by Patricia Fleischauer, TRC Cos. Inc.
Energy infrastructure development inherently has elements of uncertainty. The challenge is to reduce the level of ambiguity and manage the residual risk to expedite project siting and permitting. Current U.S. offshore wind development faces a host of uncertainties. Changes in the U.S. environmental review process have helped, but more progress is needed if wind is to reach its full potential as a power resource.
Just as definitive regulations are imperative for onshore wind projects, offshore development needs the same certainty if it is to help meet renewable portfolio standard (RPS) requirements and long-term goals for energy independence.
Rules specifying the role of the U.S. Minerals Management Service (MMS) have helped clarify development in federal waters. Development in state waters, however, is subject to federal permitting requirements that could stall states’ efforts to advance offshore development. Some states have taken major steps to reduce regulatory ambiguity for onshore development. These and other measures should be applied in the offshore arena.
A Massachusetts study shows that three principles are effectively encouraging onshore wind development in northeastern states:
- Zoning to reduce environmental permitting uncertainties,
- Broadly sharing project benefits (beyond landowner lease agreements), and
- Innovative collaboration.
Zoning is Crucial
Zoning influences project location. Rules addressing height, setbacks, noise limits, etc., indicate a community’s appetite for wind projects. While zoning is widely accepted for land-based development, it rarely is applied in offshore areas. Because of geological and other factors, Texas and the East Coast are where current offshore development is focused. Massachusetts, Rhode Island, New York and New Jersey have been identified as the first states likely to realize offshore development.
Only Rhode Island, with its program identifying types of waters and specifying their uses, and Massachusetts, with its new ocean management plan, have anything that approaches offshore zoning. Rhode Island’s offshore area designations include conservation areas (no development) and five types of uses:
- Low intensity,
- High-intensity boating,
- Harbors, and
- Industrial waterfronts and commercial navigational channels.
Rhode Island’s review of these use designations, through development of a new Special Area Management Plan, most nearly models the onshore analogy. By most standards, the state is the leader in facilitating offshore development in state waters. The MMS has committed to work first with the state in a task force to coordinate offshore wind efforts.
The Massachusetts Ocean Management Plan, announced in January, is another positive development. The extensive initiative provides regulatory and permitting guidance for development in state waters and identifies locations for commercial- and community-scale wind projects.
Sharing Project Benefits
Onshore wind development discussions often dissolve into disputes about which landowner would benefit from a project vs. constituencies who would bear its impacts. Some successful developers widely share project benefits as part of their good-neighbor program.
For offshore projects, the MMS has addressed benefits sharing through a formula in its 2009 regulations. The formula calculates revenues from wind farm operating fees to be shared with communities where new transmission lines come ashore. The importance of broadly sharing offshore development benefits also has been recognized by the Maine Ocean Energy Task Force.
The need for definitive requirements and a clear delineation of each government agency’s jurisdiction are at the heart of onshore development. Pennsylvania addressed this challenge early by establishing a wind collaborative. While many states have collaborative efforts underway, Pennsylvania stands out for its many diverse participants, including developers and state and federal agencies.
The Pennsylvania collaborative has produced a model community wind ordinance and prepared protocols addressing avian studies. Participating developers can use these protocols knowing they have been crafted by the appropriate government agencies. In the offshore arena, regulatory collaboration is occurring, but it is bilateral, with states working individually with the MMS. The Pennsylvania model suggests a wider collaboration would help advance offshore development.
Nationally, the U.S. Offshore Wind Collaborative was formed in 2004 to promote offshore development. The group, which includes public and private sector members, has produced several useful technical papers and road maps to foster offshore development. “U.S. Offshore Wind Energy: A Path Forward” summarizes the MMS role in offshore development. It draws no distinction, however, between development in federal vs. state waters, and it is silent on the importance of the U.S. Army Corps of Engineers and the U.S. Environmental Protection Agency to offshore wind development in both locales.
Several coastal states have undertaken initiatives to identify special areas for demonstration or utility-scale projects. Some also have streamlined environmental permitting for early project developments.
The Pennsylvania wind collaborative has produced tangible results in developing protocols that carry the weight of regulation. This type of collaboration, with the active participation of major private and public entities, is crucial to unlocking offshore wind development.
