As projections for utility-scale solar energy development continue to skyrocket, project developers have become more sophisticated in reducing environmental and regulatory risk, thereby making projects more attractive to potential financiers and buyers. In North America, Phase I environmental site assessments (ESAs) are conducted to identify contamination at a site and are a critical component of site characterization and environmental due diligence activities. However, it’s not uncommon for a Phase I ESA to be overlooked as an essential part of site development or to be delayed until the later stages of development – when any concerns identified could impact the project schedule or, worse, require re-siting or the removal of panels in the array. It is important for project developers, lenders and buyers to understand the necessity for and timing of such studies, along with the approach to be taken if concerns are identified in the Phase I ESA report.
The intent of a Phase I ESA is to reduce liability associated with the Comprehensive Environmental Response, Compensation and Liability Act of 1980, commonly known as “Superfund.” Phase I ESAs are conducted as part of due diligence activities for commercial real estate transactions across many industries, including solar energy development. To do this, consultants conducting a Phase I ESA must prepare the document in accordance with ASTM International standard E1527-13. By conducting a Phase I ESA in accordance with the ASTM standard, project developers are conducting “all appropriate inquiries” into previous ownership and uses of the assessed property to minimize liability associated with any existing environmental conditions, such as previous spills of hazardous materials, at the site. This is important because completing all appropriate inquiries is a necessary step for a project developer or owner to be exempt from cleanup of existing contamination at a site.
Recognized environmental conditions (RECs) are defined as the presence or likely presence of hazardous substances or petroleum products at a property due to a release or the potential for release into the environment. At solar energy sites, which are often in rural, agricultural areas or former industrial parks, the following are typically identified as RECs: spills of oil or hazardous materials; leaking underground storage tanks; spills or improper storage of agricultural chemicals; or previous site uses that may have resulted in release of hazardous materials, such as a gasoline station, dry cleaning facility or factory. The presence of RECs on or near the project may affect where project facilities can be sited. As a risk-mitigating measure, RECs are often buffered by approximately 25 meters to 100 meters to ensure that there is no unintended exacerbation of contamination. Without understanding where these RECs are located during layout design, a developer may need to move roads, panels, inverters, collector lines and other project facilities at a later stage, potentially creating a costly scenario.
In accordance with the ASTM standard, there are four components of a Phase I ESA study: a records review, which includes regulatory records, aerial imagery, topographic maps and property titles; interviews with present and past owners, operators, and occupants of the property; a site reconnaissance; and reporting. The ASTM standard also sets forth requirements for the person(s) conducting the Phase I ESA, who must meet the requirements of being an “environmental
professional,” which include both professional qualifications and years of relevant experience. The results of Phase I ESAs are valid for 180 days, after which time most of the report’s components must be updated to remain valid, including the regulatory records review, interviews and site reconnaissance. The 180-day shelf life is meant to capture any new potential sources of contamination.
When to conduct a Phase I ESA
Given the relatively short shelf life of a Phase I ESA report compared with the development timeline of a utility-scale solar facility, timing can be tricky, and completing numerous iterations of a Phase I ESA can become costly. Ideally, a Phase I ESA should be considered an important component of early-stage site characterization activities. The surest way to minimize risks related to contamination and the resulting potential costs or delays to project development or financing is to conduct a Phase I ESA prior to acquiring or leasing a property. Completion of a full Phase I ESA report can take approximately four to eight weeks. This means that Phase I ESA reports are sometimes updated several times during development of a project. If not conducted as part of early-stage development, a Phase I ESA will typically be a financing requirement. However, if completion of a Phase I ESA is delayed until financing is under way, identification of RECs may delay the project.
Likewise, when acquiring development-stage or operational projects, make sure that a valid Phase I ESA is provided. Out-of-date reports do have valuable information, but to minimize risk, study results should be current.
