Projects

General government authorisation

What government authorisations must investors or owners obtain prior to constructing or directly or indirectly transferring or acquiring a renewable energy project?

Although there are some federal statutes that can have a direct impact on the development of a renewable energy facility - for example, the Clean Water Act (CWA) and the Endangered Species Act - the primary permits applicable to the construction of such a facility are issued by state and local governments.

The primary state-level permit needed to construct a new renewable energy project is a siting permit. These are required in many, although not all, states, and have a series of different names, depending on the state. The most common name for these types of permits is Certificate of Public Convenience and Necessity (CPCN), although they also are referred to by other names (eg, in Connecticut, these permits are referred to as Certificates of Environmental Compatibility and Public Need). To obtain a siting permit, an applicant generally is required to make a showing regarding the need for the prospective generator, as well as its financial and its environmental impacts upon the state where it will be located. In states where a siting permit is required, there is variation in the types of generation to which the requirement applies. For example, in the state of California, any generator with a capacity of 50MW or higher, including any renewable generator, must obtain a certification from the California Energy Commission.

In most states, whether a CPCN is required or not, a developer of a renewable energy facility likely will be required to obtain a local building permit (in cases where no CPCN is required, the developer also may have to address local zoning issues), as well as state-issued environmental permits. Such environmental permits can include permits under section 401 of the CWA (enforcement of which is largely delegated to the states), as well as permits required under state environmental laws. In some of the states where CPCNs are required, the site permitting process serves as a ‘one-stop shop’ in which other state-level permits, particularly environmental permits, also are addressed. In other CPCN jurisdictions, the CPCN process is divorced from the other state and local permitting processes, and a developer is required to procure all such permits separately.

At the federal level, the primary permits required are those involving environmental issues and, where applicable, use of federal lands. Many renewable energy projects will implicate the CWA’s section 402 requirements, addressing pollutant discharge (especially through rainwater run-off), and section 404 requirements, addressing discharge of dredged or fill materials. If these provisions are implicated, a developer will need to obtain a permit from the Environmental Protection Agency, for section 402 issues, the US Army Corps of Engineers, for section 404 issues, or both. If a renewable energy facility is proposed to be sited on federally-owned land, it also will need a site permit from the federal agency responsible for managing that land.

Once FERC’s jurisdiction over the owner or developer of a renewable energy project is triggered - either by filing an MBR Tariff or other rate schedule at FERC, or by generating power for injection onto the interstate transmission system - any sale or transfer of the facility also (and with very limited exceptions that often are not applicable to such owners or developers) will be subject to prior review and approval by FERC. The FERC review of such facility transfers will focus primarily on whether the new owner will have market power in the market where the facility is located.

Offtake arrangements

What type of offtake arrangements are available and typically used for utility-scale renewables projects?

A financeable project typically requires a long-term (20-year) power purchase agreement (PPA) under which a creditworthy buyer, such as a utility company or, more recently, a corporate buyer, agrees to buy the electricity for a fixed price.

As an alternative to a PPA or the physical sale of power to the offtaker, in certain deregulated markets, such as Texas, a developer may enter into a long-term hedge agreement (or a synthetic PPA) with a financial institution or other creditworthy party. Such hedges or synthetic PPAs are often structured as a ‘contract for differences’, where the project owner sells electricity in the merchant market at the floating market price. Then, the project owner pays the floating price to the counterparty, and the counterparty pays the project owner a fixed price for the electricity (or one party pays the other the net settlement amount).

Procurement of offtaker agreements

How are long-term power purchase agreements procured by the offtakers in your jurisdiction? Are they the subject of feed-in tariffs, the subject of multi-project competitive tenders, or are they typically developed through the submission of unsolicited tenders?

Utility companies and state agencies generally secure long-term power purchase agreements through a competitive request for proposal process. Long-term power purchase agreements between corporationsand developers are often secured through less formal processes.

Operational authorisation

What government authorisations are required to operate a renewable energy project and sell electricity from renewable energy projects?

The operation of a renewable energy project and the sale of electricity generally are distinct activities under US law, and are governed by separate, although overlapping, legal requirements. The operation of a renewable energy project generally requires the authorisations outlined above - a CPCN or equivalent local zoning permit, applicable CWA and other environmental permits, and federal land permits (where the facility is on federal land). In circumstances where the renewable energy project is injecting power onto the interstate transmission system, the owner or developer will have to have a rate schedule on file at FERC to govern that activity. Usually, the rate schedules that such owners or developers have on file at FERC are MBR tariffs. Finally, most renewable energy projects that are 75MW and above, and that are used to produce power for sale in the continental United States (including Texas), are subject to mandatory reliability regulation administered by FERC.

The sale of electricity from a renewable energy project requires different regulatory authorisations, depending upon whether the sale is at wholesale or retail, and upon where the project is located. Wholesale sales of electricity from projects located in the continental United States outside of Texas are regulated by FERC, and require that the owner or developer have a rate schedule on file to govern those sales. As noted above, most such owners or developers file an MBR tariff, which allows the owner or developer to sell power at wholesale at rates set by the market. The filing of an MBR tariff requires that a seller demonstrate to FERC that it lacks market power in the relevant market, a showing that generally must be repeated every few years by entities that own or control more than 500MW in that market.

Retail sales of electricity, and wholesale sales of electricity in Texas, Hawaii, and Alaska, are governed by state law, and overseen generally by the public utility commissions in those states (ie, the Public Utility Commission of Texas, the Hawaii Public Utilities Commission, and the Regulatory Commission of Alaska). Regulation of wholesale sales by those state entities generally follows the FERC’s focus on market power. Regulation of retail sales is governed by state law in all jurisdictions of the United States, and is highly variable. In some states, retail sales by non-incumbent utilities are permitted, while in other states, retail sales may be made only by the incumbent utility, usually at cost-of-service rates.

As a final matter, it should be noted that renewable energy projects in the United States (including Texas) that do not exceed 80MW are entitled to certify as qualifying facilities (QFs) under the Public Utility Regulatory Policies Act of 1978 (PURPA). In certain parts of the United States, these QFs are entitled to require that load-serving electric utilities purchase their power at an ‘avoided cost’ rate - that is, the rate that the utility otherwise would have to pay for power if it did not purchase from the QF. Although PURPA is a federal statute, the determination of avoided cost rates is made, in the first instance, by state utility commissions.

Decommissioning

Are there legal requirements for the decommissioning of renewable energy projects? Must these requirements be funded by a sinking fund or through other credit enhancements during the operational phase of a renewable energy project?

Legal requirements applicable to the decommissioning of renewable energy projects in the United States are established, if at all, primarily through contractual obligation rather than regulatory mandate. For projects that are sited on federal or state-owned land, the agency granting the permit might include, as a condition, a requirement to provide for facility decommissioning through a sinking fund or credit enhancement. However, in most instances, there are no applicable regulatory requirements mandating that a project owner or developer provide financially for decommissioning costs. In these instances, any legal obligation to provide for decommissioning cost would arise in the context of projects that are developed on land that is leased from an owner that is separate from the owner or developer of the project. In this context, it is not unusual for the lessor to ask for financial commitments from the lessee to provide for decommissioning when the useful life of the project has ended. In addition, once a project has been decommissioned, a project company will often submit at FERC a cancellation of its MBR tariff.