Summary of Solar Energy Research Papers Environmental Issues in Energy Law Course

The George Washington University Law School Spring 2010

Table of Contents

Endangered Species Act Issues Associated with Solar Development in the Southwest Case Study: BrightSource Energys Ivanpah Project Donohue2 The S-REIT: An Investor-based Solution to Solar Development Problems Sturtevant..5

ENDANGERED SPECIES ACT ISSUES ASSOCIATED WITH SOLAR DEVELOPMENT IN THE SOUTHWEST ~ CASE STUDY: BRIGHTSOURCE ENERGYS IVANPAH PROJECT ~
Jay Donohue, J.D. GW School of Law, LL.M., Energy & Environmental Law 2010 Principal Investigator Summary: This study examines issues arising under the Endangered Species Act (ESA) in connection with the development of utility-scale solar power facilities in the Southwest region of the United States. It includes a case study of BrightSource Energys planned Ivanpah Solar Electric Generating System (the Ivanpah Project), the issue of the threatened desert tortoise, and BrightSources proposed mitigation plan1 for the tortoise. This study also examines the Solar Programmatic Environmental Impact Statement (the Solar PEIS) which is designed to fast track the environmental permitting process for projects located within Solar Energy Zones.2 Lastly, it evaluates legislation proposed by Senator Feinstein from California entitled California Desert Protection Act of 2010 that could substantially limit solar development in the Mojave Desert, including the Ivanpah Project. Significance of Research: The research shows the significant impact that ESA issues can have on the development of utility-scale solar power facilities in the Southwest. In the case of the Ivanpah Project, the potential to generate enough electricity to power approximately 320,000 homes was halted by the finding of: twenty-five live desert tortoises, 97 tortoise carcasses and 50 other tortoise indicators including turtle tracks and turtle feces droppings. The research also evaluates the ongoing Solar PEIS and its potential to speed development of utility-scale solar power facilities in the Southwest. In particular, the research focuses on the goal of the Solar PEIS to streamline the Environmental Impact Statement (EIS) process by allowing companies that propose solar energy projects within the Solar Energy Zones to tier their EIS to the Solar PEIS, thereby complying with NEPA but lessening the cost and time associated with the EIS process. Lastly, the research reviews the legislation proposed by Senator Feinstein and outlines the chilling effect its passage would have (and has had3) on the development of utilityscale solar power facilities in the Mojave Desert, including the Ivanpah Project.
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BrightSources proposed mitigation plan is currently under review by the United Stat es Fish and Wildlife Service (USFWS) as well as the California Energy Commission (CEC) in connection with its request for the issuance of an incidental take permit which would allow for the translocation of the desert tortoise. 2 On June 29, 2009, Secretary Salazar signed a directive setting aside 676,048 acres of land divided into 24 Solar Energy Study Areas located throughout Arizona, Colorado, California, Nevada, New Mexico and Utah. 3 A solar facility slated for the Mojave Desert, proposed by Houston-based Tessera Solar, was cancelled in part because of the threat of Senator Feinsteins bill.

Discussion: After discovery of the desert tortoise in 2007 during the development of its project, BrightSource (in compliance with the National Environmental Policy Act (NEPA) and the ESA) developed and issued to the Bureau of Land Management (BLM), the USFWS, the CEC, and the California Department of Fish and Game (CDFG) a mitigation plan based on guidelines created by the USFWS. The mitigation plan proposed the translocation4 of the desert tortoise off of the Ivanpah Project site. BrightSource completed a coverage survey for the land intended as the new habitat to determine its feasibility as a habitat for the desert tortoise. Four areas, west of the Ivanpah Project and near critical habitat designated areas, were jointly identified by BrightSource and the USFWS. The survey indicated that the density of the existing desert tortoise population in those areas was low, thereby making all four sites excellent for translocation with no concerns of overburdening existing populations. Since the desert tortoise is threatened (not endangered), and the location of the Ivanpah Project is not considered a critical habitat, it is permissible under the ESA to propose translocation as an alternative in connection with the submission of an EIS under NEPA. In order to complete the translocation, BrightSource will need to obtain an incidental take permit from both the USFWS and the CEC. In addition, the biological opinion from the USFWS and the CEC will need to be formalized and completed prior to commencement of any construction for the Ivanpah Project. Even though the location of the Ivanpah Project is not in a critical habitat and the desert tortoise is classified as threatened species (as opposed to an endangered species), BrightSource agreed to reduce the size of the Ivanpah Project by 23% (reducing the capacity of the facility to 392 megawatts). The proposed modification would eliminate the land area where the project would have had the greatest impact on the desert tortoise. In taking the actions described above, BrightSource has not only complied with the requirements of the ESA, but it also has taken additional measures to protect the desert tortoise. As is detailed in the research study, the USFWS and the CEC should issue an incidental take permit to BrightSource allowing for the translocation of the desert tortoise. The Solar PEIS will likely speed the development of utility-scale solar power facilities in the Southwest by providing early identification of significant ESA issues. The Ivanpah Project and the discovery of the desert tortoise is just one example of the types of roadblocks that a Solar PEIS, which applies to lands labeled as Solar Energy Zones, could help to avoid or minimize. However, the Ivanpah Project will not benefit from the Solar PEIS because it is not located in one of the Solar Energy Zones. Finally, the research paper reviews S. 2899, Senator Feinsteins proposed desert preservation legislation. The stated intent of the bill is to move the BLM awa y from a

