Magna Charta Magazine Energierecht

magazine

jaargang 4 | February 2018 | nr.74 | SPECIAL | LIMITED EDITION

www.avdr.nl

Sophie Dingenen

Corporate PPAs

The role of corporates in the transition towards renewable energy

Interview with

Joost Sandberg

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MAGNA CHARTA MAGAZINE IS EEN UITGAVE VAN: Academie voor de Rechtspraktijk Jaargang 4 Citeerwijze: MagnaCM, 2018-74 REDACTIE: Etienne van Bladel Sharon Olivier van Genderen ONTWERP EN REALISATIE: Mark Pollema Melanie Hament Eline van Roosmalen CONTACTGEGEVENS: Academie voor de Rechtspraktijk Interne cursuslocatie Kasteel Waardenburg G.E.H. Tutein Noltheniuslaan 7 (navigatie: nr 1), 4181 AS WAARDENBURG T: 030-220 10 70 Traditionele cursussen T: 030-303 10 70 Webinar cursussen F: 030-220 53 27 E-mail: info@avdr.nl ADVERTENTIES: Etienne van Bladel ISBN: 9789462286375

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Content p.8

Curriculum vitae

Sophie Dingenen

p.9

Corporate PPAs The role of corporates in the transition towards renewable energy

by Sophie Dingenen

p.11

Curriculum vitae

Joost Sandberg

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The interview

Sophie Dingenen and Joost Sandberg

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Bird&Bird & Corporate PPAs

November 2016

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Sophie Dingenen Sophie heads the Corporate Energy Team of Bird&Bird based in The Netherlands, Amsterdam and The Hague. She is a member of the Steering Committee of Bird&Bird's global Energy & Utilities Group and co-heads Bird&Bird's global Renewables Group.

Sophie has been advising the energy sector since 1999 on all corporate, projects and contract matters. After being involved in all the major energy transactions during the liberalisation and privatisation of the Dutch energy market, her practice now mainly focuses on the structuring, development and construction of national and international energy projects. Sophie has vast experience in drafting and negotiating key project agreements which are often the basis for securing project financing. She also advises on innovative developments such as the Corporate PPA structures discussed in this magazine. Sophie advises regularly on all relevant legal aspects of complex multi-billion cross-border energy projects. She has extensive experience in providing strategic & boardroom advice to all stakeholders.

Sophie is dual qualified and admitted to practice both in the Netherlands and in the UK. She was nominated for the Euromoney's European Women in Business Law award for the individual category 'Best in Energy' in 2016 and 2017. Sophie speaks regularly on conferences and her numerous articles on energy-related subjects are published in both legal and industry magazines.

Bird&Bird opened an Amsterdam office in January 2018 which will open up a range of prospects, with particularly strong opportunities for the firm's Corporate Energy group. It will also place the firm in closer proximity its clients in the Energy & Utilities sector.

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Corporate PPAs The role of corporates in the transition towards renewable energy

The Dutch energy market is changing rapidly and the ambitious targets for the transition towards a carbon neutral society set by the government demand for significant investment.

The Dutch energy market is changing rapidly. Not a day passes by without a prominent newspaper headlining the need for a sustainable future and the path towards it. At the same time, newspapers often also mention in separate clipping another regulatory change affecting the energy market.

In a time where there is an urgent need for significant (private) investment in the sector, the regulatory instability creates a lot of insecurity and scares away potential interested investors.

Nevertheless, the Dutch government committed to highly ambitious renewable energy and climate change goals following the Kyoto protocol and the Paris agreement. At Bird&Bird, we are engaged by clients to secure and structure their investment in renewable energy projects. We advise our clients on how to contribute to these ambitions, from a legal perspective. Together with our clients, we work at the forefront of the market, enable innovative solutions and unlock new opportunities in the energy market.

