Baseload, Bioenergy, Geothermal, Hydropower, Solar, Wind Power

Unlocking the Clean Energy Value of Dormant Corporate Properties — Part Two: Procurement

In Part One, we discussed the potential economic and energy benefits of building renewable energy projects on contaminated sites and their inherent exposure to increased environmental risk. Let’s take a look at corporate procurement strategies and how they could spur clean energy redevelopment.

Dormant corporate properties are low-hanging fruit for corporate procurement. The corporate owner already has the liability for the underlying contamination. Provided the owner is sufficiently creditworthy and willing to indemnify the developer and EPC contractor, the path forward for clean energy development is open.

Some companies are hesitant to allow development of impaired properties for fear of exacerbating existing conditions or potentially triggering further scrutiny or investigation. However, corporate strategies to procure clean energy can provide a compelling framework to overcome that hesitation.

Clean energy projects typically are developed either by (1) co-location of a clean energy system in proximity to an operating asset, or (2) contracting with a third-party project for the purchase of electricity through a corporate power purchase agreement (PPA). Use of impaired properties can create an advantage in either of these models. Prospective corporate buyers may be able to obtain more favorable pricing under a PPA, reduce overall project costs, and revitalize blighted properties by allowing the underlying project to be sited at one of their own impaired properties.

Co-location

Many industrial and manufacturing sites have adjacent contaminated property in the “back 40” which could be used to site a clean energy system. Co-locating a renewable energy project provides an opportunity to power existing operating assets at predictable and reduced energy costs. Companies may realize an additional revenue stream if they can sell excess energy back to the grid under state supported net-metering programs or to a third party under a virtual net-metering agreement. Within this structure, the corporate owner could either contract directly with an EPC contractor to construct the system for it or lease the surface of the contaminated land to a third-party developer who would construct, own and operate the project. The property owner would retain liability and indemnify the EPC contractor or tenant/developer for any pre-existing contamination.

Corporate PPAs

Corporate PPAs allow the buyer to procure clean energy directly from third parties regardless of whether the project is located next door, in the same regional energy market or even further afield.

The corporate sustainability officer willing to walk down the hall to their property manager may discover that the company has sizeable properties suitable for siting a renewable energy project from which they can procure power on more favorable terms than third-party sites — while also reaping the social, environmental, public relations and financial benefits of restoring a dormant property to productive use. If they have properties with adequate renewable energy potential, then they may be able to contribute the underlying property (or at least the surface rights) — either by sale or lease — to the clean energy project, thereby reducing development costs in exchange for either rent or extracting more favorable pricing in the PPA. In addition to converting the blighted property into a productive asset and generating value for the business, the company also will win points with the state and local community by converting a dormant property to a sustainable use.

Property owners and developers should be prepared to spend time analyzing the resource potential of the property, the scope of any residual contamination, the risk associated with subsurface development and the engineering feasibility. This leg work is inherent in any development project and the good news is that the often complicating factor — the environmental condition — already may be well understood.

Resources like the EPA’s RE-Powering initiative can provide helpful tools to assess the potential of particular contaminated properties for development. Even where the acreage or energy potential (e.g., wind, sunlight, hydro or geothermal resources) may be inadequate for renewable energy development, other technologies like combined heat and power or waste-to-energy systems may be well-suited. Owners may be surprised to learn of the opportunities to monetize their dormant properties. For example, solar projects can require as little as roughly five acres to be financially viable, and most U.S. regions meet the minimum resource potential of 3.5+ kilowatt hours per square meter per day necessary to generate cost-effective solar power.

Conclusion

Redevelopment of contaminated land has been slow to gain momentum under existing EPA and state programs. However, the confluence of corporate purchasing of renewables with brownfields protections can unlock major value for companies with an inventory of dormant properties. Through diligent investigation and creative approaches to risk mitigation, companies can achieve sustainability goals while realizing substantial economic and energy reliability benefits.

From left:

Hayden Baker draws upon his combined environmental, energy and corporate expertise to assist clients in mergers and acquisitions, energy and infrastructure projects, securities offerings and financing transactions. His experience spans a variety of energy technologies including wind, solar, natural gas-fired generation, district energy, landfill gas and biofuels. He has been recognized by New York Super Lawyers, The Legal 500 US and Chambers USA.

Van Hilderbrand’s practice focuses on energy finance projects, regulatory compliance, environmental, and permitting matters. Van represents a diverse set of clients across energy sectors with project development and project finance transactions.

Jim Wrathall represents investors, developers and non-governmental organizations in energy finance and acquisition transactions and policy matters. Jim served as Senior Counsel to the U.S. Senate Committee on Environment and Public Works from 2007 through 2011, handling clean energy and climate change legislation and oversight. Jim also has over two decades of experience with AmLaw 20 law firms, including 11 years as a partner at a major Washington, D.C. firm.

Jeffrey Karp advises clients in renewable energy and energy efficiency matters, including infrastructure development.  He also represents clients in litigating and resolving disputes under a variety of federal and state laws.

This article was originally published by Sullivan & Worcester and was republished with permission.