U.S. Department of Energy - Energy Efficiency and Renewable Energy

Tribal Energy Program

Project Development Full Process - (Printable Version)

With a strategic plan in hand, knowing your tribe's viable energy options, and having chosen your preferred institutional arrangements, it is then possible to formulate an action plan, raise funding, and move forward with specific projects that contribute to your tribal energy sufficiency goals.

Before actually committing to construction, most energy projects benefit from a more detailed feasibility assessment. The initial screening that takes place during strategic plan development should identify a number of interesting options while generating lots of unanswered questions. For the preferred options, conducting a good feasibility assessment will reduce the list of interesting options down to the possible options, which can be further ranked by criteria important to the tribe. The winners can then move into the project development process.

As part of the feasibility assessment, the tribe should begin discussions with the local electric utility about an interconnection agreement. The interconnection process should proceed in parallel with the project development process, which is mapped out below. Each step will provide you with much, if not all, of the information and documentation needed to move your individual projects forward. To continue, select a step in the process.

The Management DecisionContract OutTribal DevelopmentEngineering DesignPower AgreementPermitting and LicensingProject FinancingHardware DevelopmentConstruction and TrainingCommissioningOperations and MaintenanceGraphic of project development process. Each step is linked to a page describing that step.

The Management Decision

Deciding how to manage the detailed project development and construction phase is an important tribal management decision. There are basically two paths to take: The project can be contracted out to an engineering firm or developer, or the project can be carried out through multiple smaller contracts, having the tribe act as the developer or general contractor. There can be a mixing of these two extremes as well. In either event, it is important that the tribe maintain control. The second option obviously requires more internal tribal management capacity and expertise than the contract-out option. However even under the contract-out option, the tribe should use every opportunity to use the actual engineering and construction of a project for tribal capacity building.

Contracting Out

If the decision is made to contract out the bulk of the detailed project design and construction it is very important that the project description, feasibility assessment, project management, and project implementation roles and responsibilities be well defined. Unless there is an overriding reason not to, multiple bids should be solicited for the contractor. In selecting a contractor, technical experience, management experience, transparent accounting, tightly defined milestones, and good communications skills are all important.

Even if the bulk of the logistical, procurement, and construction responsibilities are contracted out, tribal management oversight is critical. The primary benefits of contracting out to an experienced organization is that the project will likely move faster, once the agreement is consummated. A disadvantage is that it is more difficult to build internal tribal capacity, unless it is explicit in the agreement that certain defined labor is to be provided by tribal members. Under such an arrangement, tribal capacity building can and should be part of the agreement, at a minimum focused on developing the ability for tribally managed operations and maintenance following construction and commissioning. The contract could also include a process to transfer the system operation to the tribe, following four steps: build, operate, train, and transfer.

Tribal Development

Opting for tribal development is a large commitment to the future and a strong commitment to tribal sovereignty. Armed with a strong tribal champion, a supportive Tribal Council, and some carefully selected consultants, it is certainly possible to implement projects within the tribal framework. The scale and complexity of the project makes a difference too. Even for large electric utilities, it is often commonplace to contract out engineering design, construction, and commissioning of large coal-fired power plants. But for smaller projects—including building efficiency improvements and many renewable energy technologies—the modularity or integrated systems nature of the technology lends itself to development of local expertise, management, installation, and maintenance.

While the sequence of steps outlined in the overall graphic indicates a very step-wise approach, in reality many of these steps may overlap in time and there may be iterations among steps. For example, permit requirements may impact the engineering design.

Engineering Design

Armed with a good feasibility assessment, the first major step in hardware deployment is the engineering design. For modular renewable technologies (solar thermal hot water, solar photovoltaic, wind, and some biomass technologies), much of the engineering design will have already been accomplished by the equipment vendor. For non-modular renewables (geothermal, concentrating solar power, small hydro power, and other biomass technologies), considerable systems engineering may be required. For this second set of options, it is probably best to contract with an engineering firm or a systems integrator to get through the engineering design stage.

Either way, the objective of this step is to end up with a complete set of component or systems specifications, drawings, performance specifications, and construction management plans that can be used for hardware procurement and on-site construction. The engineering design should also include the development of a detailed construction timeline identifying long-lead-time items and construction sequencing. The larger the project, the more important these documents become.

Also, the engineering design will result in an increasingly good estimate of actual construction costs. For instance, there may be the need for some on-site testing, such as soil drilling and compaction, which can impact foundation design. Transmission interconnection requirements will impact substation design. Air and water quality requirements may mean additional equipment for air emissions control, or waste water cleanup. The detailed engineering design is the time to catch and design-in this equipment. Retrofits are nearly always more expensive than doing it right in the first place.

