Public interest and demand for renewable energy technologies – systems that cleanly harness the enormous potential of the sun, wind, water and earth – are rising along with concerns over global warning, energy security and fuel diversity. Government policies are stimulating the supply of, and the demand for, renewable energy at greater levels than ever before. While at one time renewable-energy development was hindered by basic economics (high costs) and technological limitations (broken windmills), the cost/benefit equation is now shifting. New technologies are enabling the development of low-cost, high-reliability systems.

So why aren’t we seeing a rapid proliferation of renewable energy projects? The answer is that developing power projects of any shape is not easy. Renewable energy projects face many of the same legal, bureaucratic and financial hurdles as any other energy project. Our experience with the development of cutting-edge, natural-gas fired power plants suggests that renewable energy projects will be built in response to rising demand, but not overnight. Here’s why:

• Siting. Those who build gas-fired plants look for sites that are close to a source of fuel (say, a gas pipeline) and easy access to the market (ideally, a high-voltage transmission line). Renewable energy system developers are no different. While small-scale generators, fuel cells and solar arrays often can obtain the appropriate mix of raw energy resources and prospective customers within existing commercial or residential space, larger systems are not so fortunate. In New England, wind-energy systems work best atop mountain ridges or along coasts. Systems using landfill gas require recently capped landfills. Hydro systems require streams, rivers or unique tidal geography. Even if one can find suitable resources, such sites often are too far from the electric grid or potential customers. Building a lengthy transmission line to reach customers can doom a project’s economics or feasibility.

Renewable projects are also not immune from a dilemma that developers of modern natural-gas facilities routinely face: Not in my backyard objections. Despite the fact that renewable energy projects offer cleaner air – a global public benefit – many of the costs are localized and some of the best sites for renewable resources, like wind or hydro, are located in environmentally sensitive areas thus leading to opposition from some corners. For example, a wind farm on Cape Cod may provide ample clean energy for Massachusetts, but for some of the people who live, work and fish there the prospect of wind towers may seem daunting. Until broad sectors of the public begin to clamor for renewables, developers will have to take great care to educate their neighbors early in the process and address their concerns on an ongoing basis.

• Zoning. Energy developers often find that ideal sites have less-than-ideal zoning. This forces them to undertake lengthy efforts to rezone sites and obtain local permits. Developers of renewables face the same challenges. They also face an additional hurdle – one reminiscent of battles over cellular telephone facilities – educating local officials about how to treat new renewable systems under old zoning laws. Many communities consider renewable energy-generation facilities to be illegal in agricultural, residential or commercial districts, unless they are small enough to be considered ancillary to an existing use or structure. Wind developers often have to contend with height restrictions or laws that require landowners to have a “fall zone” around a tower. Such restrictions often prevent construction of wind turbines, which need a sizeable tower to operate efficiently.

Opponents of energy projects rely on zoning as the first line of defense. A developer of renewables must understand local zoning rules, regulations and politics before committing to a site.

• Connection to the Electric Grid. Most power plants – be they natural gas, oil, coal-fired, hydro or nuclear – generate power that is transported on the New England Power Pool high-voltage grid. Before any facility – even a renewable one – may connect with the grid, its owners must pay for a study to determine whether there is room to carry the plant’s output safely and reliably over the system. Plant owners and developers have little control over the progress of such studies, which can take six to 12 months to complete. If the study recommends improvements to the grid, the new plant’s owners must pay for those improvements.

Some renewable systems are fortunate enough to be too small for the NEPOOL grid. Operators of these systems nevertheless are likely to face costs for studying and, possibly, upgrading local electricity-distribution networks. Some of these upgrades can prove too costly for the average developer. Developers can avoid some of these costs through intelligent changes to the design of the renewable system. Such changes are easier to make before the developer becomes too committed to one design. It thus is critical to identify utility interconnection requirements early.

• Project Financing and Construction. In the wake of the Enron bankruptcy, financing energy projects has become considerably more difficult. That task is even harder for renewables, many of which rely upon expensive (or even experimental) technologies.

Renewable energy projects nevertheless enjoy some financial advantages. For example, Massachusetts has set aside $150 million in the Massachusetts Renewable Energy Trust to support the development of renewable projects that benefit Massachusetts’ electricity consumers. The commonwealth has also has recently adopted a “Renewable Portfolio Standard” that requires energy suppliers to buy and offer to the public an increasing proportion of renewable energy resources in each energy product they sell. At the federal level, Congress recently re-enacted an energy production tax credit designed to support renewable energy projects. All of these policies will increase the competitiveness of renewables.

While developers of renewable energy projects face challenges and obstacles, there is cause for optimism. As technologies improve and policies encouraging renewable energy take root, developers and business owners should be able to choose from an expanding array of options and opportunities. Proper planning to address the myriad legal and financial challenges presented by renewable power-project development will greatly increase the prospects for success.

Regulations Overshadow Demand For Renewable Energy Projects

by Banker & Tradesman time to read: 4 min