In 2013, it became apparent that the Netherlands fell well behind its ambitious goals (4.4%) and performed very poorly compared to other EU countries (which until today is still the case). After an eight-month long negotiation period, facilitated by the Social and Economic Council of the Netherlands, the Dutch government and 47 stakeholders in the energy market signed the so-called Energy Agreement for Sustainable Growth ("Energieakkoord"). The stakeholders

include central, regional and local government, employers’ associations and unions, environmental organizations, civil-society organizations and financial institutions who all have committed to the development of a robust, future-proof energy and climate policy.

The Energy Agreement for Sustainable Growth contains short, medium and long term goals and aims to aims to reduce the investment uncertainty.

The following objectives were agreed: • a reduction in energy consumption averaging 1.5% annually; • a realisation of savings of final energy consumption of 100 petajoule (PJ) by 2020; and • an increase in renewable energy generation to 14% in 2020 and 16% by 2023 (in line with the European requirements).

The objectives are translated into concrete steps such as the increase of offshore wind energy to 4.450 MW and onshore wind energy to 6.000 MW. These very ambitious goals require the right balance between energy reliability, sustainability and affordability. Bird&Bird advises market parties on the regulatory changes and the possible impact on their business model and their investments.

Different market models and innovative contract structures are essential to support the transition towards a renewable future. Corporates around the world are looking at alternative solutions to strike the right balance between energy reliability,

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sustainability and affordability in terms of their energy consumption. The current trend of Corporate PPAs is only one of the game changers in energy world, energy management and storage is another.

investments in renewable energy projects.

An interview with Joost Sandberg, Renewable Energy Development Manager at AkzoNobel and Sophie Dingenen, Corporate and Projects Partner at Bird&Bird.

AkzoNobel is one of the corporates that joined the RE100 which is a global initiative uniting more than 100 influential businesses committed to 100% renewable electricity. Companies joining RE100 set a public goal to source 100% of their global electricity consumption from renewable sources by a specified year. They disclose their electricity data annually, and RE100 reports on their progress.

Sophie and Joost have a longstanding working relationship. They have been collaborating on several major projects and transactions, all in the energy space. They worked together on one of the largest and complex European energy acquisitions during the financial crisis which was completed successfully. They are now working on the structuring of Corporate PPAs for certain renewable energy projects, such as wind farms. They both feel strong about the environment and a renewable society and each contribute in their profession towards this goal.

Bird&Bird, as one of the leading energy practices across the world, advise market players on how to contribute to their sustainable goals and explore different ways of optimising and structuring their

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"AkzoNobel is one of the companies of the RE100 initiative and we strive to use 100% renewable energy by 2050"

Joost Sandberg As a Renewable Development Manager, Joost Sandberg is part of a team of dedicated energy experts within AkzoNobel.

He has over 13 year experience in the Energy industry and has set up various innovative partnerships to drive new, sustainable business. Within AkzoNobel, Joost is responsible for increasing the share of renewable energy, mostly through long term partnerships with renewable energy producers. This supports AkzoNobel’s goals to increase the share of renewable energy use of the company from today’s 40% to 100% in 2050.

Next to this, Joost is developing new business based on Green Hydrogen that is produced using renewable power.

Before joining AkzoNobel 4 years ago, Joost worked 9 years for RWE in the varying positions in strategy, M&A and business development.

He has a Master of Science in Systems Engineering, Policy Analysis and Management from the Technical University Delft.

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The interview Sophie: Joost, first of all congratulations with your newborn son, Willem. I know you for a long time now and you have always been very active in the renewable energy sphere. Are your children one of the reasons that you are so committed to a clean future?

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Joost: Thank you, Sophie. Every time we pass a wind turbine my children (the oldest is 4) react very enthusiastically, so I am convinced that my children appreciate what I do. Of course having children makes you think about the world we leave behind for them, but the main reason that I continue to be active in renewable energy is that it is an incredibly exciting market. The rapid changes, broad stakeholder spectrum and constant innovation mean a constant challenge and learning experience. I just like it.

