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World Observer

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Companies that deal with conventional energy Shift to Renewable Energy

ByJerzy Nawrocki

Oct 22, 2021

How will traditional energy firms compete as the globe moves away from fossil fuels and toward renewable energy sources? As part of the Energy Transition sequence, McDermott Will & Emery Partner Jack Langlois featured Philip Tingle, who serves as the global co-head of McDermott’s Energy and Project Finance Practice Group, as well as Michael Hanson, who serves as the managing director in charge of the energy transition at the Truist Securities, to discuss and answer this question in greater detail. Their 30-minute conversation focused on the future of conventional energy firms, including critical problems such as decarbonization and the current tax credit schemes.

The following are the most important takeaways from the webinar:

1. Timetable and Decision-Making Processes A wide range of opinions exist on how soon the shift to renewable energy will take place, although changes in legislation and policy could shorten the time it takes to complete the move. Companies in the conventional energy sector are taking small steps to become acclimated to new renewable possibilities because there are numerous factors to take into account before deciding whether or not to enter the renewable energy sector: strategic fit, the materiality of the opportunity, profitability, and risk. Many conventional energy corporations that have successfully transitioned to renewable energy sources have done so by repurposing their existing assets and infrastructure.

2. Carbon Capture. Carbon capture is frequently a good fit for gas and oil corporations from a strategic standpoint. Companies, investors, and financial institutions, on the other hand, continue to struggle with the viability of carbon capture since, absent a government stimulus, carbon capture is not lucrative. The existing incentive systems do not compel a significant amount of activity because they solely compensate capture equipment owners, excluding out all of the downstream affiliates who are essential to the operation. Until this economic model is changed, banks, in particular, will have difficulty figuring out how to fund carbon capture.

3. Reconciliation Bill. Carbon capture incentives may continue to exist for some time. It has been proposed to extend Section 45Q carbon capture tax credit until the year 2032, and this provision has been included in the reconciliation bill. The bill, on the other hand, would amend the tax credit to include criteria for wage and apprenticeship standards. Companies will need to devise methods of assuring lending institutions that they have complied with these extra standards. If they are successful in their efforts, the extension term will provide more opportunities for conventional energy corporations to enter the market.

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