Tag: wind power

Nigeria’s Energy Sector: Looking Back at 2022 and Looking Ahead in 2023

We review the key events of 2022 in Nigeria’s energy sector – a year that saw significant steps in the implementation of PIA, intermittent M&A activity and the continuing effects of crude theft. We also consider what we can expect in 2023, ahead of what appears to be Nigeria’ closest presidential election yet.

2022: What happened in legal matters?

The Petroleum Industry Act (PIA) entered its second year of effectiveness and continued its slow march of implementation . The most notable step was the official “relaunch” of The Nigerian National Petroleum Corporation as NNPC Limited in July in a high profile ceremony led by President Buhari. As mandated in the PIA, NNPC Limited was incorporated as a new CAMA company which is wholly owned by the Nigerian government. Key consequences of this transition include:

  • Commercial entity: NNPC Limited is a limited liability company (rather than a state-owned and state-funded corporation) and is intended to operate as a commercial entity. It is expected to publish annual reports and audited accounts and declare dividends to its shareholders – the Nigerian government, and therefore should remain a vital contributor to state revenues.

  • Independence from government and self supporting: The new NNPC Limited is independent and should not depend on government support for its operations. It is expected to raise its own funds, which may lead to wider adoption of the incorporated joint venture model (as provided for, but is not mandatory, under PIA). Whether this will help unlock NNPC’s capability to be a functioning and cash call paying partner in its joint operations remains to be seen. The extent of actual government control and direction over NNPC Limited will also only become clear through practice. PIA retains (for now) total government ownerships of NNPC Limited and control over the selection of its management team.

  • Royalty-paying entity: NNPC Limited is, like any other oil and company operating in Nigeria, required to pay its share of all fees, rents, royalties, profit oil shares and taxes to the government in relation to any participating interests it holds in petroleum leases or licences.

NNPC Limited’s first actions as a commercial entity were notable: these included exercising pre-emption rights over a 40% stake in OML 86 and OML 88 and buying OVH Energy’s downstream assets (giving NNPC access to 380 fuel stations and eight liquefied petroleum gas plants), along with other purported pre-emptions over upstream M&A transactions. NNPC Limited has partnered with Afreximbank to raise US$5 billion to support NNPC Limited’s upstream business and energy transition plans.  NNPC Limited also made senior appointments in 2022 with Senator Margery Chuba Okadigbo as chair and Mele Kyari continuing as CEO.

Another consequential step in PIA implementation was the promulgation of the Nigeria Upstream Petroleum Host Communities Development Regulations in June, setting out the requirements for the establishment and funding of host community development trusts. The new trust structure was one of the more controversial parts of PIA, with licence holders required to pay into the trust a levy of 3% of their actual annual operating expenditure of the preceding financial year in the upstream petroleum operations affecting the host communities for which the fund was established.

What happened in politics / regulatory matters?

The continuing impact of the global pandemic, the war in Ukraine, rising energy costs and the consequences of crude theft and spills made for a challenging final year in office for President Buhari.

Progress was made on some of Nigeria’s key gas projects that form part of the “Decade of Gas” programme. Construction is under way on Nigeria LNG’s Train 7 project, which promises to increase LNG production capacity by 35%. The Assa North-Ohaji South Gas project moves closer to completion and promises to accelerate Nigeria’s transition towards cleaner fuels and improve availability of natural gas for power generation.

New projects were also lined up: Nigerian Minister of State for Petroleum Resources Timipre Sylva, alongside the Ministers of Energy of Niger and Algeria signed a memorandum of understanding to build an over 4,000km trans-Saharan gas pipeline at an estimated cost of US$13 billion. The pipeline is intended to start in Nigeria and end in Algeria and be connected to existing pipelines that run to Europe.

The government launched its energy transition plan in 2022 as it works towards Nigeria’s commitment to reach net zero by 2060 and provide access to affordable, reliable and sustainable energy to all of its citizens by 2030. Vice President H.E Yemi Osinbajo said that Nigeria would need to spend an additional US$10 billion per annum on energy projects. Nigeria’s federal minister of power, Engr. Abubakar D. Aliyu also announced new renewable energy policies: the national renewable energy and energy efficiency policy, the national renewable energy action plan, the national energy efficiency action plan and the sustainable energy for all action agenda.

