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By: Michael Bonsignore and Eli Keene, Clifford Chance
In this article, the authors explain that as the Biden Administration lays out its vision for a clean energy future, a confluence of economic and policy factors is providing a unique opportunity to greenify the power grid’s physical infrastructure by leveraging the economic opportunity in retired fossil power plants.
THE UNITED STATES IS ON THE PRECIPICE OF A WATERSHED moment for clean energy following the inauguration of Joseph R. Biden Jr. as America’s 46th president. On the campaign trail and following his election and inauguration, President Biden has pledged and begun to implement an ambitious set of climate goals, striving to achieve net-zero emissions nationally by 2050,1 with a goal of achieving carbon pollution-free energy generation by 2035, and to do so in a manner that encourages economic growth and environmental justice.
Federal energy policy under a Biden Administration stands to supercharge a transition already consuming the U.S. power sector, where a fleet of aging, carbon-intensive coal plants is moving rapidly to retirement. Between 2011 and the middle of 2020, American coal-fired power plants representing 95 gigawatts (GW) of capacity2 were taken offline. While some of these shuttered generating stations have been converted to natural gas-fired plants, the majority have entered a state of limbo—ceasing operations but remaining unremediated and unutilized.
While the rapidly expanding ranks of shuttered coal plants might initially call to mind images of blight and unemployment, there is opportunity lurking. As the number of old coal sites grows, developers, operators, and asset managers will have more opportunities to greenify these old assets, by converting them to renewable energy hubs and storage centers. By leveraging the physical attributes and advantages of these sites with a variety of policy incentives, greenification projects can pose an attractive opportunity to turn idling liabilities into new, clean, economically viable assets.
For a developer, operator, independent power producer, or asset manager, aging and shuttered fossil plants present a few clear models for redevelopment, depending on the stage of the plant’s life cycle. For generating stations that have already ceased operating, a site can be acquired, remediated, and outfitted with new solar and battery storage; carbon capture and sequestration technology; clean hydrogen; or any other variety of clean energy equipment, much as with any other new facility.
The same financing incentives can be deployed as would be used in a greenfield project, including tax equity financing via the investment tax credit (ITC), the premium tax credit (PTC), the Section 45Q tax credit,3 or other tax credits. Existing infrastructure with remaining useful lifespan (including technical infrastructure such as substations, but also run-of-the-mill infrastructure, such as roads and parking) can be repurposed and built into the new facility.
A plant need not be sitting abandoned for it to present an attractive greenification target. An alternative model might involve greenifying a site while it remains in operation. Under this model, a fossil plant could continue to operate during a gradual revitalization ramp-up period, all while continuing to generate cash flows from its existing operations. As the coal-fired units on site enter retirement, new power purchase agreements (PPAs) could be entered into for clean energy generation on the site, leaving the owner with two very different, but continuously operating assets.
Despite the radically different asset classes, each model can present an owner or operator distinct advantages over greenfield developments.
Repurposing retired industrial sites—including for renewable energy development—is not a new idea. The U.S. Environmental Protection Agency (EPA) launched its Brownfields Program in 1995, and state programs followed, encouraging the redevelopment of polluted or potentially polluted sites through provision of grants, technical assistance, and, following the passage of amendments to the Comprehensive Environmental Response, Compensation, and Liability Act in 2002, certain limitations on federal environmental liability.
Retired coal plants have already garnered some redevelopment interest in the United States. In 2018, Google broke ground on a new, $600 million data center, sited on the campus of the Widows Creek fossil plant in Jackson County, Alabama, a 1.6 GW Tennessee Valley Authority-operated facility that was shuttered in 2015.
But the repurposing of coal plants specifically for clean energy generation, storage, and technology is a separate, growing phenomenon, with some attractive benefits for the right participants. The benefits and potential opportunities available to greenification projects include:
One critical advantage of greenification projects is the broad variety of government incentives that may be available to them. A number of state and federal programs exist specifically to promote the redevelopment of brownfields and the revitalization of the communities in which they are sited.
These programs are likely to receive renewed focus under the Biden Administration. In one of the Administration’s first climate actions, an executive order on “Tackling the Climate Crisis at Home and Abroad,” the federal government was specifically directed to coordinate efforts on turning idled dirty energy assets into “new hubs for the growth of our economy.” Among the government programs and incentives already in existence today are:
With the release of its American Jobs Plan in March 2021, the Biden Administration specifically called for increasing the capacity of these and other government programs to engage with these projects. The American Jobs Plan pointed to the Economic Development Agency’s Public Works program and HUD’s Main Street program, both of which provide government grants for municipal-level revitalization projects. An increase in federal grant dollars for economic redevelopment may lead to increased pressure from communities themselves to bring former generating facilities into productive use.