Power Agreement

For projects destined to provide merchant power into the regional transmission system, developing the power purchase agreement (PPA) and working your way through the interconnection process should be done early. Much of this should have been explored and understood during the feasibility assessment. The PPA has enormous influence over the economic and financial viability of the project. The PPA should address the purchase power price (¢/kWh, including any time of day or seasonal variations), the duration or term of the agreement, and interconnection and operational requirements.

Permitting and Licensing

Any new tribal power generation project will be subject to certain environmental siting and permitting requirements. Permitting includes the granting of permission by tribal and BIA authorities to site the project on tribal lands. Environmental siting requirements typically relate to land-use regulations and air permitting. Larger power generation projects may confront requirements set by the endangered species, wetlands, and historic preservation programs. The trust nature of tribal lands means that significant projects will need to pass through the National Environmental Policy Act (NEPA) process. For more information, see Regulatory Agencies.

Potential Permitting Barriers

Depending on the technology, environmental permitting (primarily obtaining an emissions permit) is probably the single most arduous and costly task in getting a power generation system online. The most common permitting requirement is an air permit, which is applicable to fossil-fuel-fired power generation technologies. An air permit is often required if the site is located within a non-attainment area. Apply for air permits from the local air resources control board, as needed. Depending on the size, type, and potential impacts of your project, this can take up to six months for technologies having emissions. More information on air permitting and environmental siting is available in the Federal Energy Management Program's Environmental Siting Guide.

Within the tribal framework, power generation system installations are subject to the same permitting and evaluation process as other site or facility modifications. For projects outside of the reservation, the National Electric Code; the National Life-Safety Code; and the International Fuel Gas, Plumbing, Mechanical, Building, and Fire Codes are the key references for local code officials. For the most part, these codes do not address some of the newer DG technologies, such as renewable generation, microturbines and fuel cells. The need for these sorts of reviews and approvals will depend on the tribes laws regarding such issues. Establishing building codes and compliance requirements varies widely throughout Indian country.

Applicable Codes and Standards for Power Generating Systems

Several standards specifically address the installation of power generating systems. Tribes may want to consider adoption or building from the following standards:

  • UL 2200 is a commonly cited reference for combustion engines and gas turbines in stationary power applications. It does not specifically refer to microturbines, but it can be considered to include that technology.

  • NFPA 853 provides for the design, construction, and installation of fuel-cell power plants with a capacity of more than 50 kilowatts (kW). Titled the Standard for the Installation of Fuel Cells, it covers natural gas and a number of other fuel sources.

  • NFPA 37 is the Standard for the Installation and Use of Stationary Combustion Engines and Gas Turbines, and it works in conjunction with UL 2200 to apply to the installation and operation of these CHP technologies. Like UL 2200, it can be extended to microturbines.

  • IEEE 1547 is the Standard for Distributed Resources Interconnected with Electric Power Systems; it addresses technical requirements for the safe interconnection of DG systems to the local electric distribution system.

Overcoming the Barriers

The best way to avoid potential permitting barriers is to understand the requirements your system will need to face. Investigate the environmental siting and permitting requirements early on in your project to avoid setbacks and additional expenses that may be incurred later in the project approval phase. Here are some additional suggestions for avoiding and overcoming potential barriers. When it comes to building codes and inspections, you are most likely to gain the inspector's approval if you or your installer do the following:

  • Follow the National Electrical Code

  • Install pre-engineered, packaged systems

  • Properly brief the inspector on your installation

  • Include a complete set of plans as well as the diagrams that come with the system.

In addition, you should be sure that your system is composed of certified equipment (for example, U.L. certification) and that it complies with local requirements and appropriate technical standards.

For help in overcoming potential air permitting barriers, see the Federal Energy Management Program's Environmental Siting Guide.

Project Financing Process

Financing tribal renewable energy and energy efficiency projects will continue to be challenging and project-specific for the foreseeable future. For smaller projects, self-financing may be an option, and government grants are available for a wide variety of projects. For larger projects, the Department of Agriculture's Rural Utility Service (RUS) is a potential financing source: The RUS has provide partial financing for the 750-kilowatt Rosebud Sioux wind turbine, and has stated their interest in financing additional Indian country projects. Such larger power projects generally require some combination of equity and debt that can be paid off through the sale of electric power, the sale of "green credits" for pollution avoidance, and using whatever tax incentives may be available on a local or national basis. See Project Financing for more information.