Crude theft was rampant in 2022 and remains a huge critical and unresolved issue for Nigeria, resulting in the shutdown of two of Nigeria’s major pipelines in July. Its impact is significant: the petroleum regulator estimated that Nigeria suffered a US$1 billion loss in revenue in the first quarter of 2022 as a result, and the (attempted) flight of international oil companies from the worst-affected onshore acreage has continued.

What deal activity happened?

Panoro Energy received government approval for the sale of its interest in OML 113 to PetroNor at the start of the year. The Majors divestment plans continued but encountered significant delays, with some being indefinitely postponed and others becoming mired in regulatory approval roadblocks and facing the new appetite of NNPC to assert purported pre-emptory rights.

What is expected in 2023?

  • Politics: The 2023 elections loom large, with the Presidential and National Assembly elections commencing on 25 February and Governorship and State House elections following on 11 March. The Presidential election is presently too close to call and we make no predictions. The onset of electioneering will slow regulatory decision making. International investments may pause until the election outcome is decided, key appointments made and the direction of economic and energy policies are explained.

  • Legal: Industry participants will continue to grapple with the new PIA regime, while its implementation continues over the coming year. Expected key steps include:

    • The deadline for voluntary conversion of existing OPLs and OMLs into their new forms was set for February 2023. Licence holders will need to decide whether to adopt early conversion, balancing the extent of improved PIA fiscal terms against the consequences, including termination of all outstanding arbitration and court cases related to the relevant OPL / OML, removal of any stability provisions or guarantees given by NNPC, and relinquishment of no less than 60% of the acreage. If not converted by this date, then it becomes mandatory on licence expiry / renewal.

    • The deadline for segregation of upstream, midstream and downstream operations also falls in February. Any midstream and downstream activities that were being carried out as part of upstream operations require the grant of a new midstream / downstream licence.

  • Regulatory: A new licensing round covering seven deepwater blocks has been announced for 2023, marking Nigeria’s first offshore bid round in 15 years. A pre-bid conference is taking place this month with pre-qualification applications due by the end of January.

  • Transaction activity: Upstream deals may need to wait for the dust from the 2023 election to settle, but there should be a resumption of the divestment programmes of the Majors in 2023.  Outside of M&A, Nigeria is due to go to trial in London in January 2023 as it seeks to overturn an approximately US$11 billion (including interest) arbitration award won by Process and Industrial Developments Ltd in relation to a 2010 gas project agreement. The award is now worth about a third of Nigeria’s foreign reserves.

  • Projects: Following significant delays, in part due to the COVID-19 pandemic, we understand that the Dangote refinery is expected to be officially commissioned by President Buhari in January and start up mid-2023. First gas from both the Ajaokuta-Kaduna-Kano pipeline and from Seplat’s Assa North-Ohaji South Gas project is forecast for the first half of 2023.

© 2023 Bracewell LLP

DOE Releases 2014-2015 Offshore Wind Technologies Market Report

On September 29, 2015 the Department of Energy released the 2014-2015 Offshore Wind Technologies Market Report, assessing the nation’s offshore wind potential and planned projects through June 30, 2015. The report summarizes domestic and global market developments, technology trends, and economic data with the purpose of aiding U.S. offshore wind industry stakeholders. The Report builds upon previous market reports conducted by the Navigant Consortium between 2012 and 2014, which would track U.S. wind projects that had reached an “advanced stage” of development. The 2015 Market Report not only assesses the progress of offshore wind projects in various stages but it also analyzes projects in a range of countries. To learn more about where the U.S. offshore wind industry stands in comparison to other countries as well as about domestic and global ongoing projects and expected trends, read on!

New Method for Tracking Offshore Wind Projects

The National Renewable Energy Laboratory (NREL) re-developed its system for classifying and tracking the progress of projects within the development pipeline. The purpose of this new method is to increase connectivity across markets and regulatory regimes as well as to objectively assess the status of projects.

