Global M&A trends and risks
Powerful new forces shaping in the M&A landscape
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Global | Publication | February 2023
The transition to net-zero involves profound changes to how energy is produced and consumed, and requires the combined effort of many players, including government and policy makers, utilities, energy proponents and consumers. Although they are not always top of mind in conversations about the transition to net-zero, energy regulators are vital to the energy transition.
Energy regulators play a very important role because fundamentally, no matter the jurisdiction, the move to cleaner energy involves construction or modification of energy infrastructure. Construction of this infrastructure, including its cost consequences for consumers, requires regulatory approval, which is most often the last hurdle for a clean energy project. As a practical matter, obtaining timely approvals is crucial to a successful energy transition. Stable, appropriately funded regulators working within clear regulatory frameworks are key.
Regulatory regimes and legislative backgrounds differ across jurisdictions; however, the infrastructure involved is very similar and the policy issues and challenges faced by regulators are strikingly comparable. Regulators are well established and well funded in some areas of the world, and less so in others. Moreover, in many places the role of the energy regulator in the energy transition is somewhat unclear. Legislated mandates often do not clearly include a well-defined role for regulators, even as projects that further our energy transition arrive for approval at their doorsteps.
In recognition of the critical role of regulation and the challenges faced by energy regulators, the Regulatory Energy Transition Accelerator (RETA) was established at COP26. It was launched as part of the Green Grids Initiative by Ofgem, the International Renewable Energy Agency (IRENA), RMI, the World Bank and the International Energy Agency (IEA), which administers RETA. Approximately 30 regulators worldwide are currently RETA participants, a substantial increase since its inception a year ago.
RETA is described by the IEA as “… an initiative created to enhance the capacity of regulators to increase the speed of the clean energy transitions.” The organization works directly with energy regulators to facilitate knowledge sharing, peer-to-peer learning and thought leadership on regulatory issues. It also acts as a central resource for regulators to seek knowledge products and regulatory tools that can help mitigate challenges regulators face when trying to regulate for the sustainable, affordable and secure energy systems of the future.1
In announcing RETA, Ofgem stated that, “The Accelerator will ensure that relevant knowledge and expertise from the World Bank, the IEA and IRENA as well NGOs specialising in assisting regulators are brought into its work programme.”2
RETA aims to share best practices and accelerate knowledge in the areas of network planning, flexible renewable-based systems, regional interconnection, regulatory frameworks to deliver the energy transition and fair and inclusive energy transition.
In the year since its inception, RETA has increased its outreach and conducted workshops designed to increase access to existing knowledge and importantly, encouraged and facilitated peer-to-peer contact among regulators, so that best practices and useful experience can be shared. RETA has hosted events at the latest Clean Energy Ministerial, COP27 and the upcoming World Forum on Energy Regulation, further strengthening the link between policy and regulatory decisions. It has also facilitated contact with NGOs who can provide bespoke technical assistance to individual regulators. Above all, one of the most beneficial aspects of RETA is the opportunity for one-on-one, peer-to-peer conversations between regulators, as they find ways to identify and solve for regulatory gaps through discussion of common issues.
Going forward, RETA is working with its delivery partners to coordinate a well-received knowledge exchange between small island developing states all over the world, enabling them to discuss the particular challenges they face. Along with the IEA and the World Bank, it is working on issues specific to regulators arising from interconnecting grids, undertaking a global review of regulators’ mandates relating to energy transition, and establishing a knowledge hub to bring together worldwide knowledge in an accessible way that will also help to facilitate peer-to-peer exchange.
Whether from the point of view of a government agency, regulator, regulated entity or a project proponent, RETA is a timely and beneficial initiative. As a practical matter, obtaining timely approvals is crucial to a successful energy transition. The best new technology in the world will not provide any benefit if it isn’t built because of lack of regulatory clarity. Broad participation in RETA should help ensure that all regulators find a way to move towards integrating energy transition into their processes and thinking. This integration is crucial, as at the end of the day it will not be possible to transition to net-zero without robust and well-understood regulatory frameworks.
As the EU increases its climate ambitions, there is a risk that its emissions reduction efforts are offset by increased emissions outside the EU from industries transferring their productive activities to countries where climate change policies are less stringent (‘Carbon Leakage’).
Throughout 2022, we continued to see legal action addressing issues of climate change – so-called “climate litigation”
Around the globe, corporations face growing pressure from stakeholders – including shareholders, customers, employees and regulators – to make progress on ESG issues like sustainability.
An electric vehicle (EV) boom is underway.
Energy companies are under increasing pressure to meet growing global energy demands and simultaneously accelerate global decarbonization efforts.
Embodied carbon from the construction and refurbishment of buildings is directly responsible for around 20 percent of built environment emissions in the UK and based on current figures, is likely to form over half of built environment emissions by 2035.
The introduction of a workable regulatory framework to harness the offshore wind potential of the Greek Seas has been in the works for quite some time.
DNV’s reports on energy transition including the report focussed on Sub-Saharan Africa (SSA) highlights the different pressures faced by developing nations in reducing emissions.
In June 2022, it was reported that India’s Ministry of New and Renewable Energy (MNRE) would open bids for offshore wind energy blocks.
For the energy sector, cybersecurity has been a top-of-mind issue for some time.
On 8 December 2022, the Department of Climate Change, Energy, the Environment and Water released two guidance documents on the feasibility licence application process as well as the forms to be completed by feasibility licence applicants.
End-of-life management of renewable energy is both a looming challenge and a potential opportunity.
The stricter monitoring/disclosure and liquidity requirements faced by banks in the wake of the global financial crisis mean that projects can often no longer be funded by traditional bank debt alone. The debt capital markets have stepped up to the challenge and project bonds are on the rise, particularly amidst the green finance boom.
With the announcement of the Queensland Energy and Jobs Plan (QEJP) and Queensland SuperGrid Infrastructure Blueprint (QSIB) on 28 September 2022, there has been a buzz about the magnitude of the opportunity for developers, investors, financers and the State – and the bold ambition expressed by our heavily coal and gas dependent State.
Global supply chain and energy shortage issues are having a continued impact on limited recourse project financed mining projects. Norton Rose Fulbright counsels Felicity Brown and Matt Hacking identify the current issues being faced by mining companies in the procurement and development of their projects, what steps mining companies can take to proactively deal with these challenges and mitigate their cost overrun exposure, and how these issues are being viewed by the financial institutions lending to these projects.
Nina Varumo is a freelance portrait and documentary photographer based in Stockholm. A recent project of hers Kvinnor till sjöss (‘Women at sea’) is on ongoing photo series highlighting the working life of female seafarers in order to change the stereotypical image of what and who is a seafarer.
Companies have been publicly reporting on their financial performance for over a hundred years. However, they are increasingly having to make public non-financial disclosures relating to sustainability and environmental, social and governance (ESG) matters as a result of rules, laws and regulations issued by stock exchanges, governments and regulators worldwide.
© Norton Rose Fulbright LLP 2023