June 17, 2010, 8:16 am

Uncle Sam, Solar Landlord, Is Under Fire

Federal land in the eastern Mojave  Desert in California envisaged

Associated Press Federal land in the eastern Mojave Desert in California envisaged as a site for solar development.

 

The nation’s biggest landlord, the United States government, has set the rent it will charge developers who build solar power plants on federal land, and some prospective tenants are not happy.

Solar developers will actually pay two fees – the lease for the land along with what the Bureau of Land Management calls a “megawatt capacity fee” based on how much electricity a project generates.

“Since we don’t have authority to collect royalties for wind and solar projects, we had to come up with a methodology to convert that electrical generation into an upfront rent payment,” Ray Brady, manager of the bureau’s renewable energy team, said in an interview.

But potential developers see a disparity. “The proposed B.L.M. rental fees are in many cases two times higher than market rates for private land,” Monique Hanis, a spokeswoman for the Solar Energy Industries Association, said in an e-mail message. “The B.L.M. must collect ‘fair market value’ from developers, but this seems to go beyond that threshold.”

That methodology is a work in progress as the agency tries to adapt decades-old formulas designed for oil and gas leasing and mineral extraction to renewable energy production.

Some 23 million acres of federal property are suitable for large-scale solar development, according to the bureau, and the agency has received more than 200 lease applications from developers who covet hot and sunny desert real estate in the Southwest.

Solar farms typically require vast swaths of land, meaning the lease fees can be considerable depending on a project’s location and local property values. The Bureau of Land Management’s solar rents range from $15.70 an acre in Hidalgo County, N.M., to $313.88 an acre in Riverside County, Calif.

For instance, BrightSource Energy will pay the government about $427,000 a year in rent for its 3,400-acre Ivanpah Solar Electric Generating System in San Bernardino, Calif., now undergoing licensing. The company, based in Oakland, Calif., will also pay an annual megawatt capacity fee of $2.6 million for the 392-megawatt solar thermal power plant. Fees over the 25-year life of the contracts that BrightSource has signed with California utilities would total about $76 million.

In neighboring Riverside County, First Solar, a solar module maker and developer based in Tempe, Ariz., plans to build a 550-megawatt photovoltaic farm on 4,410 acres of federal land. Lease and capacity fees for the Desert Sunlight project will total about $4.3 million a year.

The agency is charging different capacity fees for different solar technologies. Photovoltaic power plants, which deploy solar panels like those found on residential rooftops, are assessed $5,256 a megawatt.

Developers of more efficient solar thermal power plant, which uses mirrors to heat liquids to generate steam that drives a turbine, pay $6,570 a megawatt. The same rate is charged for concentrating photovoltaic farms that use mirrors to focus the sun on a highly efficient solar cell.

If either technology uses energy storage systems to produce electricity when the sun doesn’t shine, the fee jumps to $7,884 a megawatt. The fees will be phased in over the first five years of a power plant’s operation.

Some developers and environmentalists argue that such a fee structure penalizes technologies that are more efficient and thus use less land.

“This is an unfortunate way of emphasizing one technology over another,” said Bobby McEnaney, a land program expert at the Natural Resources Defense Council.

Mr. Brady said the agency was following a mandated formula that takes into account the efficiency of a technology. And he noted that more efficient solar thermal power plants can have adverse environmental consequences like greater water consumption.

Mr. McEnaney said he did not expect those fees to deter deployment of more efficient solar technologies. “What’s problematic is that you’re using a leasing system developed for the 20th century to deal with 21st-century technology,” he said.

The Bureau of Land Management, for example, charges rent of only $1 an acre to wind energy developers and a flat capacity fee of $4,155 per megawatt, Mr. Brady said.

“Clearly, wind energy projects don’t have the footprint or disturbance of solar projects,” he said. “But we will be reviewing whether those fees need to be raised.”

Representatives of BrightSource Energy and First Solar, two of the nation’s biggest solar developers, declined to comment on the federal fees, with First Solar referring questions to the Solar Energy Industries Association.

“The rate structure will cause many project developers to rethink their plans for solar power on public lands,” Ms. Hanis of the solar trade group said.

Nathaniel Bullard, a solar analyst at Bloomberg New Energy Finance, said he calculated that fees for a solar power plant with storage in Riverside County could account for as much as 3 percent of pretax cash flow under certain circumstances.

Mr. McEnaney, however, said he doubted the fees would prove much of a deterrent, given that they are a fraction of the multibillion-dollar cost of building a solar power plant.

“The bottom line is that there has to be some sort of collection of funds as the footprint of these facilities is going to be sizeable, and there has to be compensation to taxpayers,” he said.

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