Global Offshore Wind Market on Target to Set Annual Deployment Record in 2015

The increase in offshore wind projects in the pipeline is leading to an upsurge in operational capacity spread out across the world. While 1,069 megawatts (MW) of new wind capacity was installed in 2014, it is expected that 2015 will provide approximately 3,996 MW of wind capacity, making 2015 a record year for offshore wind deployment. The total global installed capacity is now 8,990 MW. At this rate, the global cumulative capacity could exceed 47,000 MW by 2020. Projects are also beginning to spread out beyond Europe. While currently 63% of the projects are located in Europe, 23% are located in Asia, 9% in North America, and 5% spread across the rest of the world.

15,650 MW of U.S. Projects are in Various Stages of Development

There are 21 U.S. offshore wind projects in the development pipeline, which equates to 15,650 MW of potential installed capacity. 13 of these projects have achieved site control or a more advanced phase of development. While most of the offshore wind projects are located in the North Atlantic region, there seem to be feasible offshore resources in the South Atlantic, Great Lakes, Gulf of Mexico, and Pacific regions of the U.S.

Deepwater Wind Begins Installation of First U.S. Offshore Wind Project

The Block Island Wind Farm (BIWF) began offshore construction in 2015. Led by Deepwater Wind, clients of ML Strategies, BIWF is expected to be the nation’s first offshore commercial wind project, it also has the potential to lower electricity prices for the residents of Block Island, provide substantial clean energy to the mainland townships of southern Rhode Island as well as produce approximately 300 jobs during its construction phase.

Cost Trends and Learning from Europe

Offshore wind projects are capital-intensive, where utility scale projects (>200 MW) generally require investments of over $1 billion. With projects expected to be built in locations that are located in deeper water, further away from shore, and larger in size, operating costs becomes an even greater concern. The industry is focused on introducing a variety of technological innovations to drive down the cost. The DOE’s Report suggests the U.S. will likely enact a cost structure similar to that of Europe. Part of the reason Europe’s offshore wind industry is so widespread is due to its ability to subsidize projects via investors and its action on the part of policymakers. For instance, policymakers in the UK have set goals to reduce the Levelized Cost of Electricity (LCOE) and are implementing programs designed to lower costs, reduce risk to developers, and minimize the prices required to make projects financially viable as evidenced by their initiation of competitive auctions for subsidies, their classification of zones that emphasize size affordability (choosing projects closer to shore), and their sponsoring early-stage development activities to reduce uncertainty about site conditions. Recent state and federal policy developments including President Obama’s issuance of the Clean Power Plan regulation and the initiation of the BIWF project provide hope for the U.S.’ offshore wind industry.

Overall, even though the EU continues to lead projects in the wind industry, the industry is becoming more geographically dispersed with projects now underway in the U.S. and Asian markets. While the biggest challenge the U.S. offshore industry faces is the current high cost of offshore wind generation, the industry is focused on cutting such costs through leveraging European technology and experience.  It is also the hope that cost reductions of projects in the EU caused by its target to reduce the LCOE for offshore wind projects, the Cost Reduction Monitoring Framework set up by the UK government, and additional actions by policymakers, will translate to the U.S., further strengthening the wind industry in the U.S.

Article By R. Neal Martin & Sarah Litke of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.

©1994-2015 Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. All Rights Reserved.

Federal District Court sets aside 30-Year Eagle Take Permit

On August 11, 2015, a United States District Court judge halted a years-long effort by the United States Fish & Wildlife Service (“FWS”) to smooth the federal permitting path for wind energy. Shearwater et al. v. Ashe, No. 14-CV-02830-LHK (N. D. Cal.)(August 11, 2015). Specifically, the judge set aside a rule allowing for activities such as wind energy projects to kill bald eagles and golden eagles for up to 30 years.

