The recognized environmental benefit of utilizing renewable sources of energy is the primary driver for investment in renewable energy projects. However, the development of renewable energy projects may also involve significant environmental challenges as well. Even “environmentally-friendly” sources of power, such as wind and solar, can have environmental consequences and may also be subject to various environmental laws and regulations. In addition, the same laws governing contaminated property that apply to all construction projects will also apply to renewable energy projects. As such, it can be just as important to address potential environmental concerns associated with renewable energy projects as with any other type of development, and perhaps even more important given the general focus on environmental issues found in the renewable energy context.
The first potential source of environmental challenges in the development of a renewable energy project is site selection. The site selected for a project can have a significant impact on the number and type of environmental issues that may arise. For example, if the project site has been contaminated with hazardous substances, any current or past owner or operator of the property may be held liable for the contamination, unless proper due diligence was conducted prior to the purchase of the site. Therefore, conducting proper environmental due diligence prior to the purchase of a project site is essential to protecting the project from potentially significant environmental liabilities. At a minimum, a Phase I Environmental Site Assessment (ESA) should be prepared for the project site prior to purchase. If that Phase I ESA uncovers any “recognized environmental conditions,” a Phase II ESA involving sampling may be needed to fully investigate the site. Without a complete ESA and other appropriate environmental due diligence, the project owner or operator may not be able to qualify for the “innocent purchaser” defense, leaving the project vulnerable to claims associated with any pre-existing contamination.
It is also important to ensure all agreements associated with a project expressly address any potential environmental concerns. The relevant agreements should allocate responsibility for any pre-existing contamination, and can also be used to assign liability for any future contamination to the appropriate party or parties as well. Proper environmental provisions in all relevant agreements can also help address ongoing compliance obligations imposed under any applicable environmental laws to avoid any possible confusion in the future as to which party is responsible for compliance. Buyers should also insist on appropriate representations and warranties confirming current compliance with all applicable environmental laws and disclosing any potential environmental issues associated with the project. Finally, in addition to the above protections, environmental indemnities can also allow the parties to further allocate potential liabilities in accordance with their agreement.
Renewable energy projects may also trigger permitting requirements under various environmental laws, depending on the type of project contemplated. For instance, biomass combustion facilities will generally require a permit under the Clean Air Act, which can be difficult and expensive to obtain. However, even emission-free sources of renewable energy can trigger pre-construction requirements under existing environmental laws. Wind farms, for example, must ensure that the proposed project will not impact endangered species of birds or bats under the Endangered Species Act, and hydropower and hydrokinetic projects are subject to licensing pursuant to the Federal Power Act. Any project involving federal or state funding or approvals may also trigger the application of the National Environmental Policy Act (NEPA) or state-equivalent laws, which can require project developers to undertake extensive environmental studies and obtain various approvals from a number of governmental agencies.