Energy Finance Report

Monetizing Vacant Land Through Mitigation Banking

Posted by Jerry Muys on 6/13/17 3:14 PM

A mitigation bank is a wetland, stream, or other habitat area that has been restored, established, enhanced, or (in certain circumstances) preserved for the purpose of providing compensation for unavoidable impacts to such natural resources. When a corporation or other entity undertakes these activities, it can generate “compensatory mitigation credits” (“CMCs”), which in recent years have significantly increased in value. Corporations and other owners of brownfield or dormant/underutilized properties are increasingly using these lands to create mitigation banks in order to generate CMCs that can be sold into the mitigation market.

Mitigation banking originated under Section 404 of the Clean Water Act and similar state statutes intended to protect wetlands and streams. Developers of projects which involve the discharge of dredged or fill materials into wetlands, streams, or other waters of the United States are required to obtain a permit from the U.S. Army Corps of Engineers (Corps) or an approved state, and must avoid and minimize negative environmental impacts to the extent feasible. When negative impacts are unavoidable, compensatory mitigation is required to offset the impacts on aquatic resources. The Corps or an approved state authority determines the necessary quantity and method of compensatory mitigation, which can be performed by the permittee, a third party under contract to the permittee, or through the purchase of CMCs from a mitigation bank.

Mitigation banking is completed off-site, meaning it is performed within the same watershed as the site of the impacts but not at the same location. Banks are regulated by Interagency Review Teams (IRTs), which are chaired by the district engineer or a designated representative and include federal, tribal, state, and/or resource agency representatives. The person or entity that establishes a mitigation bank and undertakes the restoration activities is sometimes referred to as a “mitigation banker” or “bank sponsor.”

In order to generate CMCs, the mitigation banker must first negotiate a written agreement with the IRT that provides for the long-term funding and management of the bank, as well as the design, construction, monitoring, ecological success, and long-term protection of the bank site. The agreement also identifies the number of credits available for sale and requires the use of ecological assessment techniques to certify that those credits provide the required ecological functions. See EPA Mitigation Banking Factsheet.

Federal policy favors the use of mitigation banks and CMCs to offset the negative environmental impacts of development for a number of reasons. Since mitigation banking is performed prior to development, there is less uncertainty about whether environmental impacts will be effectively offset. In addition, mitigation banking allows for the use of scientific expertise and financial resources that are not always available when mitigation is performed directly by the developer. Mitigation banking also tends to be more cost-effective and to allow for shorter permit processing times.

In 2008, the Corps and EPA adopted regulations that made mitigation banking the preferred method for both wetland restoration and compensation for wetland losses. Due to the success of mitigation banking, the concept was expanded to offset losses of endangered species and associated habitat; known as “conservation banks,” they are under the jurisdiction of the U.S. Fish and Wildlife Service and the National Marine Fisheries Service. Today, there are more than 1,200 mitigation banks in the U.S., and the market value of all CMCs exceeds $100 billion.

Jerry Muys is a partner and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Compensatory Mitigation, Mitigation Banking, Compensatory Mitigation Credits, Wetlands

Converting Environmental Liabilities to Assets: Repurposing Inactive and Abandoned Mine and Mineral Processing Sites

Posted by Jerry Muys on 6/6/17 2:36 PM

Under the Brownfields Law of 2002, EPA and other federal agencies have established a variety of programs focused on promoting and funding the repurposing of abandoned mine lands (AMLs), broadly defined as lands, waters, and watersheds in close proximity to where extraction, beneficiation, or processing of ores and minerals has occurred. Among the most promising of these initiatives is EPA’s Re-Powering America Program, pursuant to which EPA has prioritized the development of renewable energy projects on brownfield properties such as AMLs.  

The Department of Energy’s National Renewable Energy Laboratory (NREL) has significantly contributed to the success of the Re-Powering America Program. As part of its initial characterization of sites on EPA’s brownfields inventory, NREL collects data sufficient to determine the renewable energy potential of each site. To date, NREL has screened over 80,000 sites for their development potential as solar, wind, biomass, and geothermal facilities.