FWS’s efforts began back in the current administration’s first year with the first ever authorization for either individual or programmatic take permits of bald or golden eagles under the Bald and Golden Eagle Protection Act (“BGEPA”) of 1940. (Decision at p. 6) The FWS explained at the time that “the rule limits permit tenure to five years or less because factors may change over a longer period of time such that a take authorized much earlier would later be incompatible with the preservation of the bald eagle or the golden eagle.” (Decision at p. 7, citing 74 Fed. Reg. at 46,856). As explained in the court’s decision, the FWS downplayed anticipated use of the new permits for wind energy projects, stating that “the wind power facility could obtain a programmatic permit only ‘[i]f [advanced conservation practices] can be developed to significantly reduce the take’ resulting from ‘the operation of turbines.’” (Decision at p. 8, citing 74 Fed. Reg. 46,842)(emphasis supplied).

Shortly after adopting its new 5-year rule, however, there was a significant increase in wind energy projects. Decision at p. 9. In response, the FWS developed its Eagle Conservation Plan Guidance, a voluntary guidance, which introduced advanced conservation practices or ACPs for the wind energy sector, including experimental ACPs (i.e., scientifically unproven). Id.

The wind energy industry, although undoubtedly pleased to have secured a programmatic take permit for the accidental or incidental killing of bald and golden eagles, commented on the 5-year permit program, complaining that a 5-year permit was unworkable in that projects were developed for a useful life of twenty to thirty years, and the shorter permit term made financing difficult. As a result of its concern that wind energy projects were not able to get permits as a result of the uncertainty of potential future regulatory changes regarding the killing of eagles, FWS proceeded with efforts to move to a 30-year permit “as soon as possible.” Decision at p. 10. The court notes that “[a]t bottom, FWS issued the Proposed 30-Year Rule ‘[b]ecause the industry has indicated that it desires a longer permit.’” Id.(emphasis supplied).

Internal debate ensued at the FWS regarding the proposed 30-year permit rule. Despite concerns and staff opinions that an EIS would be needed to support the rule, FWS Director Dan Ashe instructed his staff not to conduct further NEPA work, that an NGO lawsuit was unlikely, and to proceed. Id. at p. 13-16. The rule was finalized and effective as of January 8, 2014. A lawsuit followed five months later.

The FWS’s efforts to accommodate wind energy development and facilitate additional permitting through its 5-year and 30-year eagle take permits appear to pre-date the recent Clean Power Plan, which notably incentivizes the development of wind and other non-emitting energy sources. The effort, though, certainly is consistent with the Clean Power Plan and this administration’s encouragement of renewable energy sources.

In its August 11th ruling, the court concluded that FWS failed to comply with NEPA, set aside the 30-year rule and remanded the rule for further consideration by FWS. During the remand of the rule, the 5-year permit should still be available as an option for applicants.

Article By Allyn G. Turner of Steptoe & Johnson PLLC

© Steptoe & Johnson PLLC. All Rights Reserved.

Part Three: An Overview of the Legal Mechanisms for Challenge and Redress by Those Potentially Affected by the Early Closure of the Renewables Obligation

In the first two parts of this series, we considered how the RO operates, possible plans to close the RO in 2016, and the potential impact of those plans upon the onshore wind industry. In this final post, we outline two possible legal avenues for challenge and redress by those who may be affected by the early closure of the RO: through the national courts and under international investment treaties.

windmill vertical

The first possibility is to challenge the Government’s actions through the national courts. This route recently has been used by the solar industry, with mixed results. In 2012, the Supreme Court refused the Government’s appeal to cut solar feed-in-tariffs before the completion of a consultation on the matter. However, in November 2014, the High Court refused an application for judicial review against the Government’s decision to close the RO to ground and building mounted solar photovoltaic capacity above 5 megawatts in 2015 rather than 2017.

Affected investors could also consider commencing international arbitration proceedings under an investment treaty. If successful, an investor could obtain compensation for the loss of their investment as a result of measures introduced by the Government. However, this option would only be available to foreign investors from member States that have an investment treaty in place with the UK, and who have made a qualifying investment in the UK, as defined by the applicable treaty.

