POWER December 2021 - 16

LEGAL & REGULATORY
Energy Transition-
Opportunities for Power
and Utility Companies
Greg Matlock
"
Energy transition, " " energy evolution, " " energy reimagined, "
and a host of similar terms have dominated the
energy market headlines this year. While these terms
can have varied meanings, they generally focus on traditional
energy and power companies looking to operate in
cleaner, more efficient ways (such as creating a more reliable,
cleaner, and efficient network, or engaging in carbon
capture use and sequestration [CCUS] or other emissionreducing
activities) or new investment in alternative sources
of energy (such as wind, solar, geothermal, hydrogen,
renewable natural gas, and biofuels).
Further, a litany of energy source (and fuel-mix) projections
continue to be released on the future-state energy mix, with
most predicting incremental growth from renewable and alternative
sources. However, traditional energy (including traditionally
generated electricity) becoming a smaller piece of
the overall energy mix does not mean that these sources decrease
in scope. As demand is expected to continue to rise,
an outright abandonment of traditionally generated power is
highly unlikely; rather, the overall market is expected to increase
substantially, just with traditional sources occupying a
smaller slice of a much larger market.
The discussion around energy transition vis-à-vis traditionally
generated power ought to be an " and " as opposed to an
" or. " In fact, utilities and other traditional power generation
companies can capitalize on the developing market. Those
with (or those that can quickly develop) well-contemplated
decarbonization plans, improved infrastructure focus, and additional
renewable power production ought to be well-positioned
to fuel the energy transition. Also, traditional power
and utility companies are poised to take advantage of the
increased production and use of electric vehicles, as those
vehicles will need electricity (although the increase in production
may create short-term pressure on traditional power and
utility companies).
Continued expansion into and integration with alternative
energy sources is expected. As wind, solar, water, and biorelated
energy sources grow incrementally, so will the demand
for and consumption of electricity. Utilities will continue
to be a significant source of energy; however, how they align
assets and operations to adjust to and capitalize on the energy
transition will be key. Capital needs will be substantial to
integrate renewable power into traditionally generated power
infrastructure-while ensuring a constant, reliable supply. Additionally,
utilities will require substantial capital to increase
grid security, reliability, and capacity (and, for regulated utilities,
public utility commission approval will be key).
With their expertise, utilities are uniquely positioned to assist
with the development of energy storage technologies,
which can improve grid flexibility and performance. Further,
power generation, transportation, and storage related to hy16
drogen
and renewable natural gases are expected to gain
more interest over time. Utilities will also look to invest in
their own renewable and alternative energy projects.
Significant opportunities exist related to CCUS and other
emissions-reducing activities and technologies. CCUS projects
related to power generation are largely in the early,
exploratory phase. With enormous opportunity to reduce
greenhouse gas emissions and with the current federal incentives
assisting in achieving economic viability, CCUS presents
a path forward for current and future power and utility companies
to operate in cleaner, more efficient ways.
To aid in the development of CCUS projects, Section 45Q
of the Internal Revenue Code of 1986, as amended (the
" Code " ), provides for a tax credit for the capture and sequestration
(or qualified use) of qualified carbon oxides. Although
the tax credit is subject to many limitations, it provides a significant
opportunity to power and utility companies to either
own, operate, and develop some or all of the CCUS value
chain, or partner with a CCUS project developer to capture
carbon oxides from the electrical or power generation facilities,
and arrange and secure offtake and qualifying usage. Tax
and economic policy incentives will fuel the energy transition
and will be attractive to power and utility companies as they
look to horizontally and vertically integrate and expand.
Current provisions in the Code encourage the production
of electricity from alternative energy sources as well as investment
in other alternative sources of energy (such as the
Section 45 production tax credit [PTC] for electricity production
from alternative sources, and the Section 48 investment
tax credit [ITC] for investments in certain energy properties).
Additionally, many other provisions, financial grants, and
other economic incentives encourage the development and
increased scale of alternative energy.
Building on the foundation of federal alternative energy
support, many legislative proposals have recently been
released that could further encourage investment in alternative
energy and boost emissions-reducing activities by
incentivizing cleaner, more efficient operations (such as providing
enhanced or new tax credits, providing certainty to
the ITC and PTC, and adding a direct pay option for certain
tax credits).
Power and utility companies will continue to offer a historically
stable supply of energy. And their appetite for, and ability
to address, grid modernization and allow grid flexibility to
accommodate electricity generated from alternative sources
will be germane to their growth. Given the likelihood of significant
increases in demand for electricity and other energy
outputs, power and utility companies are uniquely positioned
to capitalize on and play a significant role in facilitating the
energy transition. ■
-Greg Matlock is a partner in Mayer Brown's Houston office and
a member of the Tax Transactions & Consulting practice.
www.powermag.com
POWER | December 2021
http://www.powermag.com

POWER December 2021

Table of Contents for the Digital Edition of POWER December 2021

POWER December 2021 - Cover1
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POWER December 2021 - SCover1
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