Thought Leadership

By: John Samms, Sadira Jan, Paul Kiley, Dave Randell, Alanna Waberski, and Jayna Green

As we explained in our July 6, 2022 “Winds of Change” article, the announcement made by Minister Andrew Parsons on April 5, 2022 declaring the end of Newfoundland and Labrador’s moratorium on wind development signals a paradigmatic shift in Newfoundland and Labrador energy policy.^[1]

The downstream impact of that shift remains to be seen, but optimism abounds. A recent feasibility study of hydrogen production, storage, distribution, and use in Newfoundland and Labrador estimated that development of hydrogen production in NL, and attraction in new industry, could result in new green jobs and a hydrogen sector in NL valued at more than $11 billion per year by 2050. That same study found that if Atlantic Canada captured 5% of the European market for hydrogen, the export opportunity could be $9 billion annually in Newfoundland and Labrador. While questions remain, a new industry is upon us.

This gives rise to legal considerations of how new policy frameworks are structured and,  particularly for the purposes of this article, whether the Province will adopt a rental or royalty regime specific to wind generation on Crown lands that will produce fair returns and incentivize development.

This article analyzes renewable Crown land rental and royalty regimes in other jurisdictions, from which we may glean some insight into how such policies could be implemented in Newfoundland and Labrador. The following sections provide brief observations as to how other jurisdictions across the country are capitalizing on wind generation on Crown lands.

British Columbia Has an Established Royalty Regime

In 2019, British Columbia’s Ministry of Forests, Lands, Natural Resource Operations and Rural Development (“the Ministry”) updated their “Wind Power Projects Policy” to provide information on the disposition of Crown land for components of a wind power project, including turbines, maintenance buildings, plant facilities, roads, and transmission lines.

The Ministry uses a first-come-first-served approach to process applications for wind development. Upon successful application, the Ministry will charge a rent of $500/year to issue an investigative license of occupation.^[2]

During operations, in addition to an annual rental fee charged in association with the granting of a Multi-Tenure Instrument (“MTI”),^[3] the Ministry will apply a “Participation Rent” after a wind power project’s first ten years of production. Starting in year eleven, developers are charged this participation rent based on their annual production factor (“APF”). Developers are charged a minimum of 1% and a maximum of 3% of their gross revenue depending on their APF. British Columbia’s policy ensures that the Province gains a return while promoting wind energy development, since rates are sensitive to individual projects.

Saskatchewan Engages a Royalty & Rental Fee Regime For Development on Agricultural Crown Lands

Saskatchewan’s 2018 “Wind Power Policy: Agricultural Crown Land,” outlines the government’s support for renewable energy development on agricultural Crown land through a co-operative procedural framework.^[4] Corporations, partnerships, or individuals involved in exploration, development, production, or transmission of wind generated power are eligible to apply for a wind power lease on agricultural Crown lands.

The Government of Saskatchewan charges a rate for both revenue sharing and rental of agricultural Crown lands, both of which are negotiated at levels received by other land owners within the wind project and are subject to approval by the Minister. As a minimum flat rate, the Ministry can charge up to $2,500 per wind tower. Other charges associated with the ongoing operation of a wind power lease are calculated according to The Provincial Lands (Agriculture) Regulations.^[5]

Ontario’s Regime Includes Multiple Rental Charges  

In Ontario, developers can apply and pay the provincial government a $20,000 application fee in a non-competitive process to confirm the economic viability of wind energy resources. Competitive bidding procedures are used in areas where several companies are interested in developing wind energy on provincial Crown land.^[6]

Similar to British Columbia’s regime, Ontario will charge different rental rates based on the wind power project’s development stage. First, an annual base land rent will be applied to the area under the land use permit (if applicable). When a project becomes operational, this rental payment changes and is replaced by an “Annual Wind Land Rental Charge” and “Administrative Land Rent.” The “Annual Wind Land Rental Charge” is paid in quarterly installments and is based on the total installed kilowatt capacity of all turbines in an operational project.^[7] The Administrative Land Rent, also applied in replacement of the annual base land rent, is charged at a fixed rate of $1,000 per turbine and paid quarterly.^[8]

Quebec Charges Annual Rent for Wind Farms on Crown Lands 

In 2017, an order-in-council adopted the “Program for the awarding of lands in the domain of the state for the installation of wind turbines” (“the Program”).^[9] The Program provides a framework for granting Crown land rights for the development of wind energy, with its goal being to reserve public land for wind farm construction.^[10]

The Program adopted a specific scheme for wind power facilities on Crown lands, ensuring that from April 1, 2021 to March 31, 2022, an annual rent for the leasing of land in the domain of the State for the installation of a wind turbine is calculated based on the production capacity of the wind turbine, at a taxable rate of $6,107 per megawatt.^[11] The rate is adjusted and rounded to the nearest dollar on April 1^st of each year, based on the change in the average consumer price index for the preceding year and using the Statistics Canada index for Quebec.^[12]

Prince Edward Island’s Regime Includes Land Lease Payment Agreements

Prince Edward Island does not have a specific royalty scheme for wind farms on public lands. Many of Prince Edward Island’s large wind farms were developed by PEI Energy Corporation (“PEIEC”), which has devoted a significant amount of time to developing strong local partnerships with private landowners.

