“Thee Wind-Swept Lands”: Newfoundland and Labrador’s Wind Energy Royalty Framework Looks to Make it Count

April 10, 2023

The Government of Newfoundland and Labrador has been busy creating a new land title and economic development regime as the framework for the impending development of the wind-hydrogen industry in the province. This process has been proceeding since mid-2022 and has recently reached two critical milestones.

On February 23, Newfoundland and Labrador Government (Government) released the royalty and tax framework for wind energy projects. The framework treats wind project development similarly to other natural resources projects by providing for revenues to be payable to Government based on use of three resources: land, wind and water. Government will collect royalties, taxes, and fees throughout the life of a project, with land fees payable on award and wind and water royalties payable at various phases in a project’s lifecycle.

Crown Land Fees:

  • Annual charge of 3.5% of the market value of reserved lands. Payments begin on award of the exclusive right to apply for an interest in the land.
  • Annual charge of 7% of the market value of leased lands. Payments begin on issuance of a Crown lease.

Wind Electricity Tax:

  • A tax of $4,000 per megawatt on installed capacity. Payments begin when the project is “in-service” and applies to all wind projects (≥ 5 megawatts) producing electricity for the ultimate purpose of producing hydrogen.

Water Use Fees and Royalties:

  • Water electrolysis, the process of using the electricity to produce hydrogen, requires large amounts of water. An annual fee of $500 per 1000m3 of water licensed and used, and of $50 per 1000m3 for water licensed and not used, is payable by proponents. Payments begin when permit is issued and are applicable to all hydrogen facilities.
  • Tiered cost recovery royalties based on the value of the water used.
    • Tier 1: Rate of 10% applied after 1x cost recovery.
    • Tier 2: Rate of 20% applied after 2x cost recovery.
    • Tier 3: Rate of 25% applied after 3x cost recovery.

Proponents may enter into agreements with Government to modify the royalties payable, similar to offshore oil and gas projects.

On March 23, 2023, the Government received 19 bids for wind energy projects. Bids will be evaluated in two phases: Phase 1 – Minimum Criteria, and Phase 2 – Review.

Phase 1 will ensure the bids meet the minimum criteria required of a proponent to perform a wind turbine project – this will include consideration of project experience, in construction and operation, and financing.

Proponents who meet the minimum criteria will advance to Phase 2. Phase 2, set for April, will rank the proponents on a weighted evaluation system. The heaviest Phase 2 criteria that proponents will be scored on, all of equal weight (15%), includes electricity considerations and grid impacts, benefits to Government, proponent details, project details, and financing. Government have issued Guidelines: Crown Lands Call for Bids for Wind Energy Projects that set out the evaluation process in further detail.

Successful proponents will be awarded an application recommendation letter from the Department of Industry, Energy, and Technology. This isn’t a grant of the Crown land – it is an exclusive right to develop the proponent’s project and to formally apply for an interest in the land. Environmental Assessment registration is not required during the call for land bids phase; however, prior to final award of Crown land, an environmental assessment will be required for projects over the relatively nominal capacity of 1 megawatt.

Government seeks to balance compensation for its natural resources and the investment of successful proponents. Governments in other jurisdictions, such as Norway, have recently cited the increased cost effectiveness of onshore wind installations and persistently high energy prices as cause to increase tax for onshore wind developments. Industry members have pushed back, stating wind farms still carry high investment costs. Time and market conditions will tell if Newfoundland and Labrador’s framework strikes a balance that can make it count for both government and industry.

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