A number of European states, including Spain, are currently being sued by foreign investors under the Energy Charter Treaty as a result of changes to national solar subsidies. Marcus Trinick QC, representing Renewables UK, has warned Energy Minister Amber Rudd to “be aware of the dangers of state aid discrimination and look at what is happening in international energy arbitration across Europe. In such a position we could not afford not to fight, especially if action is taken to interfere retrospectively.”

Media reports suggest that, given the extent of industry opposition, DECC is delaying an announcement to allow for further refinement of the proposed measures and their impact, in order to reduce the scope for legal challenges. Marcus Trinick QC has emphasised the need for dialogue between the industry and the Government before action is taken, which could reduce the risk of legal challenges arising.

The message from industry representatives is clear: the early closure of the RO would be a major blow to the future of onshore wind in the UK, which could spark a legal battle with the UK Government. As Maf Smith, deputy chief executive of RenewableUK, has stated, “[t]he industry will fight against any attempts to bring in drastic and unfair changes utilising the full range of options open, including legal means if appropriate.”

Part One: An Overview of the Renewables Obligation and Plans for Its Early Closure

Part Two: How Would the Renewables Obligation’s Early Closure Affect the UK Onshore Wind Industry?

ARTICLE BY William Lowery & Catherine Karia of Covington & Burling LLP

© 2015 Covington & Burling LLP

Troubles for Massachusetts Town’s Wind Turbine

Beveridge & Diamond PC environmental and energy law firm

In the long-running dispute between the Town of Falmouth and the neighbors to the Town’s wind turbine that powers the municipal wastewater treatment facility (WWTF), score one for the neighbors. The Massachusetts Appeals Court reversed the decision of Barnstable Superior Court Justice Robert C. Rufo in Drummey v. Town of Falmouth, 87 Mass. App. Ct. 127 (2015), finding that the Town was required to obtain a special permit from the Falmouth Zoning Board of Appeals to install the wind turbine on Town land.

Claiming harm from sound pressures and noise from the turbine’s operations, the plaintiffs first sought the building commissioner’s enforcement of the Zoning Bylaw. They alleged that the town violated the Bylaw by failing to secure a special permit for the turbine’s construction and maintenance. The building commissioner denied their request. The plaintiffs appealed to the ZBA and the Superior Court, both of which affirmed the building commissioner’s ruling.

Notwithstanding that the Bylaw provides that a petitioner may apply for a special permit to construct a windmill, the Superior Court found that this provision did not “apply in the limited circumstance where the Town itself desires to construct and operate a windmill for municipal purposes in a district where all such purposes are permitted as of right.” The Court explained that the turbine was a “municipal purpose” that fell within the enumerated community service uses permitted as of right in the Bylaw, which includes: “All municipal purposes, including the administration of government, parks, playgrounds, recreation buildings, Town forests, watershed, water towers and reservoirs, beaches, fire and police stations and armories.” Although turbines were not expressly included in the list of municipal purposes, the Superior Court found the list to be illustrative and not exclusive.

On appeal, the Appeals Court first recited the rule of law that the interpretation of a town’s bylaw raises a question of law. As such, the Court “reviews the judge’s… interpretations of zoning bylaws, de novo[anew or afresh].” It remarked that, as in other districts of the Bylaw, windmills were specifically designated in the public use district as an accessory use by special permit. Therefore, it logically followed that windmills could not have been intended to fall within the list of more general municipal uses allowed as of right. While the Superior Court’s understanding of the non-exclusive nature of the list was accurate, the Appeals Court found that that characterization of the list “did not adequately consider the weight that must be given a specific by-law provision that has been drafted to take into account the public welfare.” Specifically, the Bylaw included “a comprehensive scheme” for wind turbines including controls on their placement and impact on the town. In effect, the lower court erroneously reviewed the key Bylaw provision in isolation, not in context as the law requires.

The Court vacated the judgments of the Superior Court and remanded the case to the Superior Court for entry of new judgments consistent with its opinion. The Town has filed an application for further appellate review, which is pending before the Supreme Judicial Court.

ARTICLE BY

Brian C. Levey
Beveridge & Diamond PC