Solar and wind projects can speed up and spread out the energy transition, but they require big chunks of land.
How do developers decide on unbuilt "greenfield" or previously used "brownfield" parcels for their projects, and what does each cost mean to project finance?
This next installment in our explainers series clarifies the context and consequences of developers' real estate strategies.
While solar and wind energy are integral to the fight against climate change, they come with a major drawback: they are diffuse. A 2020 study by the Brookings Institute found that those facilities demand ten times the land per MW generated compared to fossil fuel plants. At the same time, researchers have indicated that to reach deep decarbonization goals, the U.S. will need to develop utility scale clean assets and transmission at exponential rates every year until 2050. To meet that demand, massive amounts of land, perhaps 11 million acres, must be converted towards renewable generation.
Before delving deeper, it will be helpful to understand what makes a plot of land attractive for renewable developers. Let’s imagine a regional solar and storage developer is seeking to build a 100MW solar farm in rural central Connecticut. This developer will need to consider four major factors:
Cost: Securing land is a major expense. The general rule of thumb is that 3-5 acres of land are needed per MW of solar and 10-30 acres per MW of onshore wind. Beyond acquisition costs, owners must pay for site inspection, construction, engineering, materials, permitting and public relations. Since energy projects are typically low margin, many developers will only execute projects of 100MW or more, requiring the purchase or lease of hundreds of acres. As discussed below, many state and local governments incentivize the development of certain types of land, which can reduce the cost.
Path to Market (Interconnection): Any project seeking to link with a utility grid will need to traverse the interconnection process, often overseen by an Independent System Operator (ISO)/Regional Transmission Organization (RTO) or a Public Utility Commission (PUC). The quasi-public authorities serve as regulatory bodies and balancing agencies, ensuring that demand for electricity in a region is appropriately met by supply. The process is arduous and comes with no guarantee of approval. Sites that are more likely to pass through the interconnection process become quite attractive to developers.
Distance to Load (Electricity Demand): An energy project doesn’t do much good if it can’t be transported to the end user. Many experts believe that transmission is the Achilles’ heel of America’s clean energy rollout. Because solar panels and wind turbines and dams require more space than fossil fuel plants, they tend to be in more rural areas farther from sources of demand. This is a poor fit with most current transmission infrastructure, which was built to carry smaller amounts of coal or gas-generated power relatively short distances. Land close to big cities remains particularly attractive because of proximity to existing transmission.
Permitting: In nearly every corner of the U.S., building new infrastructure requires navigating a gauntlet of federal, state, and local permits. The National Environmental Policy Act (NEPA), passed in 1970, demands that government agencies prepare Environmental Impact Statements (EIS) for any major project occurring on federal land. Utility-scale development almost always requires an EIS. The permitting process often faces major resistance in affluent urban and suburban communities with active city governments and a strong pre-existing tax base. As a result, garnering local support is often critical. Without that support, local activists can push lawmakers to stop granting new solar permits, as occurred in Klickitat County, Washington, in March 2021.
Our solar developer faces these four elements on open land cleared for construction, called a Greenfield site, or on land with existing infrastructure that needs cleaning up and treating to be used, called a Brownfield site.
Greenfield Sites and Renewable Development
Greenfield sites have not been commercially developed. We know that renewable developers are seeking inexpensive land relatively close to a city that requires few permits. Farmland located in suburban outskirts fits the bill well. Without much competition from other industrial enterprises, farmland tends to be cheap to purchase or lease.
Greenfields offer developers and investors several engineering advantages. Because greenfield sites are typically free of obstruction, little demolition and pre-work management is necessary. Construction often occurs at a quick rate, often within months since engineering teams have nothing to demolish and dispose. In addition, they have the flexibility to meet a variety of project types, including major solar farms, large-scale wind turbines and transmission lines. With added flexibility comes increased expansion potential. If a greenfield renewable project proves profitable in the first couple of years after construction, the developer may be able to add capacity, increasing returns to investors. Finally, since greenfield sites are typically removed from other residential, industrial, and commercial centers, the permitting process is less rigorous.
Greenfield sites carry three major disadvantages. First, since there is no existing infrastructure to leverage, installation and maintenance costs can be high. Their remote location leaves reduced access to materials, labor, and other inputs. This can lead to a higher construction cost per watt ratio. Second, the path to market is often unclear. A key consequence of building generation assets in rural areas away from load is that transmission to a demand center becomes vital.