Sophie: We are all committed to a renewable energy future, however most people are concerned that a climate neutral future comes with a price tag that is too high. Therefore it is important for all parties that the transition towards a renewable future should be reliable in terms of security of supply but also should be achieved at an affordable price. It is common knowledge that the cost of wind and solar energy is economically not viable yet. Significant investment is needed.

AkzoNobel is one of the companies that joined the RE100 initiative and aims to contribute to this ambitious goal. What are the concrete steps that are on the agenda?

Joost: AkzoNobel is indeed one of the companies of the RE100 initiative and we strive to use 100% renewable energy by 2050. AkzoNobel's business requires a huge amount of heat and electricity to produce essential raw materials such as salt, caustic and chlorine. Our global energy bill is around € 0.7 bln annually, so the business impact is significant In order to support our business, we have an energy strategy with the following drivers: • reduction of our carbon footprint; • controlling of costs of energy; • minimise price and regulatory risks; and • support the growth of our core business.

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Sourcing renewable energy can contribute to all these drivers. That is why we see sourcing renewables making business sense. Today 40% of AkzoNobel's global energy consumption is already sourced from renewable energy projects, which means that we are well underway to meet our 2020 targets. However, the hard work is ahead. We believe that we need to work more closely with partners to make further steps.

The challenge we face here is the transformation of the global industry. We have production facilities all over the world. Projects that we are engaged in should be scalable and reproducible in other countries. Projects are also selected based upon their long term impact to the environment.

To enable this AkzoNobel partners with clients, suppliers and companies that share the same renewable ambition.

Sophie: There are a couple of partnerships that gained a lot of publicity because these are pathfinder projects. One of them is certainly the corporate PPA that AkzoNobel concluded together with Google, Philips and DSM whereby the consortium, started up

by AkzoNobel, purchases renewable energy directly from wind parks, rather than through energy companies. You were the first to lead such a partnership and enter into a contract structure in the Netherlands, however we see this trend coming up all over the world. What are the specifics about the structure that makes that you are comfortable with bypassing the traditional energy companies?

Joost: The companies that joined the wind consortium are strong companies with long term sustainability strategies that seek to source renewables for the long term. This profile fits very well with wind parks that want to deliver their energy to creditworthy offtakers for the long term t0 lower the cost of financing the construction of the wind park.

The liberalized market means that we are no longer bound to the “traditional� energy companies to turn this strategic fit into a direct contract. We can now source for example, the expertise needed to forecast wind and handle power flows with specialized firms. It also means that we can establish a stronger link between generation and consumption and increase transparency in this cooperation. The PPA structure is a proven solution which we are looking to roll out further both in the Netherlands but also globally.

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Sophie: There is a difference in the Corporate PPA structures between the Netherland and the UK for example. Whereas in the Netherlands the corporate consumer can choose to set up a structure with a balancing party rather than the incumbent utilities.

This entails that the dynamics in the current market structure may change significantly.

Joost: Another example is our cooperation with Eneco and Groningen Seaports under which AkzoNobel entered into a 12-year offtake agreement to purchase steam generated from reclaimed wood in the Bio Golden Raand facility. Eneco, one of the most well-known and active renewable energy companies, is well positioned on the eight place in the top 100 of the Sustainable Brand Index in the Netherlands. It is also the operator/owner of the Bio Golden Raand facility, which is one of the largest innovative biomass power plants in Europe. The elements for this partnership are comparable as the drivers of the corporate PPA structure: long term commitment and offtake security for all parties involved. Whilst we purchase energy generated from renewable energy sources, we can at the same time focus on our core competency and be green at the same time.

Sophie: Is AkzoNobel transforming towards a professional energy party in the Dutch energy market?

Joost: AkzoNobel is of the opinion that each party should take its own responsibility in the transition towards a renewable energy future. Whilst very eager to contribute AkzoNobel is also a strong believer of the best man for the job, therefore it is continuously exploring alternative/ innovative solutions. If you look at our costs to produce our products, you will see that energy is one of the largest contributors to the cost price. Keeping the costs of our energy consumption low and manageable directly impacts our profitability.

