Rental Relief: Bureau of Land Management Cuts Rates for Wind and Solar

On May 31, Secretary of the Interior Deb Haaland announced that the Bureau of Land Management (BLM) is revising its policies on rents and fees charged for renewable energy projects located on federal public lands and is establishing five Renewable Energy Coordination Offices that will primarily serve the western United States. Shortly after Secretary Haaland's announcement, BLM posted an updated rent manual chapter, which adjusts downward the amounts charged to existing and new wind and solar energy projects located on public lands.¹ BLM expects the revised rates to reduce bills by over 50 percent on average.

In terms of meeting climate goals, the reduced rates are a welcome update and could significantly reduce the bills owed by some renewable energy projects, though it is too soon to tell whether the newly created coordination offices will increase the efficiency of the BLM renewable energy right-of-way process in meaningful ways.

The Landscape

As background, Title V of the Federal Land Policy and Management Act of 1976 (FLPMA) and its implementing regulations govern applications for wind and solar energy projects located on public lands. These applications are processed by BLM as rights-of-way.

Generally speaking, FLPMA requires that right-of-way holders pay fair market value for their use of public lands. But thanks to the Energy Act of 2020, the secretary of the interior has the express authority to reduce rents charged for renewable energy projects in two instances:

First, if existing rates:

• Exceed fair market value,
• Impose economic hardships,
• Limit commercial interest in a competitive lease sale or right-of-way grant, or
• Are not competitively priced comparable to other available land.

Second, if the Secretary determines that a reduced rental rate is "necessary to promote the greatest use of wind and solar energy resources."

In this case, BLM seemingly exercised the more amorphous second option. According to BLM's announcement, the reduced billing rates aim to promote greater use of wind and solar energy resources on public land yet still collect a reasonable return.

Implementing Reduced Rates and Fees

Now (as before), the rental bills issued by BLM to wind and solar projects have two components: (1) an acreage rent; and (2) a megawatt (MW) capacity fee.

Acreage Rent. The acreage rent is calculated by multiplying the number of acres times the annual per acre rate from the appropriate acreage rent schedule. The calculation for determining the annual per acre rate is A × B × C × D = E where:

• A is a per acre value;
• B is the encumbrance factor (100 percent for solar and 10 percent for wind);
• C is the rate of return;
• D is an annual adjustment factor calculated based on the average annual change in the Implicit Price Deflator-Gross Domestic Product Index (IPD-GDP) spanning a ten-year period; and
• E is the annual per acre rate.

The updated manual revises factor "A" from a per acre zone value (a dollar value at the high end of a range that each county falls into) to a per acre statewide average and reduces the rate of return (factor "C") from 5.27 percent to 2 percent.

The updated manual provides an example that calculates rent for a 350 MW solar photovoltaic energy project on 2,625 acres of BLM land. Assuming that this project is located in San Bernardino County (which was assigned a per-acre zone value of $16,279 under previous BLM policy), the project would now be assigned a statewide per-acre value of $3,679.16 and would owe an acreage rent of $201,363 in 2022, instead of $2,604,630 under a previous BLM rent schedule.²

MW Capacity Fee. The MW capacity fee is calculated by multiplying a renewable energy project's nameplate capacity by a BLM-determined MW rate. The MW capacity fee kicks in once the project starts generating electricity.

The new policy also revises the MW capacity fee. The MW rate, which previously ranged from $2,172 to $3,802 per MW depending on the technology, is now set at $2,000 per MW for all technologies. Wind projects, which had the highest MW rate ($3,802) under the past policy, stand to gain the most from the reduced rate.

The updated manual retains a three-year phase-in for the MW capacity fee from when generation begins: 25 percent in Year 1, 50 percent in Year 2, and 100 percent in Year 3.

The new rental schedule provides rates out to 2050 and is effective immediately. BLM delayed sending bills to right-of-way holders pending finalization of the new manual chapter and is now resuming its billing for wind and solar projects. BLM will issue recalculated bills for calendar year 2021, with refunds or credits offered for any bills already paid for 2021.

Increasing Capacity to Process Renewable Energy Applications

In addition to the announcement regarding reduced rates, Secretary Haaland also announced the establishment of five Renewable Energy Coordination departments in BLM offices. These coordination offices aim to increase BLM's internal capacity to process right-of-way applications and will include:

• A national office at BLM's headquarters in Washington, D.C.
• State offices in Arizona, California and Nevada
• A regional office, led by BLM Utah, representing Colorado, New Mexico, Utah, and Wyoming

The coordination offices are instructed to streamline reviews among federal agencies for renewable energy projects.

This expansion of administrative capacity is part of BLM's effort to increase the permitting of renewable energy on federal land. In December 2020, Congress directed BLM to seek to permit at least 25,000 MWs of electricity from wind, solar, and geothermal energy projects on public lands by no later than 2025. In its 2021 annual report to Congress, BLM reported it has prioritized 54 proposed projects with a combined potential capacity of 33,000 MWs. However, in fiscal year 2021, BLM permitted only 2,890 MWs (which nevertheless represented a 35 percent increase from the previous year). These numbers demonstrate the magnitude of the task ahead for BLM.

In theory, increasing institutional capacity is a good thing. In fact, BLM's annual report estimated an additional 56 full-time employees would be necessary to support its renewable energy workload if interest in wind and solar projects keeps pace. Yet it remains to be seen whether the coordination offices will have the intended effect of improving efficiencies or simply add another layer of bureaucracy, further slowing things down.

Takeaways

BLM has indicated that the new rental schedule intends to foster greater wind and solar development on public lands rather than to better match fair market value – which continues to be the standard under FLPMA. Thus, while rent reductions are a welcome update, these developments do not represent a fundamental change in how rents are calculated. Furthermore, it remains to be seen whether the newly created coordination offices will increase the efficiency of the BLM renewable energy right-of-way process.

Nonetheless, these announcements are only a piece of the larger initiative to facilitate clean energy on federal land as part of the Biden-Harris Administration's greater climate strategy. While challenges persist, these changes ultimately present an opportunity for industry and other stakeholders to ensure that our public lands are effectively managed to support affordable, environmentally responsible clean energy.

FOOTNOTES

1  In 2021, BLM proposed several rental reduction options in a draft manual section and held a 60-day public comment period.
2  After publishing Instruction Memorandum 2021-005 in November 2020, BLM subsequently revised down the rates for Riverside, San Diego, and San Bernardino in California Instruction Memorandum 2021-008 in June 2021. The comparison above relies on the rates published in Instruction Memorandum 2021-005, since the rates in 2021-008 are not available online.