing demand from other alternative off take options. So, retailers. In some of these markets, retailers have been signing really large transactions. We were seeing, you know, very strong hedge pricing for on peak Solar in Texas, which was a competing factor. And then, more and more, we’re seeing developers in tax equity backing them that are interested in taking on merchant position on a project. And so, all of these competing factors were happening at the same time, which was putting some upward pressure on pricing even before the COVID 19 pandemic hit. So when we issued our Q2 report recently to clients that shows pricing trends over time, we saw a slight increase in prices in Texas solar compared to the middle of 2019. So, to your point, like, the corporate pricing in terms, of kind, have been going down and down and down, we sort of felt like we saw a bottoming of the market in 2019 and a slight uptick more recently. Now, time will tell whether or not a pullback in demand will start to pull those prices back down. That could happen. But what we are seeing is some upward pressure from the supply side. You know, increased costs for construction, labor constraints, tax equity constraints. So, our prediction at this point is really sort of a leveling off right now over what prices are. Those buyers that are in the market that are able to transact are going to be able to advantage of still, very strong, pricing. And the other thing is that with these developers that seem to still be interested in sharing some of that merchant exposure, we’re going to see more opportunity for these sort of risk sharing, risk mitigation structures that have become more popular. Maybe elaborate a little bit on the risk mitigation structures you’re talking about. Just, are you talking about more callers or a greater percentage of the overall project being held by the developer or its private equity sponsor as a pure merchant play? What are you, what are you seeing in the market? Y Yeah, so we’re seeing a lot of different things. Certainly callers. We’ve executed a number of callers in different markets at this point. We’re also seeing offers for what we call upside sharing. So, in exchange for a lower PPA price, giving up a certain percentage of the upside in the contract. So those are two common structures. And then you’re right. Often times a corporate buyer is taking only a portion of the project, and then the developer is leaving part of that project for merchant exposure. So, those are a number of different things that we’re seeing. In risk mitigation, we’re also seeing interest in doing physical delivery, so it’s not possible for all clients. But if we have clients that do have concentrated deregulated load, another option we’re seeing is having them source PPA and then find a retailer to see that through. So, a number of different options, but definitely all focused on risk mitigation. You mentioned, though a little uptick in prices. Have you seen changes in the terms? Carl mentioned a number of, if we listen to developers for the past several years, there is a, a concern that every, every corporate PPA seems to be a little tougher and tougher on, on the developer side of, of the of the equation. Are you seeing any softening or changing in those terms over what the corporates have kind of grown to expect? Not really. You know, I would say there has been that upper pressure on pricing. I don’t think that the terms were getting anybody less buyer friendly. So you know, those have been pretty consistent for a while, but I do think there is, in a period like this, a lot of discussion with the developer. What are realistic milestones for the project, making sure that we’re building in terms that are financeable, that can, you know, make sure the project is successful. But at the same time, again, there is still a lot of corporate demand and corporates are in the driver’s seat in terms of the overall terms. Again, making sure that the project is still financeable. One last question before I hand it back to Carl. How are corporates handling delays? One of the concerns with, say our straight head with the financial has been that it’s very hard to headline. They expect the trade to happen on January 1st, and you need to deliver by that date. Is there more flexibility with corporates? Or even the ones that signed contracts. Are they showing more understanding of what’s going on here? Sure. So I would say, you know, we have had some clients with existing deals that have seen, you know, force majeure notices or potential notices of force majeure. And, you know, that’s what the provision is there for. And so we’re helping them understand, you know, whether or not those force majeure requests are legitimate. You know, did the COVID 19 impact really causes prevention of performance? But if they did, that’s really what, what force majeure is in place to do. Now, I will say, I think corporate buyers are looking to implement the terms of the contract, but are generally not as sensitive to those deadlines as other buyers, Steve mentioned, right? So banks that look at it as the trade, load serving entities that need that power to actually meet load. They’re in a bit of a different position. I think most corporate buyers are, you know, willing to work with the developer in some regard. They’re not as sensitive if the project comes online January 1st, February 1st, you know, those types of things. I think they can be a little bit more flexible as long as the long-term deal still makes sense for them. What we’re not seeing, you know, really, I think appetite for, would be price increases, right? So if that deadline causes the project, not all to qualify for a co-PTC or running into other costly issues, coming back for a price increase that would be something a corporate buyer be very sensitive to. So, we’re not having those conversations today. I hope we don’t have to have those conversations, but those would be more difficult conversations, I think later in the year. Thank you. Thanks, Cristen. I think, you know, touching on a couple points. You mentioned, you know, shifts in demand. I think we’ve seen the decline in energy usage