Last week, the Bureau of Land Management (BLM) published a proposed rule that could alter the landscape of future renewable energy development, particularly in the American West, home to much of the country’s prime solar and wind real estate.
The changes, in the works for over 5 years, would remake the agency’s regulations governing the acquisition of solar and wind project rights-of-way (ROW), project permitting, rental payments and fees, and financial assurance obligations. The proposed rule would also affect ROWs granted for high-voltage transmission lines and large oil and gas pipelines.
Among major changes, the proposed regulations would:
- establish competitive bidding procedures for granting solar and wind energy ROWs, both in and out of “designated leasing areas”;
- create new “variable offset” auction procedures, which appear to be modeled after offshore renewable energy auction rules;
- establish a rental fee system based on acreage, estimated real property value, and the project’s presumed “encumbrance” of the value of federal land;
- institute an installed megawatt-based “capacity fee” as a proxy for collecting royalties;
- establish provisions for the assignment of interests in a ROW, much like an oil and gas lease; and
- create new provisions for cost recovery, transmission line ROWs, bonding/financial assurance, and site reclamation.
BLM’s attempt to remake the ROW in the fashion of a mineral lease raises a fundamental question: can they do that?
Right now, BLM issues ROWs for renewable energy projects on federal land under the Federal Land Policy Management Act (FLPMA). While FLPMA requires annual rental payments of “fair market value” for a ROW across federal land, it does not provide for royalty payments on electricity generated from a project sited on that ROW. Nevertheless, in addition to charging operators rent based on the “fair market value” of the land used for solar/wind projects, BLM now proposes to charge an additional “capacity fee” based on the project’s rated capacity to produce electricity. This capacity fee could be interpreted as an impermissible proxy for royalties that would otherwise be available only in the context of a mineral lease. This is something the agency may not have the authority to do in the absence of Congressional action.
Provisions such as this expose a persistent tension in modern alternative energy policy and regulation: the well-meaning intention to encourage renewable energy development, while imposing increased costs and regulatory controls on the industry. Naturally, the government wants to recover the value of using the public’s land for purpose of developing what we all hope will be profitable renewable energy projects. But is it necessary to push legal boundaries, or to emulate to emulate oil and gas leasing to do so? Is charging rent an insufficient tool for recovering “fair market value” for a ROW across federal land?
These renewable energy ROWs are not mineral leases, and they really don’t need to be. Generating each megawatt of electricity does not diminish the value of the land like the extraction of each barrel of oil or ton of coal does. Whereas royalties are clearly appropriate under an oil and gas lease where valuable minerals (federal property) are permanently taken from the land and sold for profit, they are not appropriate under a ROW where winds land are temporarily harnessed to generate electricity. Under a ROW, the government isn’t leasing the wind; it is granting rights to occupy the surface. In other words, the wind will still be blowing long after a wind ROW terminates.
For years, renewable energy advocates have stressed the distinctions between their industries and the conventional power industries — should this distinction not be reflected in the regulatory arena as well? Agree or disagree, you have 60 days to comment.