Alerts and Updates

Energy, Environment and Resources Update

Issue 11 | April 2016

ENERGY

New BLM Guidelines Establish Mitigation Fees for Solar Projects on Public Lands in Southwestern United States

By Phyllis J. Kessler

The Bureau of Land Management (BLM) expanded its roadmap for development of solar projects on government land by releasing new guidelines on March 2, 2016. The new guidelines expand the federal government’s approach to its Western Solar Plan, which commenced in 2012. 

In July 2012, the Department of the Interior, in partnership with the Department of Energy, published the Final Programmatic Environmental Impact Statement (PEIS) for solar development on federal lands in six southwestern states: Arizona, California, Colorado, Nevada, New Mexico and Utah. The PEIS established solar energy zones (SEZs), which have access to existing or planned transmission, the fewest resource conflicts and incentives for development of solar projects. Seventeen SEZs were identified.

The new guidelines establish mitigation strategies for SEZs in Arizona, Colorado and Nevada. The purpose of the guidelines is to provide certainty regarding mitigation that might be required for a solar project built on public lands. The need for compensatory mitigation is evaluated by BLM based on potential residual impacts, i.e., impacts that cannot be avoided or minimized during the construction and operation of a solar project. 

The guidelines provide factors to be evaluated in each SEZ and set forth regional goals and objectives for each region. The major focus is to provide a recommended fee to be paid by a developer that will offset unavoidable residual impacts of the solar project on habitat, cultural resources, visual resources and ecological services, as well as to offer a suite of mitigation actions and locations. In addition, long-term monitoring will be used to evaluate the effectiveness of the regional compensatory mitigation strategy. Mitigation fees will be determined at the end of the project-specific NEPA (National Environmental Policy Act) evaluation and are developed as a per acre fee. While the regulations do not provide this, we assume that there will be some room to negotiate these fees. The March 2, 2016, guidelines provided final mitigation strategies for three SEZs in Arizona and one in Nevada. The guidelines for Colorado are in draft and comments may be submitted by April 18, 2016.

Long-Term Solar Outlook Remains Strong in Spite of SunEdison, Abengoa Troubles

The recent financial difficulties for solar developers SunEdison and Abengoa have made headlines and raised questions of whether they foreshadow tough times for the industry as a whole. SunEdison, which has not been profitable in more than five years, faces, in the words of its yield co, a “substantial risk” of bankruptcy after the collapse of its merger with Vivint Solar. On March 29, Abengoa, the Spanish solar developer, filed for reorganization of its $16.5 billion of debt. While these developments are concerning, they are likely the result of the two companies expanding rapidly, including into areas beyond their core competencies, and those investments not panning out. In fact, the long-term outlook for solar remains strong, with the trade group Solar Energy Industries Association (SEIA) anticipating that by 2021, the United States will be routinely adding 20 gigawatts (GW) of solar power each year, far more than the record 7.3 GW added in 2015.

To be sure, even SEIA expects that while solar installations will grow by 119 percent in 2016, that growth is likely due to an over-build in anticipation of the potential phase-out of the investment tax credit. In 2017, there will likely be pull-back in the installation of utility-scale solar PV, with 2016 levels of installation not being achieved again until the end of the decade. While the investment tax credit has been extended until 2019 with step-downs running through 2020, other types of government support, both at the state level in the United States and internationally, have faced political pressure to be reduced or rescinded. In addition, some regulators believe that solar is a mature enough technology that substantial incentives are no longer required. The drop in oil prices also presents a two-pronged challenge to solar—dampening investors’ interest in the energy sector generally and making it more difficult for solar to compete on price. How long oil prices will remain at this level, however, is anyone’s guess. Finally, according to the U.S. Energy Information Agency, electric consumption dropped by 1.1 percent in 2015, the fifth decline in the last eight years.

