July 10, 2023
Onshore Wind Farm Permits, Regulations, and Contracts for Construction – Part 1
This blog post is the third in a five-part series related to onshore wind energy. The series covers topics including onshore wind turbine and wind farm basics, planning and scheduling considerations for onshore wind farms, the permitting and approval process, and construction considerations for onshore wind farms. Offshore wind facilities will be discussed in a separate blog post series.
This post and the next one discuss the major permitting, regulatory approvals, and contracts associated with the development of an onshore wind farm.
Land Use Permitting and Regulatory Approvals
After the initial planning and site selection discussed in the second blog post of this series, one of the next steps is to begin the permitting and approval process. The preliminary planning work completed during the feasibility study will facilitate an understanding of the required permits and design requirements. As with any major construction project, thorough planning will help prevent delays in the further development and construction of the project. The number of permits required may be significant, and this process may take several years to complete.
Most domestic wind farm projects utilize a combination of state and private land. In these cases, local and state government permits are required, as well as land use agreements with private landowners.
In many states, the jurisdictions that may have the most requirements are the local city council, planning commission, zoning office, or another similar county commissioner or other county office. These entities will most likely regulate through zoning ordinances and may also require building permits to assure compliance with local building codes.
County requirements may vary greatly by county, even within the same state. Further, some states may have regulations that override county ordinances and requirements. Detailed investigation and research are required to determine which permits and authorizations are needed for the wind farm development in a particular area. The timing and sequencing of the permitting process is also important to understand.
At the local level, a land use permit is most likely required. This will be based on the planning and zoning ordinances of the county or city in which the wind farm is planned. The project may face opposition at the local level due to the potential appearance or noise of the facility. Subsequently, most counties will require a permit hearing prior to receiving the permit. These hearings may include opposition to the project from local business and/or citizens. It is often recommended that the public be educated on the project specifics prior to the permit hearing to avoid opposition based on misperceptions. As discussed in the second blog post of this series, the preliminary planning process should include an evaluation of local public perception of wind energy. A wind energy project in an area that faces substantial public opposition may not be worth pursuing.
At the state level, permits from state agencies, historic preservation agencies, public utility commissions, or tribal governments may be required. Depending on the state, natural resources and environmental approval may be required, and each state may have different environmental policies and procedures for developing a wind farm. For example, the state of Wyoming requires the submission of an Industrial Siting Permit if a potential wind energy project includes 20 or more wind turbines.1 This permit may take up to 135 days to be approved or denied. In Wyoming, the permits are extensive documents containing information related to facility description, permitting and approvals, construction details and scheduling, public involvement, socioeconomic analysis, environmental impacts, and transportation logistics.
Applications to state agencies may include the preparation and submittal of specific studies and plans related to specifics of the proposed project. Examples of plans that may be required include a stormwater pollution prevention plan, environmental health and safety plan, transportation and traffic plan, and wildlife management plan.
It is not uncommon for a wind developer to send more than 100 letters to local governments and organizations to present the project and to invite comments. These letters serve as a notice of the project and provide a high-level project description, including potential impacts and proposed mitigations. Additionally, these letters typically invite organizations, municipalities, and private citizens to comment and/or to attend information meetings hosted by the project team. These letters are typically sent as many as six months prior to the public hearing, and notices may also be posted in local newspapers or other local publications.
At the federal level, many permits and approvals may be required, depending on the location of the wind farm and the proximity to federal lands. One federal permit always required for a wind farm is from the Federal Aviation Administration (FAA), due to the height of the wind turbines. Other federal organizations typically involved in the permitting of wind farms are the United States Forest Service (USFS) and/or the Bureau of Land Management (BLM). These organizations may be the manager of the land and permitting authority. If any federal organization is involved in the project, compliance with the National Environmental Policy Act (NEPA) will be required.
Land use permits and approvals may be a complicated and lengthy process to navigate, and it may take years to acquire the necessary approvals. The duration of this work should be carefully planned, evaluated, and coordinated with the other tasks necessary in the development of the project.
Execution of Power Purchase Agreement
Generally, parties seeking to purchase electricity from a utility company do so on a short-term basis, without a long-term contract or price guarantee. In these situations, the party purchasing the electricity has no control over the source of the power being delivered, only that they would receive the power from the utility. In these instances, power is purchased at market rates.
However, some organizations are looking to reduce their environmental impacts while simultaneously reducing their energy costs. To meet this objective, many organizations are looking to renewable energy companies for their power and executing long-term contracts for the purchase of electricity.
This type of contract between a company purchasing electricity and the provider (seller of electricity) is referred to as a Power Purchase Agreement (PPA). This type of long-term contract stipulates the price of electricity provided and may stipulate the amount of electricity provided. These contracts provide the customer with a known price for power and provide the power company with a long-term revenue stream.
The pricing terms in a PPA are very important in the development of a wind energy project, as the pricing allows investors to have an estimate of the total revenue available for the terms of the contract. If the price of energy is too low, the cash flow may be insufficient to finance the project, resulting in the project team not moving forward with the selected site. On the other hand, if the price of energy is too high, buyers will not have an interest in purchasing energy at an uneconomical price. The PPA must balance these issues and provide a beneficial business opportunity to all parties.
The execution of a PPA is an important step in the development of a wind energy project and is often one of the most challenging aspects in the development and construction of a wind farm. PPAs may require the seller to show that it has an interconnection agreement with the utility. Interconnection agreements will be discussed in the fourth blog post in this series.
While energy pricing arrangements are an important aspect of a PPA, these contracts also include provisions related to items such as the length of the agreement, the purchase and sale of energy, curtailment agreements, transmission considerations, contract milestones, default clauses, credit, insurance and environmental attributes or credits, and the commissioning process.2
Although the specifics of PPAs are beyond the scope of this blog post, one important aspect of a PPA relates to planning and scheduling of the wind farm development. Typically, PPAs include milestones for the development and construction of the project, and several important milestones typically relate to construction. One common milestone within a PPA is the date for commercial operation, and typically this is the date on which the term of the PPA is based. Any delay to this (or potentially another) milestone may result in delay damages for which the owner may be responsible. Delay damages may be based on a daily rate and the number of megawatts (MW) of generating capacity of the wind farm. The delay damages would then be calculated by the daily rate multiplied by the megawatts of the plant and then multiplied by the number of days of delay.
The milestone date for commercial operation is based on the many factors discussed in this blog post series. Careful planning and scheduling are essential to ensure timely project completion and to avoid delay damages. Because PPAs are complicated legal documents, experienced legal counsel is typically involved in their execution.
1 “Permitting Process,” Wyoming Department of Environmental Quality, Accessed May 15, 2023. https://deq.wyoming.gov/industrial-siting-2/permitting-process/.
2 “Power Purchase Agreement,” Windustry – Community Wind Toolbox, Accessed May 19, 2023. https://www.windustry.org/community_wind_toolbox_13_power_purchase_agreement.
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