At some point, project financing and the project's "deal structure" become inseparable. Project financial partners will certainly have a say over the management and oversight structure of the project. Federal tax incentives, and deal structures that are framed to capture these incentives, may have significant influence over the implementation of a project. Due to tribal tax-exempt status, with federal tax incentives available, some sort of partnership with a non-tribal organization that can take advantage of the tax credits will likely be of financial benefit to the project. However, if legislation is enacted that allows tribes to directly take advantage of the credits, outside partnerships may be less important unless there are other technical reasons for the partnership.

The design of the financing package and deal structure is an art of its own. Often outside project developers will have financial partners lined up, pending clearing of the financial "hurdle rate," or rate-of-return, required by the partner. Accepting this outside financing usually brings requirements, however, that the tribe may or may not be willing to accept. Understanding how far the tribe is willing to go in concessions to obtain this financing is an important internal discussion. Extremes range from no tribal ownership to a build-own-operate-transfer scheme where an outside organization would capitalize the project, operate it for some duration (at least until the tax credits expire), then transfer the project to the tribe, perhaps retaining a minority interest in the project in the out-years.

As an example, a recent report from Wisconsin Focus on Energy examined a potential deal structure and partnership for wind power development. As suggested by the report, the tribe, and potentially other investors, would form a limited liability corporation (LLC) that would develop a project plan, find a site, and aggregate funds. The LLC would identify a larger corporate or investment entity looking for investment opportunities and a utility willing to contract for the power. The LLC would then loan its invested funds to the larger partner (most likely a C-Corporation) to help finance the purchase and installation of the wind farm. The LLC would also retain an option to purchase the wind farm after ten years. The C-Corporation would invest its own equity and borrow additional funds from a commercial lender as necessary and would be the sole owner of the wind farm for the first ten years. As such it would benefit from both the production tax credit and depreciation.

The tribe's LLC would receive interest income from its loan to the C-corporation for ten years. The C-corporation would pay only interest on its debt to the LLC, with the principle due in one balloon payment at the end of ten years. At the end of the ten-year period, the LLC would exercise its option to purchase the wind farm from the C-corporation at a pre-negotiated purchase price equal to the principle amount of the balloon payment owed to the LLC. The LLC then becomes the sole owner of the wind farm, which, as a debt-free wind farm, can be profitably operated for its remaining life. For more details, see the report, Wisconsin Community-Based Windpower (PDF 143 KB). Download Adobe Reader.

Hardware Development and Procurement

With the engineering design, purchase power agreement, and project financing in hand, it is now possible to move forward with hardware development and procurement. A complete time-phased construction plan and final engineering and construction design drawings must be in hand at this point. Long-lead-time items should be ordered early, while site preparation efforts begin. Depending on the experience level of the tribe, and the complexity of the project, a decision will need to be made on the degree of contractor support that will be needed. Experienced engineering and construction firms are available for projects of any size, but for more modest projects, the tribe may be comfortable serving as its own general contractor, letting multiple smaller contracts with local excavation, civil-works, electrical, and mechanical contractors.

At this point, detailed equipment lists and specifications, construction drawings, and organizational skills become invaluable to keeping the project on schedule and within its budget.

Construction and Training

Engaging the tribal work force during construction is an excellent way to build a trained workforce of competent plant operations and maintenance personnel. Project construction is also a good time to fully train the tribal project manager, particularly if much of the construction is to be contracted out. The development of this core tribal capability helps build sovereignty and tribal confidence.

For larger projects, where construction is largely contracted out, the use of tribal members and the contractor's training of those members should be spelled out in the construction contract.

Commissioning and Performance Testing

Following construction, a full series of performance tests should be carried out to verify the contracted system specifications, and fully characterize system dynamic and quasi-static operational behavior. Any irregularities should be noted and resolved. Utility interconnection equipment should also be tested in accordance with the interconnection agreement. Emergency operation procedures should be defined and understood.

Following complete performance testing, official commissioning and acceptance documents can be signed, bringing to a close the construction phase, and initiating routine operations.

Operations and Maintenance

Renewable energy projects, while typically low-maintenance, are not no-maintenance. With proper attention to details during construction, operation and maintenance (O&M) of simple grid-connected solar electric (photovoltaic) systems require minimal maintenance. Larger wind systems will require periodic lubrication. Biomass systems will likely require maintenance of material handling equipment, and disposal of waste products such as ash. Each renewable energy technology will have its own operating and maintenance requirements, however minimal. The equipment supplier should be required to provide an O&M manual, including specified maintenance needs and maintenance intervals. Any special tools required for O&M activities should be supplied with the equipment, and responsible staff should be trained in their use.