Contributed by Chris Guillen and Becca Tucker, Brownstein Hyatt Farber Schreck
Drought, climate change, and new regulatory forces, like the Sustainable Groundwater Management Act (“SGMA”), are bringing change to California’s land uses. Climate policies are spurring renewable energy development, while drought and new water restrictions may force the fallowing of agricultural land. These external factors bring significant challenges and stress to many industries and livelihoods, but there are strategic opportunities for renewable energy developers and agricultural interests to explore in responding to the state’s drought and climate change problems. This article explores a few of these water-related partnership opportunities wherein agricultural interests can mitigate increased water costs and decreased water supply and renewable energy developers can add value to their project development.
1. Addressing water rights during land acquisition
Site characteristics—like proximity to necessary infrastructure, grid availability, and high-quality renewable resources (solar, wind, geothermal, etc.)—may be the primary criteria for siting renewable energy projects. While many agricultural lands may meet each of these criteria, they are not the only drivers of the value of the land. In California, agricultural property may have appurtenant water rights with significant monetary value. Depending on location and market factors, such water rights can exceed several thousands of dollars per acre-foot of water. If purchased with the land, these water rights add value to the land and, if surplus rights exist after use for construction and operation of the renewable energy project, they can be monetized as an additional source of revenue for the project as discussed further below.
Alternatively, water rights could be reserved to the seller in exchange for a reduction in the purchase price, and retained by the seller for use on property that remains in agricultural production. This latter situation provides a unique opportunity for agricultural interests, which are renowned for maintaining economic viability in the face of a wide range of stressors. By maintaining the water rights associated with the renewable energy project site, farmers could generate revenue from fallow land while maintaining sufficient water supplies to irrigate other acreage.
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2. Monetizing water rights retained by renewable energy developers
If retained, water rights in excess of on-site water demand (i.e., the demand required to construct and operate the renewable energy project) may provide an opportunity for an additional revenue stream for the project. The key consideration in analyzing this revenue stream is what other entities may be vying for water supplies in the vicinity of the project.
For example, in regulated groundwater basins subject to either a water allocation system or court-ordered adjudication, water markets have developed to permit the transfer of water rights among properties. These rights may be transferred on a temporary or permanent basis to allow for other users in the groundwater basin to satisfy unmet demand. Such a market would permit a renewable energy project with minimal water demand to monetize its water rights assets by selling to other users in the basin.
Even in areas without water markets, there may still be an opportunity to monetize water assets. For instance, a few California jurisdictions require new irrigated acreage to offset water use above an assessed baseline scenario. While untested in some areas, unused water rights from renewable energy projects could be purchased to satisfy offset requirements for new agricultural enterprises.
In another example, surplus water rights could be used to supply habitat restoration projects in exchange for compensation. Examples may include providing water to conservation banks, wherein private entities restore and protect endangered or threatened species and associated habitat and then sell credits to other project developers in exchange for compensation. These projects may be located in areas with severe water supply shortages and in need of excess supply for habitat restoration.
3. Incorporating agriculture into renewable energy projects
Finally, a growing number of research institutions and U.S. solar developers are looking to deploy agrivoltaic systems. Agrivoltaics refer to solar systems where the rows of panels are integrated into the actual fields of crop production. In certain circumstances, an agrivoltaic system could offer a solution to farmers’ increased water costs and limited water supply. Research sites and agricultural conservation groups are actively monitoring how integrated solar systems can also yield benefits to crop production by lowering temperatures and countering the increased plant evapotranspiration rates a hotter, drier climate brings.
About the authors
Chris Guillen, an attorney with Brownstein Hyatt Farber Schreck is based in Santa Barbara, Calif. and brings combined experience in regulation and litigation. He acts as a trusted advisor on complex natural resources projects. His expertise spans the intersection of land use and water law, with a particular emphasis in the Sustainable Groundwater Management Act (SGMA) and the California Environmental Quality Act (CEQA). Chris relies on his unique experience to provide strategic counsel on all issues pertaining to water rights, including water-related litigation, water transactions, compliance with state regulations and water right permitting issues. His clients range from public water agencies to corporations and private property owners. Chris also advises landowners, developers, agricultural interests and energy companies on environmental review under CEQA and land use permitting requirements during all phases of project development and litigation.
Becca Tucker, director of business development who is based in Santa Barbara, Calif. for Brownstein Hyatt Farber Schreck, brings more than a decade of business development with a particular focus on renewable energy, sustainable building and corporate environmental management. She leads the business development efforts for the firm’s Natural Resources practice, including the Energy and Cannabis & Industrial Hemp groups.
