Renewable Energy Leases on Tribal Lands

1

• Renewable Energy Leases on Tribal Lands

• by David Nahai, Partner and Co-Chair
• Real Estate, Energy, Water, and Environmental
  Practice
• David.Nahai_at_lewisbrisbois.com

2

• Two measures substantially alter a status quo
  that has been in effect for 50 years
• The HEARTH Act and its implementing National
  Policy Memorandum and
• Revisions to 25 CFR 162, Leases and Permits

2
3
THE HEARTH ACT
3
4
The HEARTH Act and its resultant National Policy
Memorandum (NPM) referred to above, Empower
Tribes to create self-governing leasing
regulations, subject only to initial approval by
BIA. The NPM furnishes guidance as to the
components of the leasing protocols. However,
Tribes will have to develop not only the
framework and conditions for leases, but also
procedures and rules for dealing with defaults
and the production of particular lease forms
adapted to various uses, such as solar and wind.
4
5
25 C.F.R. 162
5
6
The Regulations actually revise 25 CFR 162,
Leases and Permits and now impose a 60 day time
limit on BIA to disapprove of any solar and wind
leases from the time an application is deemed
complete. The regulations provide guidelines as
to the requisite documents and provisions
necessary to secure approval. Amendments and
subleases can be deemed automatically approved if
not affirmatively disapproved by BIA within the
given time. It should be noted that the
regulations envisage a lesser role for BIA in
policing and enforcing leases. This means that
even with leases approved by BIA, tribes must
assume a greater monitoring and enforcement role
and must establish or enlarge their legal
infrastructures to perform these tasks.
6
7
DUE DILIGENCE CONSIDERATIONS
7
8
Ten Issues a Tribe and a Developer Should
Address Before Embarking on a Renewable Energy
Lease
8
9
1. Resource. How desirable is the resource? The
tribe should have some idea of the quality of the
sunlight or the strength of the wind on its land
and shouldnt rely only on the developers
assessment. The tribe should make its own
determination of the value of its asset.
9
10
2. Team. What are the qualifications of the
development team? How many projects have they
completed and how have those facilities
performed? Often, the utility buying the power or
the lender financing the development will want a
Single Purpose Entity to be formed with no
assets other than the project itself. If this is
the case, how will the tribe recover its losses
in the event the developer defaults under the
loan or under the Power Purchase Agreement with
the utility?
10
11
3. Approvals. What regulatory permits and
approvals will the developer need to start and
complete the venture? What are the developers
plans for obtaining the permits and what are the
chances of success?
11
12
4. Transmission. How will the power be
transported to its intended market? Transmission
hurdles can prove fatal to a project. Utilities
will often shy away from a project that does not
have a readily identifiable transmission pathway,
or which will require substantial system
upgrades, or have to traverse numerous balancing
authorities. Further, addressing the transmission
aspect is often a time consuming and expensive
exercise. The issue of transmission is not
something to be figured out later the project
sponsor should have a specific strategy for this
vital facet of renewable energy development.
12
13
5. The Offtaker. Who will buy the energy? Which
utility or utilities is the developer targeting?
What are the needs of the potential purchasers?
Are they under a legal mandate to procure
renewables (e.g. California utilities have a duty
to attain 33 by 2020)? How will this particular
project fit within the portfolios of the intended
buyers? Since the project will probably have to
undergo a public, competitive bidding process,
how will the product be priced and what are the
sponsors plans to win approval?
13
14
6. The Financing. Where is the money coming from?
How is the developer providing for its operations
and how will the construction of the project be
financed? Developers will often be dependent on
private equity or venture capital funding to
operate, and will seek project specific financing
and/or tax equity investment to develop the
project. It is essential that the tribe be fully
aware of the sponsors plans regarding this
crucial element. Accommodating a project lenders
requirements may also entail negotiations
affecting the tribes sovereignty and range of
remedies in the event of developer default. The
tribe should foresee and be prepared for such
discussions.
14
15
7. The Compensation. How will the tribe be paid?
Compensation structures come in all shapes and
sizes, ranging from straight rental payments, to
royalty arrangements, to joint venture type
deals. The tribe will have to balance various
factors in arriving at the optimal structure,
which could additionally include rights to
receive power for the tribes use.
15
16
8. The Technology. In a competitive bidding
process, the project proponent will necessarily
want to submit the lowest possible price.
However, the tribe will want to ensure that
quality and durability are not sacrificed for the
cheapest cost. It behooves the tribe to know what
technology will be used, who will be the
equipment supplier, who will be the contractor?
16
17
9. Employment and Training. A renewable energy
lease transaction can afford fertile
opportunities for employment and training of
tribal members. Tribes should consider ways of
fully realizing such prospects in negotiations
with developers.
17
18
10. Outreach Plan. What is the program for
communicating with the surrounding community and
stakeholders to allay any concerns regarding the
project and its impacts, environmental and
otherwise? Even if the project is to be located
in a remote area, interested parties will
scrutinize its advantages and disadvantages.
Prudent, seasoned developers will have a plan for
engaging with stakeholders early to address and
alleviate concerns.
18