THE SITUATION:
For years, with increasing efficiency, solar panels have allowed us to harness sunlight as a source of renewable energy. Although the panels need light to produce energy, solar developers can use rechargeable batteries to store excess power for use at night or at other times when solar irradiance is low. In the US, to date, they have relied almost exclusively on lithium-ion batteries.
Pine Gate Renewables (PGR), a utility-scale renewable energy company, was among the first to explore lithium-ion alternatives in the US. While planning a hybrid solar project in Eastover, South Carolina, PGR selected a zinc battery—a reliable alternative used overseas—to handle its solar storage needs.
This exciting innovation in the US attracted a new corporate investor, Google, which re-entered the tax equity market to invest in the Eastover project (alongside construction debt financing from two leading institutional banks). We believe this to be the first tax equity investment and debt financing of a zinc battery in the US.
THE CHALLENGE:
Zinc batteries differ significantly from lithium ion. Because the use of zinc battery technology in conjunction with solar energy generation had been limited in the US, the legal, commercial and technological implications of its use were not broadly understood by the market at the time.
PGR turned to a knowledgeable and experienced cross-practice McDermott team—led by Carl Fleming, Jim Salerno, Seth Doughty and Elle Hayes—to represent it in the tax equity investment, debt financing, and long-term zinc battery warranty and services agreement negotiation for the Eastover project.
The project would call upon McDermott’s industry-leading storage development and offtake work shaping the forms and standards used across the US storage market. It would also break new ground in facilitating the use of zinc solar storage in the US.
To secure financing, the McDermott team first needed to align the requirements of the power purchase agreement (PPA) with the capabilities that a zinc battery can provide. The team provided PGR with analysis, insights and counsel throughout the process of discussing zinc battery technology with the utility buying the output of the Eastover project. This included crafting bespoke PPA provisions to better align the zinc battery with the project and investment. PGR was able to use these insights in discussions with the utility and in negotiating the warranty and services agreement with the original equipment manufacturer.
As the McDermott team helped PGR bring a novel technology to commercial use in the United States through the Eastover project, along with financing it, they were simultaneously handling aspects of two other solar projects for PGR. Because an affiliate of Google would be the tax equity investor for all three projects, PGR sought to streamline the process by negotiating one set of documents for all three transactions. That involved orchestrating three separate closings, along with fundings with one tax equity provider but three different lenders.
In addition to remaining in lockstep with team members across practices and offices, McDermott communicated with PGR every day, providing guidance and managing the moving pieces of the project through the shifting policy and trade landscape the solar energy industry faced in the first half of 2022. McDermott’s renewable energy trade team provided extensive analysis and guidance on the Auxin investigation and its level of risk on the projects, helping to close the financings much faster once all parties were in alignment.
OUR OBJECTIVE:
To help PGR bring additional clean energy to South Carolina and other parts of the US, the McDermott team worked to draft, negotiate and execute the documents that would allow PGR to pay for the Eastover hybrid solar and storage project and two other solar projects.
This included bringing the Eastover PPA and long-term battery warranty and services agreement into alignment with the capabilities of zinc battery technology, negotiating with Google on tax equity structure across three transactions, and securing consistent debt financing terms with three separate lenders.
THE OUTCOME:
PGR’s McDermott renewable energy development, storage, tax equity, debt and trade teams drew on considerable legal, commercial and technical knowledge of both zinc and lithium-ion batteries and energy storage markets to help PGR achieve its business objectives and transition the use and hybridization of zinc battery technology to market in the US.
The Eastover hybrid solar project will bring clean energy to 18,000 homes in South Carolina, furthering PGR’s mission to positively impact local communities and the nation’s environmental footprint.
The McDermott team successfully represented PGR in the negotiation of a long-term warranty and services agreement with respect to the zinc battery component of the Eastover project. McDermott also represented PGR in the $173 million total tax equity commitment and investment by Google’s renewable energy investing subsidiary into all three projects—including a $75 million tax equity commitment and investment into the Eastover project, which to our knowledge was the first tax equity investment and debt financing of a utility-scale zinc battery energy system.
On the debt side, to serve PGR’s goal of streamlining all three projects, the team used creativity and persistence to negotiate consistent terms with three separate lenders while maintaining a high level of efficiency. They secured a total of $179 million in financing.
DIG DEEPER:
PGR worked closely with its McDermott team to drive clean energy industry innovation. With significant experience in developer-side energy matters, McDermott was well equipped to help PGR adapt and build the Eastover project, harnessing zinc battery technology in a way that facilitated its financing.
At the same time, the McDermott team drew on its deep experience in renewable debt finance to effectively and efficiently close multiple financings in a short period of time.
The work required high-powered coordination between multiple McDermott teams, pulling together elements of the top-ranked energy group ranging from development, trade and Federal Energy Regulatory Commission (FERC) practices to tax, tax equity and debt financing.
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