Hard-rock mine sites, in particular, offer a number of distinct opportunities for renewable energy development. For example, they tend to be large in size, and thus can provide sufficient capacity for the installation of a large-scale wind farm or solar array in one location and are often near existing infrastructure, including roads and utilities. In addition, hard-rock mine sites can serve as excellent locations for wind farms because they are often situated in mountainous areas that receive consistent wind flow. 

Development of inactive coal properties can be more challenging, due in part to the remediation and procedural requirements of the Surface Mining Control and Reclamation Act. However, the Act also offers a potential funding source for site redevelopment under its AML Reclamation Fund, a benefit not available with respect to the hard-rock mine sites.

In addition to the foregoing, there is an array of emerging technologies that can enable value extraction and new reclamation approaches based on engineered natural systems or “green infrastructure.” For example, energy recovery from wastewater at mine sites can be a cost-effective option due to the often remote locations of such sites. In addition, residuals from wastewater treatment can be used as a soil amendment to add organic matter and nutrients to the soil to create a fertile soil profile with a reestablished microbial community, invertebrates, and plants. This approach can be used to help meet Clean Water Act stormwater discharge requirements as well as regulatory limitations on direct discharge to surface waters.

The use of green infrastructure can create a revenue generating ecosystem that will help offset the cost of mine remediation. At mine sites with substantial vacant land, sustainable forestry can be used to help manage stormwater as well as generate carbon credits recognized to varying degrees under both the California and Regional Greenhouse Gas Initiative frameworks. Furthermore, engineered wetlands can help address acid mine drainage and other contaminated flows from abandoned mines and potentially serve as a secondary revenue source through the generation of water quality trading credits under the Clean Water Act.

Historically, a significant obstacle to the redevelopment of AML has been the lack of funding available to characterize and remediate these sites. This gap in funding can be reduced by incorporating renewable energy and/or green infrastructure into the mine remediation plan. The installation of a solar array during or following mine reclamation can provide an energy source to power the remediation effort or create a revenue stream to offset the cost of remediation. A similar approach can be utilized through the use of green infrastructure.

In its proposed 2018 budget, the Trump administration has requested $28.0 billion for the Department of Energy “to make key investments to support its missions in nuclear security, basic scientific research, energy innovation and security, and environmental cleanup." Of this total, $6.5 billion is designated specifically for environmental management to address “high-risk contamination facilities that are not in the current project inventory.” However, within this proposed budget, the EPA would receive $5.655 billion in funding, a 30% decrease from the enacted 2017 budget. This reduction in EPA funding may have adverse effects on the Re-Powering America program.

Jerry Muys is a partner and Paul Tetenbaum is a summer intern with Boston-based law firm Sullivan & Worcester LLP.

Topics: Environmental Liabilities, Renewable Energy Development, Green Infrastructure, Abandoned Mine Land, Repurposing Mine Land

Opportunities Abound in the U.S. Offshore Wind Market

Posted by Jeffrey Karp on 5/30/17 12:52 PM

Offshore wind projects have taken root in America. The country’s first operating offshore wind farm, in Block Island, Rhode Island, began contributing energy to the power grid in December 2016. Now, more than 23 offshore wind projects — collectively expected to produce 16,000 MW of power — reportedly are being planned. Thus, opportunities abound for developers, contractors, and investors in the U.S. offshore wind market.

The recent spike in offshore wind activity has been fueled largely by a surge of political interest. Some critics have decried President Trump’s apparent lack of commitment to renewable energy, but the U.S. Department of the Interior (DOI) has proved to be a willing partner in offshore wind energy development. In March 2017, DOI leased 122,000 acres off the coast of North Carolina to Avangrid, a subsidiary of Iberdrola, a Spanish company. Recently, DOI also finalized a lease with a Norwegian company, Statoil, for Long Island, New York waters. DOI evidently sees a future for U.S. offshore wind. According to a spokesperson, the Bureau of Ocean Energy Management currently is receiving annual rent payments of over $4 million for offshore wind project leases.