over the past few weeks is a virus. We’ve also seen some, you know, industries that you had mentioned before. Hospitality and retail, potentially industrials, kind of, they will probably emerge out of the Coronavirus pandemic weaker. Others may come out of this unscathed. They’re stronger. They are in the market, possibly technology companies or data centers. Have you seen the landscape change dramatically in the early weeks here in the pandemic for developers and, kind of, bigger opportunities for technology and data centers or different sectors? Kind of, setting aside what may be areas that there may be falling in demand, are there other adjustments developers can make to look towards possible opportunities there may be at the moment? Sure, yeah. So we talked a lot about this in terms of this sort of flight to quality, right? So I think on all ends, in all parts of the value too, people are looking to transact with those that are the most creditworthy, that have track records that can get deals done. And so, from the buyer side, you know, they’re definitely for price and for terms. But they’re also looking at developers to be sure that they feel those that they’re transacting with will be able to meet their milestones and uphold the terms of the contract. So, you know, we are seeing those kinds of more stable, more long-term track record developers be in the driver’s seat from the supply side. And on the demand side, you know, we’d expect the same thing, right? Those buyers that are more creditworthy, their industries are doing well, they have a track record of doing deals in the past. They’re going to be in the driver’s seat and probably the ones that developers are going to be most interested transacting with. I think those clients that are going to be less attractive, we mentioned some of those sectors. I think it’s going to be disinterest on both sides, right? The developers are not going to be as interested in signing up with those types of buyers, and I think those buyers are in a position in their industry where it may not be the right time to sign a long-term transaction. So, I think you will see a shrinking and a narrowing of the buyers that developers want to go after that meet that, those criteria. In terms of advice I would give to developers in navigating this environment for corporate uptake, you know, it’s really no different than the same advice we would give them before this, which is, you know, when you put an offer forward to a corporate buyer, make sure you have your ducks, ducks in a row. You know, there’s going to be a lot more questions and increased due diligence on your financing plans, your access to equipment, your long- term ownership plans, your construction costs. We always ask those questions in due diligence and it will be even more important to have answers to those. And then the last thing I’d say that we really value at Edison for clients and corporate developers is transparency. We understand right now it’s a very difficult time to be in the development business. Things are shifting constantly, whether it’s COVID 19, whether its things coming out of the administration. Things are constantly changing. So we just ask that developers are very transparent, they come with, you know, as well a base plan as they can. And they really look at this is a partnership with the corporate client to work through those issues. One thing we saw when the market was very hot, right before the pandemic, were, you know, developers throwing in offers, pulling them quickly, changing the terms. That’s a quick way to burn bridges with advisors as well as corporations. And what we’re seeing is corporates really valuing developer scenes of partnership. And so, just being transparent and treating it like a partnership. More and more, I think, clients will do deals with a company and want to do additional deals with them down the future. So, that’s the best advice I can give. Cristen, the audience poll before we started showed dropping in power demand this year. Folks somewhere between 2% and 8%, with even 20% of the folks on the, the call suggesting we might even see more than 8%. I, you know, we don’t know how long that’s going to last, but what you are going to see is a lot of developers out there who want to finish their project or build their project may lose demand from some of the more traditional opportunities. The CCAs or the utilities that they might otherwise target to sell their power to, may not have the demand this year or may choose not to buy. Is this going to create a rush to, to corporates? I mean, you talked about their flight to quality. Is it going to be a, a demand for even more corporate buyers this year because of the loss of some of the non-corporates in the market? You know, I think potentially. A lot of the markets that we have been working with clients in, ERCOT and PJM being two of the biggest corporate buying markets, we have been competing against retailers. And so, I think it’s too soon to tell how much different parties are going to pull back their plans. But it could be that, you know, if those retailers are not seeing as much demand for electricity, they’re not willing to sign up as much, you know PPAs at this point, and that could be the, for the benefit of corporates. I think the one thing I would say is that most of the transactions we’re working on right now are 2022-2023 online dates. And most of them are solar, just given the changing dynamics with costs. And so, you know, even if we anticipate a fairly long recession, I think most people would think by the time those projects are coming online, there’s a rebound in energy demand. And so I think you know, many of these buyers are taking a longer-term view, and they will still be in the market, both on the corporate side as well as I still would anticipate that in the retail side. And then those developers that are looking to take projects merchant, you know, they would anticipate that there’s still be strong pricing in ERCOT, you know, in 2023 for the summer. Given, I’m not sure you said, must of our solar is half solar or 75% solar. Do have an idea of what, who are the, if you’re looking at 