In an ever changing market such as the energy market, solutions should be cost effective for a longer period of time. By setting up a robust renewable energy portfolio and eliminating disruptive forces such

as energy policy and political changes should secure a long term competitive energy supply for AkzoNobel.

Diversification of the sourcing portfolio contributes to the stable financial position of AkzoNobel, it provides for security of supply whilst at the same time lowering the risks of increasing fuel and CO2 prices.

As renewable energy has a variable production rate and thereby not a consistent base load, we envisage an energy management role for companies such as AkzoNobel. AkzoNobel can contribute to the stability of the network by moderating fluctuations. Through its direct link with the renewable energy producers, AkzoNobel can team up with them to optimise the renewable energy production together with the demand in the network. With the current structures, AkzoNobel could provide flexibility services to the relevant grid operators to maintain the balance in the grid.

Sophie: AkzoNobel is one of the frontrunners in terms of sustainability and also joined the RE1oo group. Can you explain how AkzoNobel sees the added value towards its customer base?

Joost: We believe that our close interaction with existing and new customers on the increase of sustainability in value chains adds long term benefits. We can upgrade our products and advertise that these are made using renewable produced raw materials. This adds value to our current customers.

Even though the majority of our customers are now only starting to explore the potential, some can already extract value from this.

Some markets require renewable sourcing. An example is the “green” hydrogen product that we produce from renewable electricity and water. At the end of this year the first zero emission busses will tank our green hydrogen in Delfzijl, offering a truly zero emission “well to wheel” solution to public transport.

Sophie: AkzoNobel has production facilities in China, India, etc. This will impact the targeted percentage of becoming renewable significantly. How is AkzoNobel envisaging achieving 100% renewable energy consumption in those areas of the world?

Joost: We have initially focused on the countries with the highest energy consumption to make big steps. This focus is now also shifting towards China

and India where our energy consumption is growing and our carbon footprint (due to the local power mix) is high. These developing energy markets bring new challenges to source renewable power.

But, the Indian and Chinese governments have very ambitious targets, so we believe that opportunities will arise for AkzoNobel.

We approach these markets by leveraging on the experiences that we have gained in the wind consortium and by working together with other companies. For instance, through cooperation within the World Business Counsel for Sustainable Development.

Sophie: AkzoNobel sources currently 40% of its energy consumption from renewable energy which is a comfortable position as the 100% target is set for 2050. Through the innovative contracting structures which AzoNobel is willing to enter into, renewable energy projects can be realized at lower costs, this results not only in AkzoNobel's renewable targets but also contributes to the governmental targets to increase the renewable energy production in the Netherlands. Is AkzoNobel working on other alternative ways to become greener?

Joost: While we are still working towards increasing our share of renewable energy, we are at the same time already working on the larger challenge coming ahead: how to transition the Dutch industry towards the strict carbon reductions required in 2050? In order to secure CO2-emission free feedstock, AkzoNobel is for example working with partners in the Waste2Chemistry project to develop a factory that turns household waste into chemical building blocks. We are currently also investigating large scale H2O electrolysers that use renewable power to produce hydrogen. This will help the integration of large volumes of renewable power, while at the same time providing the chemical and mobility sector with a carbon free feedstock or fuel.

These developments are highly innovative and still in development phase. Because of this, we are working in partnerships that span the entire value chain. Also, we are discussing with governments how to enable these new, but vital, technologies to reach commercial scale and how to develop the new value chains to support a sustainable business model.

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Corporate PPA contract structures The two leading models for Corporate PPAs are what are known as (a) the "Sleeved" Corporate PPA; and (b) the "Synthetic" Corporate PPA. The Sleeved Corporate PPA is the contract structure that has mainly been adopted in Europe, whereas the Synthetic Corporate PPA has been the preferred contract structure in the USA.