While the opportunities to greenify retiring coal stations are growing rapidly, only a handful of these projects have been developed to date in the United States.
One of the early successes has been ENGIE North America’s redevelopment of Mount Tom station in Holyoke, Massachusetts. The 146-megawatt (MW) coal plant, originally built in 1960, powered down in 2014, and was immediately targeted by the city of Holyoke for redevelopment. The resulting redevelopment took only four years, with ENGIE opening a six-MW solar farm on the site in 2017 and a three-MW integrated storage system (at the time, Massachusetts’ largest) the following year.
The greenification of the Mount Tom site was made possible by the right alignment of opportunities and incentives. The Massachusetts Clean Energy Center—a state economic development agency—provided early technical assessments and assisted in convening stakeholders on the site’s redevelopment. Transmission infrastructure was repurposed, allowing easy interconnection with the grid.
On the money side, tax equity financing was put in place for the redevelopment, and Massachusetts’ renewable portfolio standard helped pave the way for the project’s 20-year PPA with local utility HG&E.
The model may be rapidly scaling for success. In January 2021, rapper-turned-solar developer Akon announced the creation of the Black Sunrise Fund, with an initial investment of $725 million, dedicated to recommissioning coal plants as solar energy facilities.
Similarly, just recently, J-Power and Fortress Investment Group have partnered on the development of a greenification hub on the site of the Birchwood coal plant in King George County, Virginia.
Though greenification projects carry a number of advantages, as with any new project type, developers will need to work through some key issues.
The elephant in the room, of course, is environmental liability. While state and federal brownfields programs provide some comfort here, parties will need to carefully consider how known and unknown environmental liabilities are priced into and segregated within these transactions. With public support for greenification coming directly from the Biden Administration, it is not unreasonable to suspect that further incentives relating to environmental matters could be on the table for parties willing to take on such revitalization projects.
Financing considerations will also need to be addressed. Despite existing brownfields policies, lenders may remain skittish about the prospect of potential exposure under state and federal environmental laws. And even where a developer is greenifying a site it already owns, it may need to navigate its own financing covenants—either funding the greenification project with equity or convincing its lenders to assume a new type of project risk.
Finally, despite the various economic advantages, greenification results in a new scale of project. Only portions of a given site will be suitable for renewables development, and the resulting projects are likely to be a fraction of the capacity of the original plant, leaving a fundamentally different project in its place.
As the Biden Administration lays out its vision for a clean energy future, a confluence of economic and policy factors is providing a unique opportunity to greenify the physical infrastructure of the U.S. energy grid. As more fossil plants continue to shutter, there will be increasing opportunity to repurpose the valuable infrastructure that has tied them to the grid for decades at attractive costs. A solar, storage, and carbon capture industry that is rapidly growing cheaper and more versatile is primed to seize the moment. And with a new administration that has organized itself on the principle of building back into a clean energy future, developers and operators may find themselves with very willing governmental partners.
Michael Bonsignore is a partner in the Washington, D.C., office of Clifford Chance. He is a member of the firm’s Corporate M&A and Energy & Projects groups, focusing on the renewable energy and clean energy technology sectors. He may be contacted at michael. firstname.lastname@example.org.
Eli Keene is an associate at Clifford Chance. He can be reached at email@example.com.
This article first appeared in Pratt’s Energy Law Report. All rights reserved. Visit the website to subscribe: https://store.lexisnexis.com/products/pratts-energy-law-report-skuusSku20750419.
To find this article in Lexis Practical Guidance, follow this research path:
RESEARCH PATH: Energy & Utilities > Trends & Insights > Articles
For a collection of resources addressing ESG issues, see
> ENVIRONMENTAL, SOCIAL, AND GOVERNANCE (ESG) RESOURCE KIT
For an overview of the carbon capture and sequestration credit contained in IRC Section 45Q, see
> 4 TAKEAWAYS FROM THE FINAL IRS CARBON CAPTURE RULES
For a discussion of the Biden Administration’s American Jobs Plan, including its emphasis on climate change, see
> PRESIDENT BIDEN’S AMBITIOUS AMERICAN JOBS PLAN WITH SIGNIFICANT CLIMATE-RELATED PROPOSALS
For practical guidance related to climate change in a variety of practice areas, including real estate, finance, energy and utilities, and corporate governance, see
> CLIMATE CHANGE RESOURCE KIT
1. https://joebiden.com/climate-plan/.2. https://www.eia.gov/todayinenergy/detail.php?id=44976. 3. 26 U.S.C.S. § 45Q. 4. https://www.enchantenergy.com/farmington-agreement/. 5. https://www.epa.gov/re-powering. 6. https://www.arc.gov/.