Creative Solar Development Could Help Once-Contaminated Lands Shine Again

July 26, 2019Articles The Legal Intelligencer

Solar energy is here to stay, efficiently and reliably harnessing the sun’s energy to provide a clean, renewable source of electricity that can help power our homes and businesses. For many Pennsylvanians interested in going solar, however—whether purchasing their own system for on-site usage; hosting a third-party-owned system and purchasing the solar power through a long-term power purchase agreement; subscribing to a community solar garden; or leasing out their land to host a large-scale solar system that feeds its electrical output into the energy grid—the past decade has been somewhat frustrating. While solar markets in many other states have flourished, Pennsylvania has been left largely in the shade, with less than 1% of the commonwealth’s electricity generated by solar.

This has not gone unnoticed. In 2018, after more than a year of intense and ongoing focus and expert collaboration on this issue that continues today, the Pennsylvania Department of Environmental Protection, Energy Programs Office, released “Pennsylvania’s Solar Future,” an effort to identify and explore strategies to achieve an aggressive but realistic goal—generating 10% of Pennsylvania’s electricity from in-state solar by 2030. Given the current trajectory of Pennsylvania’s solar market, only half of 1% of Pennsylvania’s electricity would come from solar by 2021, and the commonwealth would likely fall far short of its 2030 goal.

“Pennsylvania’s Solar Future” reaches a number of conclusions that reflect successes in other states. The report asserts that Pennsylvania will need to add approximately 11 gigawatts of new solar capacity from all sources to reach its 2030 goal—the equivalent of five massive coal or nuclear power plants. It maintains that financial incentives, access to capital and a clear legal and regulatory framework can help drive this growth; and that locating suitable sites, and ensuring that an efficient and reliable path exists to obtain the necessary approvals for, and actually interconnect, the new solar systems will be critical.

This last ingredient is key. To build more solar, you need a place to put it. Setting aside very valid debates over land use, zoning, conservation and many related concerns, the law of supply and demand will play a significant role. Land in Pennsylvania is often expensive, particularly in proximity to major metropolitan areas, where it can cost tens of thousands of dollars per acre, translating into significant ground lease rents.

For the largest, utility-scale solar systems, developers will seek out remote areas of the commonwealth with large, affordable tracts of land where construction and development may be more streamlined, and relatively low population density does not pose significant obstacles. Community solar gardens, on the other hand—which have flourished in many other states and are likely coming to Pennsylvania as contemplated in pending legislation—require customers to be within a certain distance of the system. Even for systems designed for on-site usage, significant parcels of developable suburban land at workable prices are likely to be elusive. This presents an opportunity to expand Pennsylvania’s solar energy resources while simultaneously promoting the clean and productive use of environmentally challenged sites … solar energy redevelopment of brownfields.

Brownfields—properties for which redevelopment is complicated by the presence or potential presence of contamination—offer a plentiful supply of affordable land in desirable locations for development of renewable energy projects. There are an estimated 450,000-plus brownfields in the United States, according to the Environmental Protection Agency, many of which have attributes necessary for successful renewable energy projects. They are often located in heavily populated areas, have access to the grid and are priced affordably. Both the EPA and the Pennsylvania Department of Environmental Protection (PADEP) encourage reuse of brownfields for renewable energy projects. Brownfield owners can receive payments from the energy developer to defray cleanup costs, while the public benefits from the preservation of greenspace and redevelopment of brownfields. However, use of a brownfield for a renewable energy project has challenges related to relief from cleanup liabilities, conflicting interests between the property owner and developer, the need to assuage lender concerns and increased complexity of project construction and operation.

