Feasibility Assessment

The purpose of a feasibility assessment is to reduce the technical, financial, and environmental risks of a potential project. A feasibility assessment requires going through a particular project concept; identifying the technical, financial, and environmental uncertainties and impacts; and finally making a determination regarding the project's viability.

Each of the renewable energy technologies comes with its own set of technical questions, most of which have an impact on project economics. For example, the strategic plan may have identified wind power as a possible option, but if actual wind measurements at the proposed site don't exist, an anemometer will need to be installed and measurements taken for a year to accurately estimate machine performance and the resulting economics. Feasibility assessments also focus on interface issues, such as connecting to the existing electric power system (both technically and contractually), evaluating the match between resource and technology (particularly important when investigating biomass options), and identifying environmental concerns and sacred site constraints.

A good feasibility assessment should result in a document that is essentially the "business plan" for the project. It does not contain detailed engineering or construction information, but it is of sufficient detail that the project economics can be determined with a fair degree of reliability, so that project financing can be obtained to move forward.

The outline for a good feasibility assessment might look something like this:

Renewable Energy Project Feasibility Study

Concept Brief

A good project feasibility study is a cross between a technical assessment and a business plan. The concept brief should include a summary of the technical evaluation — focusing on the recommended project that has been the result of the technical alternatives considered — and a solid summary of the economic and financial aspects of the project. A good feasibility study is an important key to raising the financial resources needed to implement the project. It needs to be both technically credible and financially realistic.

Resource and Site Assessment

Renewable energy projects can live or die based on the quality of the resource, whether it is a wind, solar, biomass, geothermal, or hydropower project. The better the resource is understood (hourly, daily, seasonally, yearly, year-to-year), the more confidence there will be in the economic modeling. For some resources, the specific site is also important. There may be a great wind resource on the ridge of a mountain range, but if there are no roads, no transmission, and the ridge is in a park or on a sacred site, the cost may be prohibitive or the project may have no chance of being successful. Each renewable resource has its own flow and siting characteristics: Get as much detail as you can. See Assessing Energy Resources for more information.

Technology Assessment

Each renewable resource has its own suite of technology options, and among the renewable energy technologies, commercial readiness varies from fully commercial to still-in-research. This can even be true within a technology path. The challenge of the technology assessment is to identify a set of prospective equipment vendors, and fully understand the differences in technical and business approaches. Renewable energy technology development is continuing at a rapid pace for most of the options. While it is always tempting to go for the latest-and-greatest, it is usually less risk to go with the tried-and-proven. Look for warranties. What is the financial viability of the company? The best looking technology can become quite problematic if the vendor goes out of business and replacement parts are not available. When the preferred technical path is identified, evaluate the technical risk of the path that's been chosen, and work to minimize those risks. See Energy Technology Basics and Risk Assessment for more information.

Environmental and Sacred Sites Assessment

Projects conducted on tribal lands will almost always require some sort of environmental assessment in accordance with the National Environmental Policy Act (NEPA). Some sort of environmental screening should be done regarding selected project sites during the feasibility study stage. Assessing sacred sites (including burial grounds, harvesting areas for native plants, and ceremonial locations) and avoiding environmental damage to those sites is an important aspect of project siting. Tribes themselves are in the best position to evaluate and rule on sites that have cultural relevance, and weigh tradeoffs on land use for these locations. For more information, see Environmental Considerations, Impacts of an Energy Project, and Federal Legal Issues.

Project Agreements

There are a number of agreements that need to be negotiated or defined during the actual project development. During the feasibility assessment, it is wise to understand the requirements and process for reaching these agreements. It is possible that in working through these agreements there will be impacts that reflect back on the project design, and may even affect the technology of choice. As with the rest of the feasibility assessment elements, the primary purpose here is to become informed, so that when the push for development occurs, you will be ready to go. The key agreements include the following:

Land

If the actual project site is not on tribal land, there will be the need for a land agreement (such as a lease) with the land owner. The agreement should include:

  • Term or length of the agreement in years with starting and ending dates

  • Rights including resource use, access (by building a road, for instance), and transmission (including installing a new substation and transmission lines, if needed)

  • Compensation payments and the basis for payments

  • Assignability, which may be required for certain financial arrangements

  • Indemnification, against the tribe and the land owner

  • Reclamation of the land upon completion of the project

These same issues should be addressed for outside projects developed on tribal lands. Even for tribal projects on tribal land, it is useful to address these issues to make sure that there is transparency in the land use actions. See Federal Legal Issues and Sovereignty and Energy Decisions page.

Interconnection and Power Sales

For power projects, the local electric utility will require an interconnection agreement. This agreement will address technical issues, such as interface equipment requirements, as well as power purchase tariff structure information. The interconnection of non-utility-owned generation equipment into existing utility grids is still evolving. Standardization is increasing, but federal, state, and utility rules still vary widely. It is wise to begin discussions with the local utility early. Understanding the interconnection constraints and requirement is critical to a successful project. For more information, see Electricity Grid Basics and Interconnection Process.

Air and Water

Air and/or water permits may also be required depending on the situation. As part of the environmental review, necessary permits from the Environmental Protection Agency, or others, may be required. The feasibility assessment stage is the best time to identify the necessary permits. For further information, see Environmental Regulatory Agencies.

Economic Assessment

A key element of the feasibility assessment is the economics. Project life-cycle economics are usually used to compare the economic viability of prospective options. Renewable energy project economics are based on project performance and project cost. Project performance can be estimated as described under Economics. Cost information ultimately must come from the equipment vendors, but baseline renewable energy cost information is provided under Costs.

Financing

Project financing, as distinct from project economics, focuses specifically on raising the cash needed to build the project in the first place, and repayment of the debt over the course of the project. The financing section of the feasibility assessment should address likely sources of financing including tribal equity investment, grants, and loans, and the repayment terms of any investment or loan funds. This section should include a "pro-forma" spreadsheet showing the annual cash flow of the project over its expected life, based on the specific terms of the financing agreements and the expected annual performance of the project.

Management Plan (Construction, Operations, and Maintenance)

Finally, the feasibility assessment must address the management issues. Implementation of projects requires a viable management structure that addresses overall project leadership, and management plans for construction, operations, and maintenance. Here is the place to describe what will be subcontracted, what tribal capacity needs to be built, and the lines of responsibility and authority. For more information, see Organizational Development.