Renewable Energy Project: Legal Framework for Developers and Investors

Renewable energy project site control is established through long-term leases or easements with landowners that give the developer the right to construct, operate, and maintain the facility for the project's operating life, and land use and real estate counsel advising on renewable energy project site control should confirm whether the lease or easement grants all rights necessary for the project's planned construction and operation and whether the landowner's mortgage or existing liens on the property must be subordinated to the developer's leasehold interest before lenders will accept the site control documents as part of the project's collateral package.

The power purchase agreement is the renewable energy project's primary revenue contract, and the PPA's creditworthiness, term, price, and volume provisions determine whether the project's projected cash flows are sufficient to service its debt and provide an equity return, and renewable energy and renewable energy project counsel advising on PPA negotiation should assess whether the offtaker's credit rating and financial condition are sufficient to support the project's debt financing and whether the PPA's curtailment provisions allow the offtaker to reduce energy purchases without liability during periods of low grid demand.

Utility-scale renewable energy projects trigger environmental review under NEPA, the Endangered Species Act, the Migratory Bird Treaty Act, and multiple state environmental statutes that collectively require the developer to conduct impact studies, prepare environmental assessments or environmental impact statements, consult with federal and state wildlife agencies, and obtain a permit package that is vulnerable to legal challenge, and environmental compliance and litigation counsel advising on renewable energy project permitting risk should assess whether the project's environmental review schedule is realistic given the agency resources available to process the required consultations and whether the project site's proximity to sensitive wildlife habitats, wetlands, or tribal cultural resources is likely to generate public opposition that has caused other renewable energy projects in the region to face extended permitting delays.

Renewable energy project construction risk encompasses the contractor's failure to complete the facility on schedule, the occurrence of force majeure events including supply chain disruptions and extreme weather, and the failure of the completed project to pass the performance tests that establish the project's rated generating capacity, and energy and natural resources law counsel advising on renewable energy project EPC contract negotiation should confirm whether the contractor's liquidated damages provisions are sized to compensate the project for actual revenue losses during a delay period and whether the performance warranty provisions are backed by a creditworthy parent guarantee that gives the project a meaningful remedy if the facility's actual output falls below the level that the debt service coverage ratio calculations assumed.

Wholesale renewable energy projects that sell power in interstate commerce must obtain FERC market-based rate authorization, and the interconnection agreement with the regional transmission organization or independent system operator is frequently the most time-sensitive regulatory approval because interconnection queue positions are often held for multiple years before a study process is completed, and energy regulatory counsel advising on renewable energy project regulatory compliance should confirm whether the project's interconnection request has been filed in the correct queue and whether the project's site control documentation satisfies the queue's deposit and site control requirements.

The Inflation Reduction Act significantly expanded the Investment Tax Credit and Production Tax Credit available to solar, wind, battery storage, and other qualifying renewable energy projects, and compliance with the ITC and PTC's prevailing wage and apprenticeship requirements, domestic content provisions, and energy community bonuses is an integral part of renewable energy project legal structuring, and energy transition counsel advising on renewable energy project tax structuring should assess whether the project's construction timeline and workforce composition satisfy the prevailing wage and apprenticeship requirements and whether the project qualifies for the additional bonus credits available for projects sited in energy communities or using domestically produced components.

The EPC contract and the project finance loan agreement are the two documents that together define whether the renewable energy project will be built on schedule, within budget, and with the risk protections that lenders require, and project development and finance counsel representing renewable energy project developers in EPC and lender negotiations should confirm whether the EPC contract's change order procedures adequately protect the project company against scope creep and material cost escalation and whether the loan agreement's conditions precedent to initial funding are satisfiable with the documentation the EPC contractor and the permitting agencies will actually produce within the financing timeline.

Renewable energy project permitting decisions are frequently challenged through administrative appeals and federal court litigation under the Administrative Procedure Act and NEPA, and a permit challenge that results in a remand to the permitting agency can add years to the project's development timeline and trigger construction cost escalation that makes the original financing terms unworkable, and environmental liability and renewable energy project litigation counsel defending permit challenges should assess whether the permitting agency's administrative record is sufficiently developed to withstand arbitrary and capricious review and whether any procedural defects in the agency's decision-making process could be voluntarily corrected in a way that avoids a judicial remand.