Build-Transfer Agreement Fundamentals /
Utility Ownership of Renewable Energy Assets

Two Programs: Build-Transfer Agreement Fundamentals and Utility Ownership of Renewable Energy Assets

Build-Transfer Agreement Fundamentals

An important instrument for utilities as they pursue eventual and outright ownership of solar assets is a build-transfer agreement (BOT/BTA).  It is a “value meal” – an all-in-one approach that borrows elements of purchase and sale agreements with EPC agreements.  Under this transactional arrangement, a third party develops and constructs a renewable energy project and transfers it to the utility at a negotiated development or completion phase.

This course will present a clear picture of what utilities and project developers must weigh and negotiate to achieve a desirable outcome for both: the developer optimizes the role of packaging the project and bringing it to operating status, the utility acquires a long-term operating asset on which it can earn a satisfactory rate of return.  It will examine essential negotiating elements, timelines and outcomes from multiple transactional party perspectives.  And it will inform how desirable candidate scenarios can be optimized or undesirable candidate scenarios avoided.

Utility Ownership of Renewable Energy Assets

Direct ownership of solar assets by regulated utilities is a complicated proposition in most states and under most circumstances.  Enough exceptions exist so that it’s not correct to characterize utility-owned solar as infeasible in most cases.  In fact, many holding companies that own regulated utilities also develop and manage renewable energy assets, including solar, through merchant organizations that some consider utilities.  Even so, to this point in its maturity as a generation type, solar as a portfolio asset follows the more familiar paradigm of third party as developer and owner, and utility as off-taker through a power purchase agreement (PPA).

Shoots are emerging on the landscape, however, that suggest policy-makers, utilities and – most importantly – the market may be shifting their perspectives on this solar development convention.  The mushrooming demand and accelerating competition for solar assets across the consumer, corporate and power system user spectrum are important drivers.  They may erode regulatory, accounting and tax provisions that have impeded regulated utility solar asset ownership. 

This course will evaluate the elements contributing to practices that dominate the renewable energy project development and asset ownership landscape.  In addition, it will examine the shifts underway contributing to the perception that more and wider utility engagement in solar asset ownership is a real prospect.  The program will also spell out the paths that utilities themselves are pursuing to convert the possibility of solar asset ownership into their rate- based portfolios.

TUESDAY, OCTOBER 26, 2021

9:00 a.m. – 12:15 p.m. :: Phase I: Setting Up The BTA/BOT Transaction

• Sourcing the Deal
• Cementing the Team
• Essential Structuring Elements
• Negotiations
• Project Development “Toll” Gates and Milestones
• Utility Positioning, Timing and Regulatory Authorization to Proceed
• Financial and Economic Dimensions
• Tax Equity Matters

12:15 – 1:00 p.m. :: Lunch Break

1:00 – 4:45 p.m. :: Phase II:  Project Engineering & Construction

• Regulated Utility Development Timeline, Risk Points and Implications
• Project Developer Dimensions and Decisions
• EPC Engagement and Role
• Project Oversight, Inspections, Approvals and Buyer Step-in Rights
• Supply Chain Issues and Cures

4:45 p.m. :: Course Adjourns For Day

WEDNESDAY, OCTOBER 27, 2021

9:00 a.m. – 12:15 p.m. :: Phase III:  Transfer/Sale Of BTA/BOT Asset(S)

• Contract Provisions
• Transfer Scenarios and Timelines
• Defining Completion
• What’s a Closing ?

12:15 – 1:00 p.m. :: Lunch Break

1:00 – 2:00 p.m. :: Phase III:  Transfer/Sale Of BTA/BOT Asset(S) cont’d

• Distinctions Between Wind and Solar Projects

2:00 – 4:45 p.m. :: Phase IV:  Post-Transfer Elements

• Warranties and Representations
• Post-completion Indemnification Liability
• Operations & Maintenance
• Lifecycle Costs and Considerations

4:45 p.m. :: Course Adjournment

THURSDAY, OCTOBER 28, 2021

9:00 a.m. – 12:15 p.m.

1. State Of The Utility Renewable Energy Asset Market
   • ISO’s and regulated markets, structures, responsibilities
   • Renewable energy capacity in each region or state
   • Ownership by type
   • Available off-take solutions
     • PPAs
     • Hedges
     • Rate-base assets

1. Utility Market Participants & Roles
   • IOU’s (regulated, operating vs unregulated, merchant), Muni, Coop, Public Power
     • Relationship to IPP, Infrastructure Funds/Private Equity (PE)
     • Relationship to Federal Power Agencies
   • Regulatory/capital approval process of the participants

12:15 – 1:00 p.m. :: Lunch Break

1:00 – 4:45 p.m.

• Utility-Specific Criteria
  • Regulatory Compact
  • Normalization Rules Applicable to Utility Accounting
  • Net Operating Loss for Tax Purposes (NOL)
  • Internal capabilities and balance sheet considerations

1. How Incentives/Drivers Influence The Utility Asset Decision
   • RPS (Define and status by state) and state incentives.
   • REC’s, carbon credits….
   • ESG Goals
   • ITC/PTC
     • How does tax equity work, grandfathering (grandfathering matters because it is a pre-NTP expense that is at-risk – regulated utilities cannot ratebase such an expense)

1. What Utilities Need To Know And How They Need To Position Vis-À-Vis TEI Structuring & Tax Treatment
   • Partnership Flip, Sale-Leaseback, Inverted Lease, Pre-Pay
   • Status of Incentives
   • How does a Build Transfer Agreement (BTA) and/or utility cash equity investment differ from a traditional tax equity financing?
   • Tax equity as acquisition financing
   • Coordination with seller

4:45 p.m. :: Course Adjourns for Day

FRIDAY, OCTOBER 29, 2021

9:00 a.m. – 12:15 p.m.

• Economics / Finance
  • PPA
    • Assuming TEI
    • 15 year tenor
    • Typical flip timing
    • Buyout clause
  • Utility Self-build
    • With and without direct pay
    • Assume amortization schedule & bond finance
  • BTA/BOT transactions
  • Utility BTA/BOT of cash equity shares @ NTP or COD
    • Implications for rate-basing
    • Risks
  • Full BOT at COD
• Operations
  • Self-perform vs 3rd party
  • FOM (Fixed O&M)
  • VOM (Variable O&M)
  • Balancing
  • Transportation (Basis or tariff)
  • Lifecycle cost considerations

• State + Federal Policy & Tax Outlook/Scenarios
  • Under discussion
    • Direct Pay (Cash Grant) and potential implications
    • What would this mean for non-tax paying entities?
  • What if normalization rules of utility accounting are relaxed to accommodate the development and ownership of solar and other renewable energy assets under certain conditions?

12:15 p.m. :: Course Adjournment