While the world pushes for more clean energy, much has been written about the U.S. problem with reclaiming abandoned oil wells. But a lack of decommissioning regulations for the renewable energy industry could create a future cleanup headache for taxpayers too.
Nothing lasts forever, and solar projects are no exception. The expected lifespan of most solar projects is 25 to 30 years. Once that period is over, solar panels will need to be taken down, racks, wires and pylons will need to be removed, and the land will need to be restored back to its normal state. This process is referred to as decommissioning.
While many states require the developer or owner of a solar farm to submit a decommissioning plan, few states require them to provide financial guarantees to ensure that these costs will actually be covered. This presents a significant risk for taxpayers, the environment and those living near these solar farms. Much changes over the course of 30 years. Even the strongest and best companies may not be around to meet those obligations. Even if the owner or developer does, they may not be able to meet those financial obligations and we may be stuck with a new term, “abandoned solar farm.”
Like many regulations, the debate has turned political. Some states have clearly defined laws requiring a decommissioning surety bond, letter of credit or other financial guarantee to be in place before these projects begin. Other states have turned down legislation for fear of losing opportunities or because of industry pushback. Most states, however, have little legislation and leave it up to state and local officials. History tells us that politicians on both sides will be lax with regulations in order to get their city or state projects approved, while leaving clean-up concerns to the future when they will be out of office.
Solutions
While no one solution will apply to all solar projects, financial guarantees should be in place on all of them. Decommission surety bonds are one solution. These bonds act as a financial guarantee for the decommissioning and cleanup. The argument for decommissioning bonds is that governments are already using them on other energy projects. Reclamation bonds for mining coal and other natural resources have been around for a long time and are required on federal land and in most states. Similarly, oil and gas bonds have also been required to drill for these natural resources. However, these requirements were set woefully low and have not been updated to keep up with inflation. Decommissioning bonds should be required that are tied to an index. Construction labor would be a good benchmark as that is who will be performing the decommission of the solar farm.
Critics will argue that decommissioning bonds discourage development. Because of the long-term nature of these bonds, only the biggest and best can typically qualify. Smaller owners and developers may be unable to get bonded, or may have to put up collateral. While these arguments are factual, it should not stop the requirement. Simply put, who should hold the risk — the developer making money on the project or the U.S. taxpayer? Again, these concerns do not stop the requirements in other industries.
There are other mechanisms aside from surety bonds that could also be implemented. For example, states could require that 5% of the projected decommissioning cost be added to an escrow account for each year until the requirement is reached. At the end of the project, the developer could use the funds to pay for decommissioning, or the state would have a fully funded account to use.
Stricter regulations may also open up other creative solutions. The insurance industry and credit industries can be very creative when they have a market for new products. While any of these solutions may add costs to solar projects, the cost would be far less than passing the responsibility to the government and taxpayers.
Renewable energy is the future and we should all support those looking to develop it. However, it is our responsibility to ourselves and future generations to make sure we do it in a responsible manner. Oil and coal have shown us the massive economic and environmental costs of not requiring sufficient financial guarantees from energy producers. We should not make the same mistake with solar panels and green energy. By being proactive now, the solar industry can be confident that they will not be responsible for heavy tax burdens placed on the industry later to clean up mistakes made now.
Josh Carson is Vice President and Partner at Axcess Surety Bonds with a focus on energy solutions. For 20 years, Josh has helped businesses with surety bonds, finance and business management. Josh holds an Associate in Fidelity and Surety Bonding and a degree in Finance.