In some cases, it may not be possible to conduct a full Phase I ESA as part of early-stage site characterization. In these instances, there can be significant value in conducting the desktop portions of the study. By reviewing regulatory and historical records, aerial images, and maps and speaking with landowners, it is possible to gain insight into past and present uses of the project site and surrounding properties and deduce the possible risk profile for the project site and surrounding area. For example, regulatory records and aerial imagery can identify past and present oil and gas infrastructure, detect whether the site formerly hosted a mine or industrial facility, or simply confirm the site’s continued existence of agricultural or pastureland over the past 50+ years. With this baseline information, project developers can quickly identify any fatal flaws and determine whether delaying a full Phase I ESA is a prudent decision.
What if RECs are identified?
Identification of RECs during a Phase I ESA is not uncommon and should not be considered to be a fatal flaw; however, RECs will require some additional consideration. If RECs are identified, there are two questions that a savvy project developer should consider: 1) What recommendations does the environmental professional make for further assessment? and 2) What is your company’s level of risk acceptance when it comes to potential contamination and associated cleanup costs?
All Phase I ESA reports should include a section describing any recommendations for further assessment. It is first important to understand the recommendations in the report, particularly whether a Phase II ESA is recommended, which includes sampling and laboratory analysis to confirm whether hazardous materials are present. A Phase II ESA may include tests such as soil and groundwater sampling if contamination is present that could be worsened by project activities. In other instances, the environmental professional may identify RECs but conclude that no further analysis is required or that avoidance of this area by project activities is sufficient to minimize risks. Given the broad definition of a REC in the ASTM standard, a one-size-fits-all approach is not recommended, and this should be considered when selecting a consultant to undertake the Phase I ESA.
In either case, it is important for a project developer to understand the company’s risk tolerance in deciding whether to implement the recommendations in the Phase I ESA report or to institute other measures in order to minimize risk associated with these RECs. In some cases, a simple buffer is appropriate in order to ensure that the area where the REC exists is not disturbed during project construction or operations. In other cases, it may be preferable to excise this portion of land from project leases or adjust the project boundary to exclude this area. The possibility of utilizing any of these mitigating actions is diminished if RECs are discovered at a later stage of development. Ultimately, the final decision about how to address any RECs identified during a Phase I ESA will come down to the nature and extent of the REC identified, along with the developer’s risk tolerance and any financing expectations.
Phase I ESAs are just one of many considerations during utility-scale solar project development, acquisition or financing activities. Nonetheless, if you’re a developer, the following approach will help to ensure your project completes appropriate due diligence, meets financing expectations, and minimizes potential delays and costs:
1. Complete a Phase I ESA as part of initial site characterization activities. Doing so will identify any siting constraints and can minimize future delays in the event that contamination is identified. If a full Phase I ESA is not possible, conduct a robust desktop assessment. Reviewing the preliminary results of an investigation prior to issuance of a formal report can also be a strategy to reach a “clean” report. Some developers prefer this approach in order to define a REC-free site.
2. Make sure your consultant meets the definition of “environmental professional” and has experience conducting Phase I ESAs for solar energy facilities. Many consultants who have experience with Phase I ESAs may not be well suited to understand solar energy development.
3. Understand your company’s risk tolerance with regard to RECs – is avoidance acceptable, or will it be necessary to excise these areas from the project boundary?
4. Lenders typically want recommendations in the Phase I ESA to be implemented. Understand your lender’s expectations in advance of financing.
5. Remember Phase I ESAs are stale after 180 days. Savvy developers update their Phase I ESAs immediately prior to financing.
6. If you are acquiring a project, make sure you have a Phase I ESA to review. Although outdated Phase I ESAs have good information, you should have a current report in order to minimize risks.
Utility-scale solar projects will continue to occupy a diversity of sites. These will include greenfield and brownfield developments in both urban and rural settings. Completion of a Phase I ESA will safeguard that a site’s past uses are adequately investigated to minimize any risks associated with the development of a solar project.
Kendra Kallevig-Childers is a team leader in DNV GL’s Environmental and Permitting Services section, where she focuses on permitting and due diligence for utility-scale renewable energy projects. Ellen Crivella is a senior manager of strategy and business development at DNV GL, and she has advised on more than 7 GW of Phase I ESAs prepared for renewable energy projects in North America.