Transmission infrastructure is inadequate in much of the country, and grid interconnection requests can take years to be processed through an ISO or RTO. Third, environmental advocates argue that building energy infrastructure at greenfield sites tarnishes otherwise pristine natural spaces that would be better off undeveloped. Advocates have been successful at blocking projects on these grounds. In November 2021, voters in Maine chose to reject a ballot measure that would have built a transmission line for clean power between Quebec and Massachusetts. Despite support from governments and clean energy non-profits, conservation groups, opposed it on grounds that it would harm untouched wilderness. The existence of organized opposition to greenfield clean energy development has helped spark a shift towards brownfield sites.
On the other hand, innovative strategies like agrivoltaics represent a path forward for greenfield developers. Agrivoltaics is the practice of building elevated solar panels above green plants or agricultural crops. The solar panels are typically positioned directly above the plants. This allows the plants below to access sunlight early and late in the day (when the sun appears at an angle in the sky) but blocks those rays in the middle of the day when the sun is directly overhead. This creates a symbiotic relationship, especially in hot and sunny climates. The plants, shielded from the most intense solar radiation, become “evaporative coolers” for the panels above, which increases their efficiency. In turn, the plants are better protected from overheating and dehydration. Researchers have estimated that transforming just 1% of U.S. farmland to an agrivoltaics system would be sufficient to meet the country’s renewable energy goals.
There are economic benefits as well. Ethan Winter, a solar specialist from American Farmland Trust, estimates that lease payments from solar development may offer farmers five to ten times the revenue per acre than they could earn from agriculture alone. The idea of co-locating solar panels and farmland isn’t new (it was advanced by a Japanese engineer in 2004), but it has yet to be scaled up in the United States. The largest commercially active agrivoltaics system is Jack’s Solar Garden, which maintains a 1.2MW facility in Boulder Country, Colorado. To encourage widespread adoption of agrivoltaics, Winter suggests that state and federal governments guarantee low costs of capital to dual land-use projects.
Brownfield Sites and Renewable Development
Brownfield sites are plots of land previously used for commercial or industrial activity and now abandoned, condemned, or contaminated. Historically, developers and investors have viewed brownfield development as a risky proposition. Much risk comes from the regulatory hurdles involved. Contaminated land often contains toxic waste and chemicals, whose proper handling is mandated by several statutes and permits, including the Clean Water Act. Further, while brownfield sites may have existing infrastructure, older systems may not meet modern building codes and need to be updated.
There’s a temporal issue as well. The permitting process, and therefore the construction process, is lengthy, meaning that investors will need to commit funds to a project well before knowing if a project will be approved. A secondary source of risk is the fact that brownfield projects are inherently more volatile than greenfield projects. Contaminated property comes with question marks that are hard to account for upfront, which can cause project costs to exceed estimates.
Despite challenges, an emerging consensus champions the benefits of brownfield development. A primary benefit is that there are a lot of them. The National Renewable Energy Laboratory (NREL) has identified 450,000 brownfield sites with renewable potential, many of which are near urban areas. These sites tend to be cheap and near sources of electricity demand. This makes the transmission question we discussed above less challenging. The real advantage, however, is that building renewable energy on brownfield sites is economically, environmentally, and politically efficient.
To see how, let’s imagine that our Connecticut solar developer now decides to build a 1MW solar panel on top of an old landfill right outside New Haven. Once the project reaches its commercial operation date and starts producing clean energy, we’ll have an asset that generates cash flows, taxes, jobs, and clean power where previously we had discarded trash. Recognizing this upside, many states with industrial histories, especially California, New York, and Massachusetts, are providing economic (tax breaks) and regulatory (permit expediting) incentives that make brownfield development more attractive.
Brownfield development has another critical advantage. According to Pari Kasotia, a former director at Vote Solar, it can be used to rejuvenate underserved communities when done correctly. Remember that these sites do nothing or cause harm until someone develops them with purpose. In the metropolitan New Haven example, it’s easy to imagine the solar project creating local jobs and generating additional tax revenues. In Kasotia’s view, it is particularly important to use these funds to support locally owned small business and training programs, efforts that emphasize the long-term health of the community. This means budgeting and setting metrics for hiring, student health, and other nonfinancial outcomes.
This sort of development on Chicago’s South Side is a major focus of Illinois’ heralded Climate and Equitable Jobs Act, passed in September 2021. It also received a recent endorsement from New Jersey’s Lieutenant Governor Sheila Oliver, who has directed state agencies to map potential brownfield remediation projects that can inject economic activity into struggling communities.
The name of the game is mutually beneficial cooperation. Reaching net-zero by 2050 requires installing a monumental amount of new wind, solar and storage capacity and repurposing an equally monumental amount of land. While some conflicts are inevitable, innovative solutions, from agrivoltaics to equity-oriented brownfield development, have brought significant progress to the table.