Ed Feo of Milbank, Tweed, Headley & McCloy Advises Energy Firms Investmenting in Renewables

Ed Feo


As partner with Milbank, Tweed, Headley & McCloy and chair of the firm’s Energy and Projects group, Ed Feo helped negotiate one of the largest public-private partnerships in U.S. history: the $1.8 billion Chicago Skyway. VerdeXchange News was pleased to discuss Mr. Feo’s current practice, representing global developers of large-scale renewable energy projects, such as the $123 million Three Winds Holdings wind project in Wyoming and California, and the $108.5 million financing of the Sweetwater II wind project in Texas.


 The renewable energy market is thriving, both globally and in the United States. As a professional in the field, what’s fueling entrepreneurial investment and business development in green tech research?

We have a confluence of several circumstances that have made renewable energy attractive: 1) Increases in cost of and greater concern about the security of traditional fuels, such as oil and natural gas; 2) The increased awareness of environmental impacts of generation of electricity through the use of fossil fuels; and 3) The advance of renewable energy technologies such that they are cost-competitive. Those circumstances start to make renewable energy look very attractive as the future of electricity production.

What renewable energy markets are most promising? What will be market opportunities in the near future?

It really depends on the technology. If you look at the wind market in the United States, it’s growing at a 20-plus percent annual rate. But I think the key development in the last 12 months or so is a very significant amount of consolidation. As large European utilities and energy companies like BP, Shell, Iberdrola, and EdP have come into the market, they are turning this from a relatively small- and middle-market company business into a large company business. That tells us that this is a mature business with a lot of capital available to it, and it will have a very significant build-out. The debate is not over tens of thousands megawatt business—it’s whether it’s a 100,000 megawatt of business.  Solar is behind, but it still has a lot of support from venture capital and other investors who are really driving the technology forward. Other technologies are further down the development curve. Energy policy has emphasized renewable portfolio standards and tax incentives that create, in the first case, a customer base, and in the second case, an additional financial incentive to make the returns look attractive. Then you’ve got an overarching concern for energy’s environmental concerns, which moves business forward dramatically.

What public policies are driving investment in green tech and energy alternatives? And what public policies are standing in the way of the full of realization of the renewables potential for reducing dependence on fossil fuels?

The best policy for renewable energy has been the renewable portfolio standard (RPS) adopted by, at this point, 24 states, which is creating a customer base for renewable energy projects. The RPS program mandates utilities to buy from renewable sources as they continue to meet growing demand. Although there’s a debate raging over whether there should be a federal program or not, the states that have adopted RPS programs cover a very large percentage of the population. RPS programs in the Northeast, the Midwest, the West, and Texas already cover about 52 percent of the population. A federal RPS program, curiously enough, could actually adversely affect, if it’s done incorrectly, the programs that are already in place, because the federal mandate may not be as aggressive as what the states are pursuing. But a federal program would, if nothing else, make the Southeast, for the first time, subject to an RPS mandate.

The other policies that have been a bit of a double-edged sword are the tax policies. That would principally be the federal Investment Tax Credit and Production Tax Credit. They’re basically tax incentives or subsidies from the federal government through tax credits given to particular investors, which then assist in driving down the cost of power produced by these particular facilities.

The detriment has been that the policies have been applied in a fairly episodic basis, such that there have been, in the past few years, periods where the credits have expired and then been renewed. That has made investment very choppy, because the price differential on energy sales is so much affected by the availability or the lack of availability to credits. Also, when you have a tax program that essentially rolls over every year or two years, then a great deal of development and construction of these projects gets compressed into a short period of time. That, in turn, creates a somewhat artificial demand for labor and for equipment. Wind turbines are the best example. While the overall philosophy of having these policies is to drive more demand for renewable technologies, it should be done in a way that results in a longer-term lowering of costs. If done in the wrong way, it creates short-term shortages, which drive prices up. We’ve seen that with wind.