State activities also have primed the pump for offshore wind development. In August 2016, Massachusetts Governor Charlie Baker signed a law requiring utilities to procure 1,600 MW of electricity from offshore wind facilities by 2026. In May 2017, the Commonwealth’s Department of Energy Resources issued a request for proposals to develop up to 800 MW of offshore wind. New York Governor Andrew Cuomo announced that the state would commit to installing 2,400 MW of offshore wind by 2030, furthering his goal that renewable energy resources would supply 50% of New York’s power. To that end, in January 2017, Governor Cuomo approved Deepwater Wind’s 90 MW, 15 turbine South Fork Wind Farm project, which is expected to power 50,000 Long Island homes.

Moreover, the Maryland Public Service Commission recently awarded two developers, U.S. Wind and Skipjack Offshore Energy, contracts to build offshore wind farms totaling 368 MW. The projects are expected to create 9,700 new direct and indirect jobs.

With each completed project the supply chain grows stronger and developers become more efficient, making each successive project more cost-effective. For example, the estimated total cost of the South Fork project already has decreased 25% since Deepwater Wind’s first projections, and the energy generated is expected to cost 30% less per unit than at Block Island. Furthermore, the Department of Energy predicts that the cost of offshore wind energy will fall 43% by 2030. As this trend continues, there will be greater incentives to promote offshore wind as a clean energy resource.

Also, each successful project increases investor confidence. Deepwater Wind, developing its second offshore wind project, is owned by D.E. Shaw, a hedge fund and private equity firm managing over $40 billion in assets. Moreover, both Citigroup and HSBC have expressed interest in financing future offshore wind projects.

The U.S. offshore wind market is growing rapidly and approaching maturity. State and federal government actions appear to support a long-term horizon for offshore wind development. With every completed project, production and financing costs will continue to drop, the market will grow, and new jobs will emerge. The question now is whether the players in the renewable energy market — developers, investors, contractors, and vendors — are well-positioned to reap the rewards of this burgeoning industry.

Jeffrey Karp is a partner, Zachary Altman is an associate, and Leigh Ratino is a law clerk with Boston-based law firm Sullivan & Worcester LLP.

Topics: Energy Finance, Renewable Energy, Energy Investment, Energy Project Finance, Offshore Wind, Wind Energy, Energy Project

Blog Update: The Future of Electricity Markets? Corporations Directly Buying Renewable Power

Posted by Elias Hinckley on 10/6/16 11:08 AM

future of electricity markets

An increasing number of corporations are directly buying from (or building) clean electricity sources. For decades most Fortune 1000 companies did little more than seek to manage costs as they bought electricity and fuel. This model of simply relying on the existing marketplace to meet energy needs has, however, suddenly become outdated. More and more companies are realizing the strategic advantages of sourcing renewable power. Companies that fail to adapt will face serious competitive disadvantages as this trend accelerates.

Several factors are driving this explosion in interest in direct purchases of clean energy. Reasons range from pure cost per kWh purchased, to market and regulatory certainty, to the brand value of reducing reliance on fossil fuels, to concerns over the future of specific markets in the face of a changing climate. Consistent in every one of these motives is an underlying economic case: replacing electricity generated from burning fossil fuels with electricity from wind and solar is a good business strategy.

Read the full article in the September 2016 issue of The EDGE Advisory. Click here.

 

Topics: corporate procurement, Renewable power

EDGE Advisory: Focus on Corporate Renewables

Posted by Elias Hinckley on 10/4/16 1:24 PM

Co-author Jim Wrathall and Morgan M. Gerard

Sullivan & Worcester, LLP recently released our EDGE Advisory: Focus on Corporate Renewables.  EDGE examines energy macro-trends through articles and expert contributions focusing on market direction, policy updates, and innovations in finance.