Translocation is defined as the moving of a species from its existing habitat to a habitat of equal or greater compatibility for the species, and is considered an accepted form of mitigation under USFWS guidelines regarding the treatment of a threatened species.

first-come first-served application process to a more streamlined process5 in connection with the development of solar facilities on public lands. However, if this bill is approved, it will hamper solar development by placing off-limits significant portions of the Mojave Desert that are considered prime locations for solar development and will likely pose a threat to construction of the Ivanpah Project.

The first- come first-served process is criticized for allowing companies to apply for permits prior to completing environmental assessments and financial due diligence. The proposed streamlined process would require companies to complete due diligence (including due diligence related to: interconnection, power purchase agreements, transmission, environmental due diligence, and financial feasibility) before the company is notified of whether the project is approved for development by the BLM.

THE S-REIT: AN INVESTOR-BASED SOLUTION TO SOLAR DEVELOPMENT PROBLEMS

Joshua Sturtevant6 GW Law School, J.D. 2011 Principal Investigator Notwithstanding the substantial benefits of solar power, this renewable energy source remains underdeveloped, and financial incentive policies are not in place to support the development of large-scale solar facilities over the long-term. However, there is room for innovative ideas and structures to stimulate the pace and breadth of solar energy development. One potential approach that would further this goal is to extend a tax structure, which already exists and benefits the commercial real estate market, to stimulate large-scale solar energy development. Just as real estate investment trusts (REITs) have spurred investment into commercial real estate, solar real estate investment trusts (S-REITs) could bring solar development to the masses and would increase capital flows into solar energy markets. The REIT concept is applicable to solar photovoltaics (PV) because of the nature of this technology, particularly its dependable output independent of most market risks (e.g, fuel price increases, risks related to new GHG regulation) and its long useful life. However, the existing tax code must be clarified in order to make this vision of a solar investment a reality to confirm that proceeds from power purchase agreements qualify as rents under 856 of the Internal Revenue Code. Such a clarification could be achieved by securing a favorable revenue ruling or private letter ruling from the Internal Revenue Service. Alternatively, Congress could enact legislation amending the Internal Revenue Code to achieve this objective. The effectiveness of the REIT structure in the solar energy context also would require the restructuring of some of the current financial incentives for large-scale solar projects as well as their clear integration with the REIT structure. The proposed approach would address two major problems in the current U.S. financial incentives for solar energy: (1) Eligibility for the current financial incentives is restricted to a very limited group of companies, and the private capital available to support solar energy development is limited. This proposal would expand the pool of eligible investors to virtually all individual investors, thus greatly expanding the amount of private capital available to support solar energy development.
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The intial REIT concept to spur solar energy investment was recommended by Ken Zweibel, Director of the Solar Institute. The principal investigator developed the legal analysis to support this concept as part of a research paper for an energy law course at GW Law School in the spring of 2010. The overall recommendations involved a collaboration of the principal investigator with Ken Zweibel, Debra Jacobson, Co-Director of the Institute, and Joseph Cordes, Associate Director of GWs Trachtenberg School of Public Policy and Public Administration.

(2) As a result of turmoil in financial markets in the past two years and limited ability to take advantage of the available investment tax credit (ITC) for largescale solar projects, Congress amended the Federal tax code to allow eligible companies to receive cash grants but set a termination date for this authority which is approaching at the end of the year. The Institutes REIT proposal would authorize refundable tax credits or a new framework for tax deductions to address this problem. Because REITs are qualified and SEC-registered investments, REITs form an attractive category for such special Federal treatment. The timing and environment seem right for this new approach. Companies involved in the REIT market and solar developers already have formed alliances as real estate companies seek to reduce costs and appeal to potential tenants. These alliances already have led to familiarity with solar development among the type of investors who might find S-REITs attractive. The American Reinvestment and Recovery Act of 2009 included several provisions to stimulate the development of green jobs, including transmission and smart grid investment to increase the feasibility of electric transmission and distribution from large-scale solar installations. In addition, pioneers already are developing other investment structures to stimulate green development, indicating that there is a market for innovative solutions. These factors and more point to the S-REIT as both a timely approach and one which contribute to expansion of solar energy.