Despite some potential short-term headwinds, the long-term drivers for solar’s outlook remain very good. Prices for solar PV dropped an average of 17 percent per kilowatt generated in 2015, with the biggest declines taking place in the utility-scale sector. Increased efficiency and economies of scale from contractors and developers will result in continued price drops, making solar price competitive even in an era of cheap oil. Additionally, many experts have argued the link between oil prices and solar development is, at best, a limited one. Because increasingly less electricity is generated using oil, and more and more is generated using solar, the correlation between the demand for one or the other is decreasing. Moreover, in a time of fluctuating commodity prices, solar represents price stability, with known and controllable start-up costs and only maintenance costs over the long term. Lastly, while there has been some pullback in government-backed solar incentives, new incentives and support are likely, particularly as countries seek to meet their Paris COP 21 emissions reduction targets.

NATURAL GAS

PHMSA Seeks Expansion of Natural Gas Pipeline Safety Regulations

On March 17, 2016, the Pipeline and Hazardous Materials Safety Administration (“PHMSA”) announced proposed new safety regulations concerning onshore natural gas transmission and gathering pipelines. These proposed regulations would expand and enhance the reach of PHMSA’s pipeline safety protocols. Among the proposed rule changes are: new assessment and repair criteria for gas transmission pipelines; expansion of this criteria into medium population density areas; enhanced corrosion control requirements; and verification of maximum allowable operating pressure, including verification of maximum pressures for pipelines that have not yet been verified due to grandfathering. Significantly, the proposed regulations would repeal an exemption for gas gathering line reporting requirements and add a new definition for onshore production facility/operation, as well as a revised definition of gathering lines. This rulemaking would extend regulatory requirements to certain previously unregulated lines that are eight inches or greater in diameter; however, such requirements would be limited to damage prevention, corrosion control, public education, maximum allowable operating pressure limits, line markers and emergency planning.

This effort to enhance safety regulations arises out a general concern for pipeline safety in the face of unprecedented demands on the pipeline system. These changes are also driven by the need to prevent significant gas pipeline incidents, including events such as the rupture and explosion of a natural gas transmission line in San Bruno, California, on September 9, 2010, that killed eight people. PHMSA estimates the total present value (15-year period, 7-percent discount rate) of benefits for the proposed rule to be around $3.3 billion, while costs for the same period are expected to be approximately $597 million. Other benefits from the proposed regulations include expected reductions in greenhouse gas emissions—in particular, methane—from pipelines. Leak detection protocols set forth in the proposed regulations are expected to prevent approximately 69,000 to 122,000 metric tons of methane and 14,000 to 22,000 metric tons of carbon dioxide over a 15-year period.

Comments on the proposed rulemaking, which is available on PHMSA website, are due within 60 days following publication in the Federal Register

WATER

State of California Considers Modification of Emergency Drought Regulations

By Colin L. Pearce

The California State Water Resources Control Board (“State Board”) recently asked for comments on the potential modification of the current Emergency Drought Regulations for Statewide Urban Water Conservation (“Regulations”). After Governor Brown issued an Executive Order on April 1, 2015, on actions necessary to address California’s severe and ongoing drought conditions, the State Board adopted the Regulations to implement provisions of the Governor’s Executive Order. Most significantly, the Regulations called for a mandatory statewide reduction in potable water use by 25 percent. The Regulations placed urban water purveyors into various “tiers,” based on past water use, calling for specific reductions in water use ranging from 4 percent to 36 percent per capita per day compared to 2014 water use.

The Regulations were initially set to expire in February 2016. In November 2015, Governor Brown issued an additional Executive Order calling for the extension of the Regulations if drought conditions continued through January 2016. With California still experiencing severe drought conditions, on February 2, 2016, the State Board extended the Regulations through October 2016. The State Board also slightly modified the Regulations to allow for reductions in the tiered conservation targets based on climate conditions and population growth. The State Board also indicated it would consider further adjustments to the Regulations in April, based on updated water supply conditions.

The state has indicated that increased rainfall this year, including in early March, is “encouraging,” but some regions in the state still have below average rainfall. Statewide, the drought continues to present challenges. The State Board has indicated that it might consider rescinding the Regulations prior to October 2016, based on precipitation amounts, but it also could extend the Regulations if it appears drought conditions have continued into 2016. Since drought conditions have not been completely alleviated throughout the state, it appears likely that the Regulations will continue at least until the scheduled October 2016 expiration. It also does not appear likely that the State Board will substantially modify the Regulations, given its past response to comments and requests for modification, and based on current precipitation amounts.

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