EDGE Energy Finance ReportCorporate renewable energy purchasing is one of the hottest topics in clean energy. Corporations and other large institutions are taking control of their environmental, climate, and energy foot-prints.  This new focus on energy includes on-site generation, the traditional power purchase agreements (PPA), synthetic PPAs, contracts for differences and other energy hedging tools as well as green tariffs and negotiated green sourcing with utility providers.  Renewable energy helps corporations achieve cost savings, green commitments, and brand enhancement. Corporate buyers are also discovering that renewable power can be an important resilience tool – protecting against price volatility, regulatory uncertainty, and even physical grid disruption.  Transaction complexity, a rapidly evolving power market, regulatory uncertainty, and some instances of poor execution have however, made deals challenging for new entrants into this market.

This issue of EDGE Advisory addresses these obstacles and focuses on strategies for success in the corporate procurement of clean energy, including transaction structuring; common pitfalls to avoid; the role of environmental attributes; regulatory developments and prospects; and attracting tax equity investment. We are excited to help build solutions for the structural and process roadblocks that can impede progress and look forward to opening a range of related discussions with our readers.  Featured topics include:

  • Energy Transition Driving Corporate Participation in Renewable Energy Purchasing
  • Keys to Success for Corporate Procurement Transactions
  • Market Outlook: Corporate Clean Energy Purchasing
  • Unlocking Clean Energy Value in Dormant Corporate Properties
  • Interview Q&As with:

    • Vince Digneo, Sustainability Strategist, Adobe Systems
    • Shalini Ramanathan, VP Originations, Renewable Energy Systems
    • Jonathan Silver, Managing Partner, Tax Equity Advisors, LLC
  • State Policy Developments and Prospects
  • Financing International Projects

We hope EDGE Advisory will provide helpful intelligence and add value to participants across the market. Please do not hesitate to contact any of us on the S&W Energy team if there are topics of particular interest or further follow up that may be of assistance in your business or investment projects.

Download PDF

Topics: corporate procurement, renewable energy finance, tax equity

SunEdison: A Cautionary Tale?

Posted by Jeffrey Karp on 9/27/16 9:53 AM

Cautionary_SunEdison.jpgU.S. Bankruptcy Judge Stuart Bernstein recently approved SunEdison’s proposed sale of $144 million of solar and wind assets to NRG Energy. The sale continues SunEd’s string of dispositions this year following its April bankruptcy filing. The company’s stunning descent has followed an equally aggressive rise over the preceding three years. According to The Wall Street Journal, citing its filing, the company “…spent more than $18 billion on acquisitions and raised $24 billion in debt and equity between 2013 and 2016.” While it’s acquisition strategy was highly aggressive, many point to two deals which did not occur - the proposed acquisitions of Vivant and Latin America Power - as the final straws in a failed strategy.

 

SunEdison, one of the “old-line” companies in the solar surge of the past decade, will undoubtedly serve as a cautionary tale to many. While the company bears the name of the Jigar Shah-founded pioneer in power purchase agreements, it’s DNA runs much deeper; MEMC, the company that acquired Shah’s company in 2009, was formerly an arm of Monsanto Company with history stretching to the 1950’s. Whether fairly or not, companies will likely consider the current woes of this former powerhouse before undertaking similarly acquisitive strategies in the future.

Is Renewable Energy in Puerto Rico Back On Your Radar?

Posted by Jeffrey Karp on 9/1/16 5:30 PM

Puerto_Rico.jpg

Renewable energy deal discussions centered on projects in Puerto Rico have been difficult – particularly for project owners – over the past few years. The foundations of most of the projects on the island were power purchase agreements (PPAs) with PREPA, the utility which, as an organ of the government was capable of issuing its own bonds and faced the same credit issues as the island itself. Therefore most projects have teetered along on life support for some time as financiers were unwilling to even open discussions with such a poor credit offtaker in the mix. However, interest in the island seems to have been heating up lately.