If you were moderating a global panel of E.U., Middle East, North American, and Asian leaders in energy policy and renewables, what might they learn from each other?

I think what works is a longer-term view on diversifying fuel resources—having RPS programs that facilitate decisions for diversification of a portfolio, not necessarily current short-term price alone. One of the things that we’ve learned over the last 30 years, if not longer, is that any program that results in over-investment in a particular technology or fuel source can result in exposure to commodity price increases. That is what has happened with natural gas generation.

The other thing is to recognize that, in the implementation of new technologies, there may be a need for some level of subsidy to get these industries off the ground to advance technology and production to the point where we really drive down costs. But those policies must have two features: one, they have to be longer-term so that there’s a real investment incentive to capture the benefit. Second, the incentives need to be structured in a way that they are self-adjusting to account for differences in traditional energy prices versus renewable energy prices so that the subsidy is neither too large nor too small—the former being good in the short term for developers of these projects, but bad because it turns political and public sentiment against the project; the latter being bad because developers are not making any profits, and therefore they won’t invest at all.

What countries and markets are renewable energy companies prone to pick for incorporation, investment, and production? What are the public policies that give a government a competitive advantage for attracting green tech and renewable energy investment and production?

If you look at Spain and Germany and Europe, for example, there have been very favorable programs for development of renewable energy, and if you look at the period from the ‘90s to the present, there’s been a very substantial amount of investment in solar and wind. It’s an attractive market, largely driven by policies and feed-in tariffs.  In the early ‘90s the United States was perceived as a terrible market because of the end of a tax regime that put the renewable energy industry out of business. It then started up again in the late ‘90s suffering from an unsavory reputation. In the early 2000s it suffered from the on-again, off-again aspect of the Production Tax credits, which really drove manufacturers to look elsewhere. That has evened out over the last couple of years. As a result we are seeing a steady increase in investment in production in the United States, and more and more production coming into the United States.  And then there is Asia–and China specifically–which has huge demand and opportunity—but their policies are still murky. So while there’s development going on, frankly, it’s not as much as it could be given the uncertainty with their incentive programs. The Latin America market has been discussed for a long time, but they are actually quite far behind in terms of the development of this kind of energy (outside of large hydro). Clear guidelines need to evolve so that investors know that they will, in fact, get a return on their investment.

You have worked globally as a lawyer for renewable energy clients, but you are based in Milbank’s Los Angeles office. Focusing on California’s climate change policies, how significant is AB 32 and it’s companion climate change laws and regulations for encouraging or discouraging investment in renewables?

The implementation of AB 32 is a fairly complicated process that’s going to take awhile. But we are already seeing moves being made by agricultural industries and the like to deal with investment for greater control of greenhouse gas emissions.  If you had asked me this a couple of years ago, I would have thought that for a state to implement a program with regional or national implications would be very difficult. But having seen what’s happened over the last 12 to 18 months, it’s quite remarkable that 1) the law passed, 2) regulations are being implemented, and 3) people are actually responding, planning their activities and investments in a way to take account for it. From a renewable energy perspective, it’s another way that new life is flowing into biomass and biofuels. And it’s also resulting in projects that are oriented around carbon sequestration, which, frankly, was not thought of seriously 12 months ago.

Lastly, you will participating in the GreenXchange Xpo in December—a global gathering in Los Angeles of executives and leaders from green tech business, environmental organizations, and government. What’s the value of such an event for your clients and for those buyers and sellers intent on having energy portfolios produce less emissions?

There is a real silo effect within technologies; literally, if you went to a wind meeting, you would not meet any solar people, and vice versa. There’s also a sense that there’s a lot of technological development in renewable energy. There are many companies currently developing technologies and trying to move towards commercialization. But frankly, it’s extremely disparate. So I think that the green exchange is an interesting idea—to try to cross those lines that, right now, aren’t crossed very often.