Navajo Generating Station: An Opportunity for Renewable Energy Project Finance By CU Law Student Gregor McGregor

Immensity is the abiding feature of the Colorado Plateau. During this year’s Advanced Natural Resources Seminar, our group was struck again and again by the sheer magnitude of the region’s features. Sleeping Ute Mountain, Shiprock, and Bears Ears greeted us outside Durango. These figures remained our companions on the horizon as we travelled vast distances through New Mexico, Arizona, and Utah. In a topography of deep canyons, sheer cliffs, and broad skies, the size of Navajo Generating Station (NGS) seems almost appropriate as it towers above Page, Arizona.

Everything about NGS is immense: its gas stacks reach 775 feet into the sky; it has a nameplate capacity of 2,250 MW; it uses 50,000 acre-feet (over 16 billion gallons!) of water annually; consumes 8 million tons of coal annually; and its construction included 800 miles of new 500 kV transmission lines. The NGS was constructed to pump 500 billion gallons of water uphill from Lake Havasu to Phoenix and Tuscon through the Central Arizona Project.

Yet, this 44-year-old vestige of the Plateau’s “big build-up” is about to fall prey to the changing economic realities. In 2015, the utilities who operate the plant voted to end operations. The cost of retrofitting the plant to meet environmental standards was no longer economic. A regional drop in the price of electricity on the spot-market, driven by cheap natural gas-fired electricity, meant the operators were losing tens of millions of dollars by continuing operations. Despite some investment group interest, and hearings on the Hill, the NGS will likely close in December of 2019.

Continued operation of the NGS is economically and environmentally unadvisable. Renewable energy development offers an alternative in line with the Navajo land ethic and conception of intergenerational responsibility. As Nicole Horseherder, a Navajo activist, said during hearings in Washington D.C., “burning coal is uneconomic and can no longer compete against cleaner, cheaper and far more culturally appropriate sources of power, such as the solar and wind resources that are plentiful on the Navajo Nation.”

Positive Developments in Indian Law for Investment

The closure of the NGS may also mean the closure of the Kayenta Mine, which is the dedicated fuel source for the plant. Together, these sites provide millions of dollars and between 700 and 3000 jobs to the Navajo and Hopi Nations. The environmental benefits from closing the plant and the economic advantages reaped by the utilities will come at a deep cost to the surrounding communities and tribal governments. However, developments in Indian law and the remaining infrastructure present are a major opportunity for renewable energy development.

Anyone who works in Indian law, energy law, or project finance knows how complex each of these fields are independently. This complexity only increases as you mix and match topics. What the NGS site provides, besides abundant solar potential, is a simplified route around many of the typical requirements for developing energy projects on Tribal lands.

Since 2000, Federal Indian law has been steadily empowering tribes to make their own decisions on leasing and developing their own lands. These acts permit tribes with adequate environmental and procedural safeguards to make contract and leasing decisions for themselves. Previously, leases were subject to approval by the Secretary of the Interior under the Federal Government’s trust responsibility to the tribes, adding as much as two years to the typical leasing process. 

The ability of the Navajo to approve their own leases greatly reduces the complexity involved in partnering with the nation to build a renewable energy plant. Because a renewable site does not implicate the removal of minerals, these leasing decisions are the major bureaucratic hurdle to project developers. Renewable energy also circumvents three major legislative acts and the up to eighteen Bureaus and offices within the Department of the Interior that are involved in mineral development on Indian land. All of this means reduced costs and more profitable future projects.

NGS Site Advantages for Site Control and Access, Permitting

Depending on the terms of agreement to reclaim the NGS site, the Navajo Nation will control access to the facility site, the electric railway to the Kayenta Mine, and lands encompassing the mine. The area is already developed with the necessary easements and physical infrastructure for future projects, and the Navajo Nation is a single entity to negotiate with. The water, and water-bearing infrastructure, needed to construct and operate a renewable energy site are already available, and transmission infrastructure already exists and capacity is secured by the tribe for 35 years in the current operating lease. These assets amount to $121 million of already-existing and necessary infrastructure for energy projects in the area.

Permitting is simplified by developments in Indian law, but also by the existence of the NGS. The current lease provides that the site will be remediated for industrial use. The much-less intensive infrastructure of a renewable energy-site is also unlikely to trigger any new environmental controls against the backdrop of 44 years of coal operation. Pre-existing transmission capacity is also a major boon to re-development. Generally, each locality transmission lines pass through must issue an individual permit before a company can approach the state utilities commission for final approval and begin construction. The Power Company of Wyoming has been working since 2005 to permit 730 miles of transmission for its own 3,000 MW wind project. This is added time and money a new project could avoid by using the NGS site.

A Chance for Reclamation and Future Development

When a project company seeks financing for a new facility at the NGS site, it will benefit in myriad ways from the prior existence of the coal plant. Reduced project and transaction costs will drive down the price of doing business, giving a project a better chance of profitability in the future.

A shift to renewable energy at the NGS site is unlikely to match the coal plant and mine in megawatts, jobs, or income. However, it does present an incredible opportunity for development companies and the tribes to reclaim economic benefits and contribute to a clean-energy future. The Navajo already operate the first tribally-owned solar facility, a 27.3 MW solar array, outside the town of Kayenta. Installing panels at the NGS site would continue Navajo leadership in renewable energy, and set conditions for increased energy development on tribal lands.

Gregor MacGregor is an active-duty Captain in the United States Army attending law school through the Funded Legal Education Program. All views contained in this post are his own and do not reflect the position of the U.S. Army, Department of Defense, or Federal Government of the United States. Gregor McGregor is a rising 3L at Colorado Law.