2023, have most of the wind projects of gone quiet on the corporate market of that time period, and is mostly solar? So far, what, with what you are looking at these days It’s almost all solar. I don’t have the exact percentage, but I would say even 2021 wind is really not coming across as competitive as what we’re seeing for a solar project that would come online in 22 and 23. And most of our buyers are not super sensitive to the exact year a project comes online. So they were really looking for the best economics and the best terms over a couple year span. And so that’s really leading most buyers in the markets are working in towards solar right now. That’s interesting just because, you know, we looked at some of the West Texas Wind projects with the 10-year PPC offering a pretty very low price. That’s interesting the most of your work, or most your contracts are focusing on solar. Well, given the fact they’re going to come online in 2022, 23 are you surprised by, if anything, the little bit of the upheaval we’re going through now? One would suggest that this is three or four years away. Don’t worry about it, just stay the course. Are you seeing a lot of just stay the course or are you seeing that in fact, even though these are a few years out there’s still a fair amount of upheaval in the market? Yeah, so I mean, I think generally, we are feeling very positive both about the corporate demand and the supply side because we’re 2, 2.5 years out from when these projects are coming online. You know, that, said, there’s a lot that has to happen in a project development cycle before these projects come online. And so there’s some cushion there. We obviously want to make sure we’re still feeling confident that things can before it and they can move forward at price points that would still hold the peaking of pricing, right? So we’re constantly tracking availability of tax equity returns. We’re expecting tax equity to seek in the future. Construction costs, access to labor, access EPCs. You know, all of these things have to happen, obviously, before the online dates. But we are feeling that there is some wiggle room, assuming this is not a, you know, extremely long recession, that those projects will still be just fine. Thank you. Carl, we’re getting a little short on time, maybe you have another question for Christen before we leave. We actually, we got a live question from the, from the audience. I think one of the questions posed was, the person submitted this recently had COVID 19 specific language force majeure in a retail PPA, to specifically address the current situation as well as additional language to do with future outbreaks and epidemics, pandemics, etcetera. The question is, are you seeing corporates willing to look at this issue now during the negotiation process, to try and minimize future disputes arising from a pandemic? Definitely. I would say in the PPAs that we’re negotiating right now, there’s a lot of attention being put on force majeure and being, trying to anticipate what could happen in the future and bait that into a PPA. No one wants a dispute, right. And everyone is looking to entering a transaction that is going to be in the long-term interest of both parties. You know, corporate buyers really do CDs as partnerships. And so, trying to get ahead of issues we’ve dealt with in the past, whether it’s COVID 19 or when we were negotiating PPA during potential tariff increases or back when there was tax reform. We do the best to anticipate the future and try to put that into PPA terms that are fair and transparent for everyone. And, you know, that’s what we’re doing in force majeure right now. Can’t predict everything, but we’re trying to do it the best that we can. That’s understandable. Thanks, Christen. You know, we have maybe one or two more minutes left Ed, if you had something else you wanted to add. Yeah, I want to, we do just have a couple of minutes. Christen, what does the future hold for Edison Energy? What are you looking at? You see, you guys had a great growth spurt in the last several years. The corporates have been a big part of keeping the industry going. Do you see that continuing to grow in the US? Are you looking abroad? What, what, what does the future hold for your company? Yes. Great question. We’re very excited about our growth. So, actually, as of next week, we’re opening our first office in Europe. So, we’re opening an office in the Netherlands and we hired someone who has tremendous experience on the industrial side doing PPAs across Europe. So I’m sure a lot of people on the call are well aware, as the European market is opening up, more and more corporates are doing transactions there, which will provide a lot of growth for our company, as well as just the ability for our clients to meet higher and higher levels of sustainability that they’re trying to do. So that’s a really great area of growth. The other thing is, you know, while I focus on renewables, the company as a whole focuses on all aspects of energy for a C&I buyer. So, we are now helping to create more integrated strategies for clients. So not just doing renewables in silo, supply in a silo, maybe your EV charging and plans over there in silo. Really bringing that all together. And so the company is doing more, like I mentioned, physical delivery, where we’re matching your supply and renewables together. We’re doing where demand side work that’s integrating with renewable plans. And so, I think the focus really on holistic strategies that optimize across all of those areas to help complete their costs and sustainability goals. Great. Great to hear. Well, we are out of time. Christen Blum of Edison Energy, I want to thank you again for being our guest today. Terrific, terrific discussion, Carl. Thank you again for helping lead the discussion. I want to remind our listeners that next week we will have Greg Wetstone, the CEO of ACORE with us to discuss what’s happening on the federal legislative front, both near term and long term, with respect to renewables. That should be a just a great discussion as well. So, we look forward to seeing you all next week and goodbye for now. Thank you again.