Update on Nevada’s Renewable Energy Sector
Rob McPeak, co-chair of our Energy, Environmental & Natural Resources Law Practice, provided an update on Nevada’s renewable energy sector in an exclusive interview for Law360’s Real Estate Authority newsletter.
Rob’s entire Q&A interview is provided below and available in this PDF.
As Rob explained, McDonald Carano attorneys tend to wear a few different hats. “We work with developers directly on entitlement, land use, acquisition, everything that goes into the startup process. But we also work a lot with lenders, construction lenders specifically, for solar and wind projects. And we work with the tax credit investors on that side of things too. We do work across the three major areas: solar, wind and geothermal.”
“Nev. Energy Atty Sees Activity Uptick In Renewables Projects,” Law360 Real Estate Authority, 7/27/2023
Renewable energy projects in Nevada are moving forward faster than they had earlier in the year, as developers and investors have gotten more comfortable with the current interest rate environment, one of McDonald Carano’s energy leaders told Law360 in a recent wide-ranging interview. Robert McPeak, co-chair of the law firm’s energy, environmental and natural resources group, said there had been a lull in activity in the first quarter, but companies are now moving more quickly as the results of the Federal Reserve’s rate hikes over the last 15 months have sunk in. Large projects in particular are moving forward now with speed, McPeak said.
Tell me about what you’re seeing with regard to renewable energy investment in Nevada.
It’s definitely on the uptick. We saw projects tend to slow down a little bit at the end of the year and through the first quarter, but now, new projects are coming online. Other projects that were a little slow to approach completion are now trying to get completed as soon as they can. As to why that is, I can just speculate that it may be due to the interest rate uncertainty earlier in the year and last year.
Let’s talk more about interest rates. We’ve seen over the last 15 months now a series of hikes from the Fed. How has that affected the renewable energy space?
Just as with general real estate and other financial-related industries, everyone was just a little more cautious, probably, than they had been during the period where money was incredibly cheap. But now, I think people have kind of made their adjustments and adjusted their expectations and their other financial models. I think you’re going to see people get more comfortable with what’s going on, and we’ll start building again.
How has this affected the financing side of projects? Can you talk about bank lenders and also nonbank lenders, and what’s out there for financing for these projects?
We’re still seeing large syndicated loans with banks. That seems to be the predominant way that projects are being financed. And then with some sort of tax equity financing from either another large bank or third party. We’re really seeing different industrial and consumer companies actually stepping in and serving as tax credit investors on some larger projects.
Can you talk more about how the tax credits work in Nevada?
There are some state-specific ones with respect to maintenance that are available for materials and other supplies. So that’s tied into your job creation initiatives. But there are still big incentives at the federal level, like investment tax credits for renewable battery storage projects.
Can you talk about the scope of the legal work that you do on these projects?
It’s actually pretty broad. Attorneys tend to wear a few different hats. We’re not as uniquely specialized in some larger markets. We work with developers directly on entitlement, land use, acquisition, everything that goes into the startup process. But we also work a lot with lenders, construction lenders specifically, for solar and wind projects. And we work with the tax credit investors on that side of things too. We do work across the three major areas: solar, wind and geothermal. Right now we have significant projects going on.
Which of those three is the most prominent in Nevada right now?
Right now, still solar. Recently, there was another release of some large plots of land by the Bureau of Land Management, and those were snapped up pretty quickly. And those were for a really high-dollar amount compared to prior projects, or prior sites, I should say. They’re in areas that have been determined by BLM to be very, very suitable for solar energy projects.
Are these projects part of a push by the state of Nevada to have more green energy?
To a certain extent, that’s definitely true. NV Energy, which is the large utility provider in Nevada, was actually one of the waiting bidders at that recent BLM auction that I was talking about. I don’t think that, historically, they’ve actually built solar farms or facilities. They usually just purchase the power.
Walk me through what’s going on with geothermal in Nevada.
In the northern part of the state, around the Reno area, there have been several projects existing for many years. And then also toward the northeastern part of the state. In Central Park, there are a number of active projects too and a few more that are coming online. A very, very big one had its completion of construction just a few months ago, and that’s going to be up and running and producing geothermal resources.
I’m curious about the current investor appetite for these projects with uncertainty about the economy, the Fed, interest rates, etc. What are you seeing in terms of the current pipeline?
The smaller projects, those are the ones that are probably going slower than some of the bigger ones. The bigger ones are well financed, typically. They have good backers and sponsors behind them. On the smaller projects, the sponsors might not have enough capital just to keep moving. So those, at least anecdotally, I have noticed, move a little bit slower. But they’re definitely not stopping or pulling shovels out of the ground.
Do you also do work on acquisitions and dispositions of these properties?
Yes. We’ve seen a little bit of activity and project trading. Typically, the projects seemed to change hands mostly at phase one, once they’re entitled and ready to build. So that initial developer will put the project to another party that has good experience in completion.
What’s the environment like for trading of these properties? Is there a lot of demand right now?
I haven’t seen it. I can only think of one existing project I’ve seen trade hands in the last 12 months. And then as far as grown-up projects that trade hands post-entitlement phase, I’ve seen a little bit more of that, but not as much as probably two to three years ago.
Speaking of two or three years ago, walk me through the beginning of the pandemic and how that impacted this sector.
It luckily wasn’t impacted too much. We didn’t face a major slowdown. It was just kind of a general slowdown. Later, it was more of a supply chain issue, just getting parts, materials, etc., that were needed for construction. There definitely was a slowdown there. And then throw in different international tariffs, getting components from overseas, and just general shipping delays. One thing we’re really seeing now is a huge demand for sourcing lithium within Nevada.
What are the things you’re watching for in the economy or in the renewable space specifically over the coming months? I guess the price of oil is a really important thing to watch.
Obviously, we continue to watch oil. People generally want to see less pollution and more environmentally friendly energy, but it needs to make sense economically. So if coal, oil, gas are cheap or their prices remain relatively low, I think that’s always going to temper the transition, outside of any government mandates or incentives to move the needle.
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