Dormant Corporate Properties Can Yield Solar Energy

What are the advantages of siting renewable energy on brownfields that corporations own? An article by lawyers at the firm Sullivan & Worcester, “Unlocking the Clean Energy Value of Dormant Corporate Properties,” highlights the potential financial and environmental benefits of repurposing old industrial and manufacturing properties as locations for corporations to generate renewable energy.

The article was published in the firm’s September 2016 EDGE Advisory Report. This report addresses topics relating to corporate renewable-energy procurement. These include successful procurement strategies, transaction structuring, and regulatory developments and prospects.

Major companies such as Apple, Google, and Microsoft are looking to renewable energy to power their operations more and more as the landscape for renewables continues to improve. In fact, more than 80 firms have publicly committed to reaching 100 percent renewable energy generation via the RE100 partnership program.

Factors such as cost competitiveness with fossil fuels, the value to the corporate brand of moving away from fossil fuels to cleaner sources of energy, and regulatory certainty for ease of management all combine to make renewable energy an attractive investment.

According to the article, lawmakers and regulators have tried for years to catalyze the use of contaminated industrial land for clean-energy generation through programs such as the United States Environmental Protection Agency’s (EPA) RE-Powering America’s Land Initiative.

This program helps identify the renewable-energy potential of contaminated sites using various mapping tools. It provides technical and financial assistance to those seeking to site renewable-energy projects on the contaminated land.

As of July 2016, the program was responsible for a cumulative installed renewable-energy capacity of more than 1,172 MW.

Real Benefits

There are numerous benefits for corporations and developers siting renewable-energy projects on dormant properties. The article discusses the following advantages:

  • Existing infrastructure. Former industrial sites often have the advantage of being located near existing electric transmission and transportation infrastructure. This reduces the development costs associated with bringing new renewable-energy systems online. As a result, overall project costs are lower.
  • Energy load proximity. Dormant industrial and commercial properties are often located near energy load demand. This reduces the expense and delay of having to procure necessary easements and permits.
  • Fewer risks. Compared to projects on previously undeveloped land, former industrial or manufacturing locations are less likely to have environmental permitting hurdles or natural resource impairment risks. These sites are likely to already be zoned for development since they were once the location of industrial or corporate operations.
  • Preferential treatment. Several states, including Massachusetts and New Jersey, have policies in place that encourage the development of renewable-energy projects on brownfields and landfills.
  • Community support. States and municipalities often welcome productive repurposing of contaminated land. Benefits offered to these types of projects include streamlined regulatory approvals, expedited permitting, accelerated tax deductions, and tax abatements.
  • Available funding. Direct funding in the form of grants and low-interest loans may be available for these projects under the EPA Brownfields Program and similar state initiatives.
  • Cheap land. The general undesirability of brownfield land usually means it can be acquired at below-market rates.

Legitimate Concerns

In spite of the energy and financial benefits that can be derived from the development of renewables on contaminated land, these projects often present numerous environmental risks. According to Hayden Baker, partner at Sullivan & Worcester and co-author of the article, the main concern is contamination risk.

“Liability for contamination at the state and federal level is very broad,” Baker said. Basically, if one steps into the chain of title for a piece of property, whether as an owner, lessee or lender, one assumes some level of liability for contamination.

Baker said this creates a stigma around contamination, which often lowers the economic value of the property in question.

Environmental contamination is often difficult to detect and properly quantify. This creates a reasonable fear that the costs associated with managing that contamination could be too great.

Such uncertainty coupled with the broad nature of liability from environmental contamination leads many energy-project developers to hesitate to build projects on contaminated land.

The authors of the article mentioned several options potential developers can explore to reduce potential regulatory risks associated with developing clean-energy projects on impaired land.

These include the following:

  • CERCLA bona fide purchaser and tenant guidance. CERCLA, better known as the Superfund law, was passed by Congress in 1980 to fund the cleanup of sites that were contaminated by hazardous or chemical substances. CERCLA was amended in 2002 to provide landowner liability protections to bona fide prospective purchasers. This is a legal status given to individuals who can demonstrate reasonable efforts to detect contamination during property acquisition and who make reasonable attempts to prevent the spill of hazardous chemicals while they own the land.
  • State voluntary cleanup programs. Through these programs, states typically offer developers “no further action” letters or covenant not to sue once the site meets applicable criteria. These give developers a sense of certainty about their protection from liability.
  • EPA comfort letters. The EPA may issue a “comfort letter” for a specific site. These letters provide information regarding the EPA’s involvement at the site in question and clarify any associated regulatory risks of developing a project in the particular location.

Corporate Strategy

Dormant corporate properties are potentially valuable assets in any corporate energy procurement strategy. These properties are often already owned by the entity seeking to procure renewable energy. So, as unproductive assets, they represent liabilities that the company must mitigate to the best of its ability.

The article addresses several strategies that can be used by corporations to procure clean energy and mitigate risks associated with developing contaminated property. These include co-location and corporate power purchasing agreements (PPAs).

According to Baker and his co-authors, it is common for operational industrial and manufacturing sites to be located right next to dormant pieces of contaminated land.

The contaminated land offers the perfect opportunity to co-locate a renewable-energy project directly next to operational assets. This can allow a company to provide power to its operations in a consistent and reliable manner, which reduces its overall energy costs.

PPAs can also prove themselves to be a valuable asset in a corporate renewable-energy-procurement strategy. They are contracts between buyers and sellers of electricity that specify all of the terms for sale of the electricity between the parties.

Corporations in possession of suitable dormant properties may be able to use the economic value of those properties as leverage in negotiating more favorable PPAs with clean-energy providers.

These two options require a fair amount of diligence to be successful but could prove useful strategies for developing renewable-energy projects.

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