Permitting Changes Needed
The MMS has published rules that, while not fully tested, present a road map for offshore development in federal waters. It is clear, however, from efforts to promote development in state waters that federal requirements remain an important hurdle. For example, the Army Corps’ traditional permitting process lacks a special permit program for demonstration projects such as that used by the Federal Energy Regulation Commission (FERC) for ocean energy projects.
As a result, the permitting process likely will be lengthier than what state programs anticipate. More important, states’ efforts to spur offshore development through expedited permitting will be fruitless unless federal agency processes are similarly focused. This may include rules such as FERC’s requirements that projects must be of limited size, removable and easily shut down. The goal of FERC pilot project licensing is to allow for rapid installation, environmental testing and operation to demonstrate technologies and analyze environmental issues. The knowledge gained would help enormously in boosting full-scale offshore development.
A traditional permitting approach is not adequately fostering offshore wind development. If the nation is serious about harnessing wind energy to help meet RPS and energy independence goals, a solution to the permitting conundrum is imperative to expedite sorely needed demonstration projects in state waters.
Patricia Fleischauer is vice president of TRC Cos. Inc., a national environmental engineering and consulting firm based in Lowell, Mass. Reach her at email@example.com.
Wind Energy Projects—Significant Legal, Due Diligence Issues for Developers
by Brett Slobin, Slobin & Slobin P.C.
The U.S. continues to add thousands of megawatts of wind power capacity each year, helping make it a world leader in wind-generated electricity. Project developers continue to escalate their involvement in the wind power industry, and new wind project developers continue to emerge.
Wind project developers for energy production typically enter into agreements with landowners before project construction. Those agreements may take the form of a lease, easement, option or other type of contract. Regardless of the agreement form, developers should be aware of significant legal and due diligence issues.
One of the first, most obvious issues is to determine whether landowners have the legal right to execute an agreement affecting that land. Parties with land rights other than those in physical possession of the land could exist. Just as if a developer were to purchase the land, a developer must conduct the proper amount of due diligence to determine the actual owner of the land so the developer can negotiate with the correct person or people. An agreement between a developer and landowner generally contains a due diligence study period for the developer to undertake a title investigation, to explore the feasibility of placing wind improvements on the property, to conduct wind and soil studies, to perform governmental investigations, to conduct analyses of pre-construction issues and to manage financing concerns. During the due diligence study, a developer also should determine the existence of any landowner lenders with rights to the land. Such rights might permit a lender to terminate an agreement in foreclosure. Some developers conduct their due diligence studies in option agreements with landowners. A landowner may accept the option agreement in exchange for a fee paid to the landowner, which should allow a developer adequate time to carry out the due diligence study and related activities to ascertain whether the land is a good wind project candidate.
A developer also must give legal descriptions of wind project improvement locations (i.e., wind turbines or access roads) within an agreement. Landowners usually want exact, legal descriptions of improvement locations, but this early, developers might remain uncertain where improvements need to be for maximum wind power generation. Developers might need considerable flexibility to determine improvement locations. To remedy this, developers, in exchange for the right to determine improvement locations on the land in the developers’ reasonable discretion, may agree to not locate such improvements within a certain distance from landowners’ residences or other locations.
Developers should shield their wind projects from future upwind developments on landowners’ land that would adversely affect the wind power that might be generated by the developers’ wind projects. Developers should negotiate for a representation, warranty or covenant on behalf of landowners that states landowners will not engage in any activity that obstructs the natural availability, flow, velocity or bearing of wind over the landowners’ property. To prevent third-party competition, developers may request a provision from landowners that the landowners will not contract with third parties to use wind power on the landowners’ land.
Developers also should make certain that termination provisions within landowner agreements are reasonable. If a termination provision is too stringent, then it might be problematic for a developer to obtain wind project financing. Also, some developers might not intend on being long-term wind project developers. Therefore, developers entering into agreements with landowners should attempt to negotiate for the right to assign the agreements without the landowners’ consent.
Although not a comprehensive review of wind energy agreements, this article should at least expose significant issues for developers to consider before executing such an agreement. State laws vary. Consult local counsel before entering an agreement.
Brett Slobin is an attorney with the Houston law firm of Slobin & Slobin P.C. His practice focuses on business and commercial real estate law. http://slobinlaw.com
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