by Thomas Hefty
Last month, the Department of Energy (DOE) issued its Large-Scale (>10 MW) Renewable Energy Guide, which is subtitled “A Practical Guide to Getting Large-Scale Renewable Energy Projects Financed with Private Capital” (Guide). According to The Guide, its main purpose is to “provide a project development framework to allow the federal government, private developers and investors to work in a coordinated fashion on large-scale renewable energy projects.” The Guide aims to achieve this purpose by (a) developing a common language between federal agencies and developers; (b) describing a “best practice” large-scale renewable energy project development process; (c) giving government employees an understanding of what his or her responsibilities and roles are within the development process; and (d) outlining for developers a recognizable, reliable and predictable process in which it can engage with a reasonable likelihood of commercial success.
Renewable energy developed on federal land is a prototypical government/private industry hybrid — the federal government is making more of its land available for renewable energy development (regardless of whether the federal government will be the energy off-taker), but relies nearly exclusively on private developers to develop and operate projects. However, the record of federal agency participation in renewable energy development has been less than stellar. According to the Guide, “many of the faults found in past federal contracts related to renewable energy can be attributed to a failure by the government to adequately understand the commercial power plant development side of the transaction during negotiation.”
To bridge the divide between federal agencies and their private development counterparts, DOE designed the Guide to provide a project development framework that allows the parties to work in a coordinated fashion — to enable “both sides of a transaction to better understand the deal because better informed people execute better deals.” The Guide maps a process that is grounded in the foundations of commercial project development while integrating traditional federal processes. That process is shown below:
The federal agency takes the lead role in the project acquisition and pre-development phase and, by using the techniques in the Guide, the federal agency can methodically identify, analyze and choose projects that are more likely to be successful when offered to private developers in the late pre-development or early development phases.
The Guide maybe useful to private developers as well because if it can reduce developers’ perceptions of out-sized development risk when dealing with the federal government. To the extent that the Guide represents “best practices” for successfully developing renewable energy projects, private developers can use the Guide to analyze and improve their practices and strategies.
The Guide was developed in cooperation with the U.S. Army Energy Initiatives Task Force, the National Renewable Energy Laboratory and private industry consultants. DOE intends to update the Guide periodically.