Proposals for behind-the-meter projects with private offtakers and wheeling scenarios have been popping up. Even old PREPA deals, many of which had died slow deaths in the wake of missed debt payments, may be in the process of resurrection. Why? Some may have missed it during the dog days of summer, but the main reason is the passage of PROMESA – the Puerto Rico Oversight, Management and Economic Stability Act. Among other things, the legislation: 1) created a fiscal control board; 2) granted the control board the power to force a debt restructuring; and, 3) allowed for the minimum wage to be lowered.

The Democrats on the Obama-appointed board are: Arthur Gonzalez, a senior fellow at New York University’s School of Law; Jose Ramon Gonzalez, president and chief executive officer of the Federal Home Loan Bank of New York; and Anna Matosantos, a financial and budget consultant at the Public Policy Institute of California. The Republicans are: Carlos Garcia, founder and chief executive officer of Bay Boston, a minority owned private equity firm; Andrew Biggs, a resident scholar at the American Enterprise Institute; and David Skeel, a University of Pennsylvania law professor; and Jose Carrion III.

While many – including some lawmakers who voted on the bill – have criticized PROMESA, and while it does not directly address solar deals on the island, it has seemingly given the island – and the solar industry along with it – a lifeline. If it hasn’t already, don’t be surprised if Puerto Rico shows back up on your radar very soon . . . .

NREL Report: Wind and Solar Could Supply 30% of the Eastern Grid without Increasing Reliability Concerns

Posted by Jeffrey Karp on 9/1/16 12:39 PM

East_Coast.jpgA recent National Renewable Energy Laboratory (NREL) report noted that wind and solar, despite being intermittent sources, could supply 30% of the annual power for the Eastern grid without increasing reliability concerns. Noting that wind and photovoltaic are the fastest growing electricity sources in the U.S., the authors determined that “under the study assumptions, generation from approximately 400 GW of combined wind and PV capacity can be balanced on the transmission system at a 5-minute level.”  However, despite what many renewable energy advocates would consider to be good news, it was also clear that to do so would mean much more frequent start-ups and shut downs of fossil fuel plants – activities that can put stress – and increase maintenance costs – on these facilities. That said, the authors also left demand response and storage solutions out of their assumptions, which could increasingly counterbalance potential negatives of an increasingly green energy supply mix. The study itself can be found here.

Utility Merger Goals in a Decentralized Energy Future

Posted by Jeffrey Karp on 8/25/16 4:36 PM

Iceberg.jpgAccording to Investopedia, mergers are typically undertaken to meet one of three major goals; 1) expand a company’s reach; 2) expand into new segments; or, 3) gain market share. While some of the $43.5 billion of utility deal activity in Q2’16 is undoubtedly linked to those goals, there is also a key question underlying recent deals from around the globe: how do utilities prepare for a cleaner, decentralized future?

If you believe that the answer to that question will remain a moving target for some time, it would seem likely that recent merger activity is only just the tip of the iceberg…

Solar Roofing Captures the Imagination – But is that Enough?

Posted by Jeffrey Karp on 8/24/16 2:36 PM

"What if we can offer you a roof that looks way better than a normal roof? What if we could offer you a roof that lasts far longer than a normal roof? Now, it's a different ballgame." – Elon Musk on solar roofing.

Rooftop_Solar.jpg

While the development of building-integrated photovoltaic (BIPV), and specifically solar roofing, technologies is a natural evolutionary step in an increasingly solar-centric world—and while such technologies hold a wow factor for many—whether they are commercially viable remains an open question. While it is hard to bet against a man who is simultaneously involved in sports car, advanced battery and spaceship companies, Eric Wesoff makes a pretty compelling argument that the history of solar roofing might have a few more pitfalls than the always aspirational Mr. Musk would like to publicly admit. For an interesting take on the challenges facing solar roofing manufacturers, see Wesoff’s piece on Greentech Media.

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