Avoiding Project Development Pitfalls, Part 1
This month’s Sustainable Bottom Line edition is the first in a Q&A series with guest expert Jonathan S. Klavens, Principal of Klavens Law Group, P.C., which has a unique clean energy practice that addresses the “A to Z” legal needs for renewable energy project development and finance. Jon is joined this month by KLG Senior Counsel Dawn Stolfi Stalenhoef, who handles environmental and permitting matters.
What are key areas in which renewable energy project developers encounter pitfalls that can end up delaying or derailing projects?
JK: Key areas in which developers face critical stumbling blocks include permitting and environmental matters, site control, interconnection, offtake agreements, qualification for government incentive programs, and preparation for project financing or sale. Missing opportunities to timely and adequately tackle these challenges can increase project costs and even jeopardize an entire project.
Let’s focus on permitting and environmental matters. In your experience, what are common pitfalls developers face in securing project permits and managing environmental matters?
JK: There are six key categories of pitfalls that come to mind: inadequate upfront planning; not understanding the rules of the road; missing chances to cultivate good rapport and trust with the host community; failure to mitigate appeal risks; not planning for changes; and not addressing the complexities of contaminated properties.
What are examples of insufficient upfront planning? How can a developer remedy those deficiencies?
DSS: We’ve seen situations where developers will identify and pursue one or two key permits without conducting a broader analysis of potentially applicable local, state, regional and federal permits, only to learn late in the process about an additional required permit that slows down the development cycle. A classic example of an overlooked permit would be a state highway access permit. Sometimes developers are aware of a required permit but may not have thought through the steps to obtain it. For example, obtaining coverage under a U.S. EPA general permit for storm water discharges from construction sites is typically ministerial but if there are potential impacts to threatened or endangered species, a developer may need to submit evidence of consultation with the U.S. Fish and Wildlife Service. That can throw a big wrench into the development process. A cost-effective permitting strategy may not warrant pursuing all permits at once but it is an excellent idea at least to conduct a fairly broad permitting analysis upfront in order to work out a sensible permitting game plan.
Is it a good idea to consult with local officials early on to determine what permits will be needed for a project?
DSS: Absolutely. That can be a great and inexpensive way to learn about the local permitting landscape and at the same start developing constructive relationships with the host community. However, that sort of consultation can involve several pitfalls. If the question of which local permits apply involves interpretation and judgment it can be better to consult with local officials only after developing an advocacy strategy. And while helpful, input from local officials can be incorrect or incomplete. Ironically, a favorable answer from a local official can be very dangerous if it isn’t correct. For example, a local official might incorrectly advise that a solar project is allowed as of right and doesn’t require a special permit. Relying on that advice risks having to start over months later and apply for the special permit that was actually needed all along. It’s also important not to rely on local officials for input on what permits might be needed from other governmental authorities.
What information do developers need to collect in order to do a decent permitting analysis?
DSS: Checking local zoning maps in relation to preliminary site information is key. Sometimes we find that that analysis suffers from the absence of a good title survey, including one that takes into account areas off the immediate project site that will be needed for access or utility easements and may need to be included in the permit. Having a consultant check relevant maps for features like estimated areas of protected habitat and wetlands is another good first step but it can be valuable for the in-field delineation of those areas to occur very early on in order to make critical go/no go decisions in an informed way.
What do you mean by not understanding the rules of the road?
JK: One key here is finding out whether and to what extent each permit decision at issue is ministerial or discretionary. Do you have the right to the permit if your application is complete and meets objective technical standards? Do you have the right to the permit but a local board can impose reasonable conditions? Do you have the right to apply and get a hearing but the local board can deny the permit in its discretion? If the board has discretion, are there limits on that discretion? For example, Massachusetts has a state statute that bars local zoning from prohibiting or unreasonably regulating solar projects. We’ve helped developers make the case to local zoning boards that, even though special permit decisions in Massachusetts are usually discretionary, when it comes to a solar project, the board must grant the permit subject only to reasonable conditions.
DSS: Failing to determine whether a permit is ministerial or discretionary can also lead to other traps for the unwary. For example, you can’t apply to secure a pre-COD qualification to participate in the Massachusetts SMART program unless your solar project has obtained all non-ministerial permits. If you learn later on that you actually needed an additional non-ministerial permit (or a permit that you thought was ministerial is actually considered to be non-ministerial), that could result in loss of your spot in the SMART program.
Why is it important to establish and maintain rapport and trust with the host community and how can a developer do that?
DSS: Credibility with local boards, neighbors, state and federal permitting agencies, and the press can weigh heavily on a project’s ultimate prospects. Developers and their consultants must master the details of the project and the regulatory requirements, be flexible, and be prepared to respond to questions from public officials and citizens during permit proceedings. One particularly helpful but sometimes overlooked strategy is to have your consultants strive for a constructive and open relationship with consultants engaged by a local board to do peer review. Also, if it seems like doing so could resolve an impasse, developers are well advised to consider being proactive about suggesting permit conditions which may go beyond regulatory requirements but are doable without adding significant additional expense to the project. A good example of this is agreeing to provide additional vegetative screening where a project is perceived to impact views.
Where have you seen development teams fall short in mitigating the risks of permit appeals?
DSS: Not investing time early on into community relations, having a consultant who isn’t properly qualified and hasn’t done adequate homework, failing to implement quality control over permitting submittals, and not attending or not paying close attention during public hearings.
JK: It can also be important to think about what the developer can do to watch for and try to correct instances where a local board might unwittingly create appealable issues. For example, if a board hasn’t given proper public notice of a meeting, it may be necessary to reschedule the meeting or risk annulment of the board’s decision. Similarly, a friendly board may issue a decision that grants a permit but fails to create a record of the factual determinations needed to legally support the decision.
What sort of potential changes do developers need to keep in mind in the permitting arena?
JK: Taking steps to protect your project against zoning changes is one example. That’s not always intuitive. A developer may reasonably believe that, as long as a permit application is submitted in advance of a zoning change, the project won’t be subject to the change in law. In Massachusetts, however, that’s actually not the case and protecting a project from zoning changes is more complicated.
How can developers timely and adequately recognize and deal with the special issues related to contaminated sites?
DSS: All developers should hire a qualified environmental professional to conduct an ASTM Phase I Environmental Site Assessment prior to acquiring an interest in property that might be contaminated (or has a history of contamination) – but not sooner than six months prior. An interest in property includes both ownership interests and leases. If the results of the ASTM Phase I ESA suggest that a Phase II ESA is needed, that more detailed investigation should ideally be completed before major decisions are made with respect to the site.
If a site qualifies as a brownfield (there are several definitions – be sure you are following the definition that is relevant to the regulatory program you’re operating under) be aware that there may be additional funding sources or other benefits (including liability relief) available to tap. There are also several types of environmental insurance that may be key to mitigating the costs and risks associated with redeveloping a brownfield site.
Please note that this Q&A, which may be considered advertising under the ethical rules of certain jurisdictions, is provided with the understanding that it does not constitute the rendering of legal advice or other professional advice by Klavens Law Group, P.C. or its attorneys. Please seek the services of a competent professional if you need legal or other professional assistance.
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