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Orphan solar in Alberta — risk or red herring?

Alberta's renewable industry, which pays its taxes and appears to have a working relationship with its community partners, may be the target of a wilful disinformation campaign led by Premier Danielle Smith. Photo by Pixabay/Pexels

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The town of Vulcan in Alberta proudly features a giant replica of the original Starship Enterprise, a space-themed tourist information centre and a futuristic “solar tree” that generates enough electricity to power itself and supply the local electricity grid.

This forward-looking community seems an unlikely place for doubts concerning the renewable energy industry in Alberta. And yet, in a recent CBC article, Vulcan County Coun. Jason Schneider voiced concerns about solar companies going bankrupt and leaving the cleanup costs to local taxpayers.

Rural Municipalities of Alberta (RMA) president Paul McLauchlin noted that going bankrupt is the cheapest way to get out of paying for land reclamation, an all too common practice in the oil and gas industry. Is this really a case of once burnt, twice shy?

The RMA believes renewable projects should be subject to a bond that will cover the cost of cleanup. There are even calls to create a renewable energy equivalent of the Orphan Well Association (OWA).

The OWA was established in 2002 and claims to be industry-funded despite hundreds of millions in federal and provincial loans and $1 billion in federal funding announced as part of the COVID-19 Economic Response Plan. Despite the OWA’s mandate to address the accumulation of orphan wells, the inventory count has reached 2,888 sites for decommissioning, 2,876 pipelines for decommissioning and 7,305 orphan sites for reclamation as of April 1.

Alberta's renewable industry, which pays its taxes and appears to have a working relationship with its community partners, may be the target of a disinformation campaign led by Premier Danielle Smith, writes Rob Miller @winexus #EnergyTransition

The orphan well numbers indicate that some bad actors in Alberta’s oilpatch have been systematically selling well assets to smaller companies, which later go bankrupt to avoid the reclamation liability.

Should we be afraid that the renewable energy industry has a similar problem? Not according to Canada’s monthly insolvency statistics dating back to 2013. Under the electric power generation and other electric power generation categories of the insolvency data sets by the North American Industry Classification System (NAICS), there have been no recorded bankruptcies in the available data set.

One has to consider the nature of the business model in question. The average lifespan of an oil or natural gas well is 20 to 30 years, according to the Canadian Association of Petroleum Producers. At this point, the reclamation liability must be addressed. When there is a significant liability and no further production revenues, unscrupulous companies will declare bankruptcy.

Solar panels have a similar lifespan of 25 to 30 years but can continue producing electricity for over 35 years. A solar energy company may decide to upgrade its panels to improve efficiency or remove underperforming units, but they can carry on profitably generating electricity as long as the sun still rises in the morning. The existing racking, cabling and transmission grid infrastructure is reusable, subject to its own life expectancy.

Under what scenario would a solar company walk away from a revenue-generating asset with exceptionally low operating and maintenance costs? A study by Penn State University’s Department of Energy and Mineral Engineering estimates the operating costs for natural gas electricity generation to be four to 10 cents per kilowatt-hour and operating costs for solar to be less than one cent per kilowatt-hour. In the unlikely case of bankruptcy, surely an opportunistic investor would purchase the assets for pennies on the dollar and add it to their energy portfolio.

Evan Wilson of the Canadian Renewable Energy Association (CanREA) indicated that “as equipment reaches end of life, there is a great opportunity to repower the facility.”

This is true for both solar and wind energy facilities, where it is much easier to upgrade panels or turbines than perform a full-site installation with foundations and towers (wind energy) or racking and cabling (solar).

Furthermore, the site already has access to the transmission system, a completed Alberta Utilities Commission (AUC) approval, a property assessment for local taxes and an established relationship with the landowners that could potentially span 20 to 30 years.

Alberta’s conservation and reclamation directive for renewable energy operations requires that a reclamation and conservation plan be submitted to Alberta’s Ministry of Environment and Protected Areas (AEPA). Developers must do soil sampling and surveys as a baseline to determine the state the area must be returned to after reclamation. After receiving and responding to AEPA comments, the plan must be included as part of the AUC application.

There are also private agreements between the developer and the landowner. A CanREA survey of 17 members revealed that all had commitments to reclamation in their agreements with the landowners. Wilson indicated that the majority of these agreements provide some level of financial security for the landowners.

Unlike oil and gas projects, landowners actually have the right to veto any renewable energy projects on their land. It is in the developer’s best interest to negotiate long-term leases, address reclamation concerns and adequately compensate the landowners.

Compensation can come in the form of a lump sum payment, share of production, long-term lease or some combination of fixed and variable compensation. CanREA reports an average compensation of $500,000 in annual lease payments per 100 megawatts of generating capacity pooled across all landowners participating in the facility.

It seems very strange for Vulcan County officials and representatives of the RMA to be publicly airing concerns about a business partner that is contributing significantly to the tax base of the communities in which they operate.

CanREA estimates that roughly $1 million in property taxes are collected per 100 megawatts of generating capacity. Based on that estimate, the Travers Solar project alone may be contributing over $4 million a year to public coffers. According to Coun. Schneider, renewable energy projects make up 45 per cent of Vulcan County’s revenue, paying for libraries, roads and bridges.

Recently, the RMA has expressed its members’ concerns about $268 million in unpaid taxes owed by the oil and gas industry, an amount that has increased in a year when the industry is reaping record profits.

Between orphan wells and unpaid taxes, it’s understandable that trust has been damaged in this relationship. It is less understandable that this mistrust has been transferred to their cleaner energy partners, which have a long track record of paying their taxes.

One possible explanation is that rural municipalities are quite happy with their revenues from renewable energy projects and that the story is part of a campaign to create public concern about the renewable energy industry.

The fear of orphaned wind and solar projects gained prominence in January, with stories run by CBC, CTV, the Financial Post and the Globe and Mail. It resurfaced at an RMA convention in March, where Premier Danielle Smith and Red Deer County Mayor Jim Wood stoked the same fears of abandoned wind and solar farms.

Given that the Alberta government has a conservation and reclamation directive for renewable energy projects, there is no evidence of renewable energy companies going bankrupt or abandoning their profitable projects, the industry pays its taxes and appears to have a very good working relationship with its community partners, it’s possible the story is part of a wilful disinformation campaign.

Perhaps Alberta’s ruling politicians could be a little more welcoming to the booming renewable energy industry. This industry will provide diversification, jobs and tax revenues at a time when continued growth of the oil and gas industry is uncertain.

Some continue to disparage renewables while going “all in” on an aging industry that has a legacy of abandoned responsibilities, unpaid taxes and open resistance to responsibly addressing the climate crisis.

Rob Miller is a retired systems engineer, formerly with General Dynamics Canada, who now volunteers with the Calgary Climate Hub and writes on behalf of Eco-Elders for Climate Action.

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