A) "Sleeved" Corporate PPA

Key features: Generator sells power directly to the corporate consumer, and the utility or the grid operator (depending on the jurisdiction) then sleeves the power through the grid and supplies it to the consumer's site. An agreement with a balancing party provides for balancing arrangements and ensures compliance with the programme responsibility requirements.

1 Generator sells power at the meter point to corporate consumer under PPA1.

2 The utility or the grid operator (depending on the jurisdiction) then "sleeves" the power through the grid and delivers the power to the corporate consumer at its site. A balancing party (or utility) will perform a balancing service under the Balancing Services Agreement.

3 Renewable benefits can be sold either directly from generator to utility or to corporate consumer.

4 Unlike in the Netherlands, a licensed utility is required to sleeve the electricity through the grid (i.e. transport the power from the generator's site to the consumer's site).

5 The generator can be entirely independent or sometimes the corporate consumer may make an investment into the generator itself to support the project (and open a new revenue stream in potential dividends).

6 The balancing services are usually provided by a separate balancing party (or in the UK a licensed supplier). A new model is emerging whereby the consumer also sets up a mini utility company and

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becomes the balancing party itself. Whilst the mini utility model may save fees, it would obviously require a great deal of investment by the corporate consumer in setting up a licensed supplier and gaining the expertise required to manage its own energy supply. As far as we are aware this model has not yet been implemented in the UK, but is being considered by a number of investors/consumers. Ireland has also used this model.

B) "Synthetic" Corporate PPA

Key features:

Generator "virtually" sells the renewable electricity that it produces to a corporate consumer for a fixed price.

1 Generator sells renewable electricity to a utility under a standard power purchase agreement at a market price.

2 Utility continues to sell power to the corporate consumer under a standard electricity supply agreement at a market price.

3 In parallel to these conventional contracts the generator and the corporate consumer enter into a contract for difference, option or other financial hedge where they agree a fixed "strike" price for the renewable electricity produced by the generator.

4 Generator and corporate consumer settle the difference between the fixed strike price and the variable market price at which the generator sells the renewable electricity it produces to the utility.

This serves as a hedge to the electricity price at which the corporate consumer purchases under its standard electricity supply contract with the utility.

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Which model to choose?

Sleeved Direct relationship with the generator – easier to show power used is procured from renewable sources, giving enhanced reputational benefits.

Ability to contract with a generator at build stage – demonstrate "additionally" by adding new green power to the grid, rather than reallocating existing renewable energy to the corporate.

Synthetic Power can be sold "virtually" across separate energy markets (e.g. across US states or across countries). This has been a strong driver for use of synthetic PPAs in the USA (the USA energy market is disaggregated).

Simpler structure – it is a contract for difference/financial hedge. In world of increasingly volatile power prices we wonder if the synthetic model will begin to emerge in Europe?

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windpark Bouwdokken in aanbouw

Bird&Bird's Energy & Utilities Group Sophie Dingenen co-heads the global Renewables Group of Bird & Bird together with Elizabeth Reid. Sophie Dingenen and Elizabeth Reid are regularly involved in the drafting and negotiating of Corporate PPAs and lead an international working group on Corporate PPAs. Both speak regularly on conferences on this topic and others.

Bird & Bird's Renewables Group's involvement in renewable energy and cleantech forms part of Bird & Bird's longstanding and broadly based work in the energy and utilities sectors. The Group has worked on wind, solar and other renewables projects for the past ten years across Europe as well as globally.

Recently ranked as the most active law firm in European renewable energy M&A and Project Finance according to research from The Lawyer's sister publications Clean Energy Pipeline.

Bird & Bird's Energy & Utilities group acted on a total of 105 renewable energy Mergers and Acquisitions (M&A) transactions and on a further 68 renewable energy project finance transactions in Europe during the first half of 2016 with a combined value of over ÂŁ1bn. In each case, this represented more than twice as many deals as the next placed law firm (see league table).