A developer may find relief from liability at EPA-led brownfields as a bona fide prospective purchaser (BFPP), now available directly to lessees under the Brownfields Utilization, Investment, and Local Development (BUILD) Act of 2018, subject to certain conditions. To qualify for and maintain BFPP status, a developer must: demonstrate that it is not a potentially responsible party (PRP); conduct all appropriate inquiries as defined by EPA regulations (AAI); take reasonable steps to prevent a release of hazardous substances; provide cooperation, assistance and access to the EPA; not impede the cleanup; and comply with applicable land use restrictions, among other requirements. If a developer meets these criteria, it should not be liable as an owner/operator for response costs. The EPA’s recourse is limited to a “windfall lien” if an EPA response action increases the property’s fair market value. A detailed discussion of AAI is beyond the scope of this article, but one key requirement is a recent (no more than 180 days old) Phase I Environmental Site Assessment that complies with applicable ASTM and EPA standards. Pennsylvania’s Act 2 program provides a release from state liability for owners or developers of sites remediated according to the Act’s standards and procedures. An April 21, 2004 One Cleanup Program Memorandum of Agreement (MOA) between PADEP and EPA Region 3 clarifies the role of the EPA in sites remediated under Act 2.

Both energy developer and property owner have an interest in maintaining control over the property and protecting their investments. Property owners will not want a renewable energy project to impair or interfere with their remediation and trigger any re-openers by the agency, and may be concerned about the impact of construction, operation and maintenance of a renewable energy project. The energy developer will want and need a long-term commitment from the owner that protects its investment in the infrastructure and equipment installed at the property, including ensuring the solar system is able to operate without issue over several decades. These tensions need to be addressed in an agreement between the energy developer and property owner, often at the time of land acquisition by the energy developer, or in a long-term ground lease.

A successful renewable energy project also requires making the energy developer’s lenders and equity investors, and the property owner’s mortgage lenders, comfortable with the environmental condition of the property and associated risk allocations. Superfund contains a secured creditor exemption for lenders who hold indicia of ownership to protect a security interest, do not participate in the management of the contaminated site and do not cause or contribute to a release of hazardous substances, according to federal law at 42 U.S.C. Section 9601 (20). The secured creditor may foreclose on the property without incurring Superfund liability so long as the lender seeks to sell, re-lease or otherwise divest the property at the earliest practicable, commercially reasonable time, on commercially reasonable terms, taking into account market conditions and legal and regulatory requirements. Pennsylvania Act 3 provides similar relief from cleanup liability for commercial lending if the lender does not cause or exacerbate the contamination. However, for energy developers, renewable energy project financing is often secured by, among other collateral, the project itself (i.e., personal property under the Uniform Commercial Code) and by pledges of equity interests in the project companies (also governed by the UCC), rather than real property. Lenders and investors on the project side need to be comfortable that they may foreclose and take necessary actions to protect their investment, without incurring cleanup or other environmental liability.

Many brownfields are subject to environmental covenants that impose use and activity restrictions. Areas that have been capped may be subject to limitations regarding the use of heavy equipment or vehicles, for example. Excavation or penetration of the cap may be prohibited. Ballasted ground mount solar array systems are available, but the design, installation, operation, maintenance and decommissioning of such systems may be more complicated and costly than conventional systems. Allowing a property owner/operator access to operate and maintain the environmental remedy may also pose challenges to the energy developer. These and other issues may complicate the renewable energy development of brownfields, but should not be insurmountable and may even be offset by the decreased land costs of a brownfield-sited solar project.

The future of solar energy in Pennsylvania appears bright. One benefit of being late to the party may be the opportunity to learn from other states’ successes and challenges. As stakeholders continue to collaborate on making measurable progress for solar in Pennsylvania, and as necessary legislation, rules and regulations are implemented, using some of the commonwealth’s environmentally challenged lands for solar and other renewable energy generation should remain an important piece of the puzzle. “Pennsylvania’s Solar Future” smartly identified the potential for a win-win in this area. While brownfields redevelopment can be intimidating, with risk can come reward for us all.

Reprinted with permission from the July 26 issue of The Legal Intelligencer. (c) 2019 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.