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Renewable Energy Leases on Tribal Lands. by David Nahai, Partner and Co-Chair Real Estate, Energy, Water, and Environmental Practice David.Nahai@lewisbrisbois.com. Two measures substantially alter a status quo that has been in effect for 50 years:
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Renewable Energy Leases on Tribal Lands by David Nahai, Partner and Co-Chair Real Estate, Energy, Water, and Environmental Practice David.Nahai@lewisbrisbois.com
Two measures substantially alter a status quo that has been in effect for 50 years: • The HEARTH Act and its implementing National Policy Memorandum; and • Revisions to 25 CFR 162, “Leases and Permits” 2
The HEARTH Act and its resultant National Policy Memorandum (“NPM”) referred to above, Empower Tribes to create self-governing leasing regulations, subject only to initial approval by BIA. The NPM furnishes guidance as to the components of the leasing protocols. However, Tribes will have to develop not only the framework and conditions for leases, but also procedures and rules for dealing with defaults and the production of particular lease forms adapted to various uses, such as solar and wind. 4
The Regulations actually revise 25 CFR 162, “Leases and Permits” and now impose a 60 day time limit on BIA to disapprove of any solar and wind leases from the time an application is deemed complete. The regulations provide guidelines as to the requisite documents and provisions necessary to secure approval. Amendments and subleases can be deemed automatically approved if not affirmatively disapproved by BIA within the given time. It should be noted that the regulations envisage a lesser role for BIA in policing and enforcing leases. This means that even with leases approved by BIA, tribes must assume a greater monitoring and enforcement role and must establish or enlarge their legal infrastructures to perform these tasks. 6
Ten Issues a Tribe and a Developer Should Address Before Embarking on a Renewable Energy Lease 8
1. Resource. How desirable is the resource? The tribe should have some idea of the quality of the sunlight or the strength of the wind on its land and shouldn’t rely only on the developer’s assessment. The tribe should make its own determination of the value of its asset. 9
2. Team. What are the qualifications of the development team? How many projects have they completed and how have those facilities performed? Often, the utility buying the power or the lender financing the development will want a “Single Purpose Entity” to be formed with no assets other than the project itself. If this is the case, how will the tribe recover its losses in the event the developer defaults under the loan or under the Power Purchase Agreement with the utility? 10
3. Approvals. What regulatory permits and approvals will the developer need to start and complete the venture? What are the developer’s plans for obtaining the permits and what are the chances of success? 11
4. Transmission. How will the power be transported to its intended market? Transmission hurdles can prove fatal to a project. Utilities will often shy away from a project that does not have a readily identifiable transmission pathway, or which will require substantial system upgrades, or have to traverse numerous balancing authorities. Further, addressing the transmission aspect is often a time consuming and expensive exercise. The issue of transmission is not something to be “figured out later” – the project sponsor should have a specific strategy for this vital facet of renewable energy development. 12
5. The Offtaker. Who will buy the energy? Which utility or utilities is the developer targeting? What are the needs of the potential purchasers? Are they under a legal mandate to procure renewables (e.g. California utilities have a duty to attain 33% by 2020)? How will this particular project fit within the portfolios of the intended buyers? Since the project will probably have to undergo a public, competitive bidding process, how will the product be priced and what are the sponsor’s plans to win approval? 13
6. The Financing. Where is the money coming from? How is the developer providing for its operations and how will the construction of the project be financed? Developers will often be dependent on private equity or venture capital funding to operate, and will seek project specific financing and/or tax equity investment to develop the project. It is essential that the tribe be fully aware of the sponsor’s plans regarding this crucial element. Accommodating a project lender’s requirements may also entail negotiations affecting the tribe’s sovereignty and range of remedies in the event of developer default. The tribe should foresee and be prepared for such discussions. 14
7. The Compensation. How will the tribe be paid? Compensation structures come in all shapes and sizes, ranging from straight rental payments, to royalty arrangements, to joint venture type deals. The tribe will have to balance various factors in arriving at the optimal structure, which could additionally include rights to receive power for the tribe’s use. 15
8. The Technology. In a competitive bidding process, the project proponent will necessarily want to submit the lowest possible price. However, the tribe will want to ensure that quality and durability are not sacrificed for the cheapest cost. It behooves the tribe to know what technology will be used, who will be the equipment supplier, who will be the contractor? 16
9. Employment and Training. A renewable energy lease transaction can afford fertile opportunities for employment and training of tribal members. Tribes should consider ways of fully realizing such prospects in negotiations with developers. 17
10. Outreach Plan. What is the program for communicating with the surrounding community and stakeholders to allay any concerns regarding the project and its impacts, environmental and otherwise? Even if the project is to be located in a remote area, interested parties will scrutinize its advantages and disadvantages. Prudent, seasoned developers will have a plan for engaging with stakeholders early to address and alleviate concerns. 18