Bird & Bird has been at the forefront of legal advice in the energy industry for many years. Our lawyers have advised developers, landowners, EPC contractors, off-takers, regulators, banks and funders across a number of jurisdictions. Our sector group brings together an international team of lawyers across practice areas, including corporate, tax, commercial, banking and finance, real estate/planning, regulatory and administrative, technology and IP. All of our team understand the industry.

Our clients include many organisations that are developing or investing in projects and technological solutions to the challenges presented by the combined forces of climate change and energy security. We advise these clients on a wide range of issues such as corporate work, projects, intellectual property, regulatory, commercial contracts and dispute resolution.

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About Bird & Bird Bird & Bird is a truly international firm organised around our clients. We connect our passion and practical insight with our clients' vision, to achieve real commercial advantage.

With more than 1,100 lawyers and legal practitioners in 26 offices worldwide, we specialise in combining leading expertise across a full range of legal services, including advice on commercial, corporate, EU and competition, intellectual property, dispute resolution, employment, finance and real estate matters.

Our clients build their businesses on technology and intangible assets, and operate in regulated markets. The key to our success is our sector focus. We have developed deep industry understanding of these sectors, including aviation & aerospace, communications, electronics, energy & utilities, financial services, information technology, life sciences, media and sports.

Our deep industry knowledge gives us: • •

Expertise in the law and regulatory framework relating to each sector A practical, commercial approach to navigating the sector, supported by advisors who have worked for decades in these specific industries

Most of our work is cross-border and multi-jurisdictional. We excel at managing complex projects across multiple regions with a seamless one-firm approach.

We have offices in key business centres across Europe, the Middle East and Asia, including in Abu Dhabi, Amsterdam, Beijing, Bratislava, Brussels, Budapest, Copenhagen, DĂźsseldorf, Frankfurt, The Hague, Hamburg, Helsinki, Hong Kong, London, Lyon, Madrid, Milan, Munich, Paris, Prague, Rome, Scanderborg, Shanghai, Singapore, Stockholm and Warsaw. We are now the only truly international firm with a presence in Denmark, Finland and Sweden, ideally positioning us to support companies looking to invest in the Nordic region. We also have dedicated groups focusing on India, Russia and Japan and close ties with firms in other key jurisdictions in Europe, the Middle East, Asia, Australia and the United States. We offer local expertise within an international context.

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AVDR THE GAME CHANGER

ACADEMIE VOOR DE RECHTSPRAKTIJK

w w w. a v d r. n l

Sophie Dingenen

Elizabeth Reid

Partner, The Netherlands

Partner, UK

Tel: +31 (0)70 353 88 12

Tel: +44 (0)207 905 6226

sophie.dignenen@twobirds.com

elizabeth.reid@twobirds.com

Ken Cheung

Hermenegildo Altozano

Partner, Singapore & SE Asia

Partner, Spain & Cuba

Tel: +65 642 898 93

Tel: +34 917 903 202

ken.cheung@twobirds.com

hermenegildo.altozano@twobirds.com

James Durnall Special Counsel, Australia Tel: +61 292 269 888 james.durnall@twobirds.com

windpark Bouwdokken

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Alejandro Ruiz-Gallardon Senior Associate, Spain Tel: +34 917 903 228 alejandro.ruiz.gallardon@twobirds.com

Kristina Forsbacka

Alberto Salvade

Senior European Counsel, Sweden

Partner, Italy

Tel: +46 850 632 000

Tel: +39 023 035 6026

kristina.forsbacka@twobirds.com

alberto.salvade@twobirds.com

Jenny Rontu

Jenni Sainthouse

Associate, Finland

Associate, UK

Tel: +35 896 226 6724

Tel: +44 207 415 6799

jenny.rontu@twobirds.com

jenni.sainthouse@twobirds.com

Philip Graff Partner, Denmark Tel: +45 391 416 10 philip.graff@twobirds.com

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