PEI Energy Corporation’s 2020-2021 annual report indicated that land lease payment agreements were entered into for the use of, or option to use, land in perpetuity in connection with the operation of its wind farms. The report explains that the rate charged under these agreements would be dependent on the power generated from wind farms.^[13]

The Province’s 10-Point Plan for wind energy development, released in 2009, explains that “fairness in local land leases and creative models for revenue sharing” are a major consideration in evaluating new wind farm proposals. Wind farm leases provide alternative revenue streams for private land owners, and provide financial benefits to the Island’s farming community.^[14] For example, PEIEC’s most recent annual report indicates that all turbines at the East Point Wind Farm are located on private lands, and a three-tier compensation system is used to allocate a portion of gross revenue from the wind farm to private land owners. Land owners with turbines directly on their property or those in close proximity to turbines are eligible for compensation. The report states that in 2020-21, land owners received approximately $179,000 as a result of the compensation system.^[15]

New Brunswick & Nova Scotia Use a Wind Farm Lease Regime

Both Nova Scotia and New Brunswick use a wind farm lease regime. In New Brunswick, the Minister may issue a Wind Farm Lease for no more than a 20-year term. To issue a Wind Farm Lease beyond a 20-year term, the Minister is required to receive the Lieutenant-Governor’s in-council approval.^[16] An individual, exclusive use Wind Farm Lease will be issued for turbines and electrical substation sites, whereas a License of Occupation for non-exclusive use will be issued to authorize connecting access roads and distribution lines within a wind farm.^[17] Successful lease applicants are required to pay Annual Rent on their lease, invoiced on April 1^st of every year and established in accordance with the Lands Administration Regulation, as per the Crown Lands and Forests Act.^[18] Annual rent is paid in addition to property taxes on leased properties. New Brunswick also charges an Associated License to Occupy Fee and an annual rental fee for any Licence of Occupation issued for the construction and operation of access and transmission lines between individual turbine sites.^[19]

Lists of fees for activities on Crown Lands in Nova Scotia are found in the “Fees for Activities on Crown Land” policy (“the Policy”), which came into effect in April, 2015.^[20] The Policy indicates that Crown land leases issued through a public tendering process will be subject to fees and ongoing rents, however this information is provided in the applicable tender documents. For Wind Energy Generation Leases, the Policy states that to lease a new site or renew a lease, required fees include administrative fees of $747.83 and minimum ongoing annual rental fees per tower. For the first lease issued on a ten-year term per megawatt of capacity, lessees are required to pay approximately $4,364.43. For a subsequent ten-year term, a lessee is required to pay either the greater of 2% of their gross revenue or the minimum ongoing annual rental fee. Additionally, fees must be paid for third party use or sublease, and administration fees must be paid for the assignment, transfer, or amendment of a Wind Energy Generation Lease. Rental rates can be revised at specified times as per a lease agreement.^[21]

Alberta Lacks a Renewable Energy Royalty Regime

Alberta does not currently have a royalty regime governing wind energy development on public lands, despite having a significant amount of wind energy capacity and being well-versed in wind development on private lands. As of 2021, practitioners have suggested that Alberta must adopt a renewable conservation regime, complete with a renewable royalty model, to ensure the market in Alberta is “in line with existing practices in Canada and around the world.”^[22]

Manitoba is Developing a Wind Energy Royalty Regime

In 2019, the Government of Manitoba produced a question and answer sheet on Manitoba’s Crown Land Policies for wind farms, which indicated that the Province was developing a system of rent and royalties for the use of Crown land similar to the regime used for wind development on private lands. The most favorable option includes a land rent, which will be dependent on the intensity of wind farm use, in addition to charging a royalty based on revenues.^[23]

Conclusion

It’s unclear which structure the Provincial Government of Newfoundland and Labrador will choose. However, it’s apparent that options are available based on existing regimes in other jurisdictions, and this Province must choose a policy that promotes development. Current literature in this space indicates that jurisdictions without a royalty regime for wind energy development on Crown lands are missing out on lucrative opportunities to capitalize on the extractive steps involved in renewable energy production, in addition to tax revenues gained on generation.^[24]

This update is intended for general information only. If you have any questions on the above we would invite you to contact the authors or any other member of our Energy Group.

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[1] https://www.stewartmckelvey.com/thought-leadership/the-winds-of-change-newfoundland-and-labrador-government-signaling-major-shift-in-energy-policy/
[2] Government of British Columbia, “Land use – wind power” online: <https://www2.gov.bc.ca/gov/content/industry/crown-land-water/crown-land/crown-land-uses/clean-energy/wind-power#Type%20of%20tenure>
[3] The MTI is initially issued with rights equivalent to a general license of occupation and subsequent Crown land rights may be added or reduced as necessary to meet the needs of the individual development plan; Ministry of Forests, Lands, Natural Resource Operations and Rural Development, “Land Use Operational Policy: Wind Power Projects,” 21 January 2019, Government of BC, at 4, online (PDF): <https://www2.gov.bc.ca/assets/gov/farming-natural-resources-and-industry/natural-resource-use/land-water-use/crown-land/windpower.pdf>
[4] Government of Saskatchewan, “Wind Power Policy Agricultural Crown Land,” February 2018, online (PDF):  <https://publications.saskatchewan.ca/api/v1/products/76951/formats/86252/download>
[5] The Provincial Lands (Agriculture) Regulations RRS c P-31.1 Reg 1.
[6] Renewable Energy Program (Ontario), “Onshore wind power development on Crown land procedure,” 9 May 2013, online: <https://www.ontario.ca/page/onshore-wind-power-development-crown-land-procedure#section-9>
[7] Ibid.
[8] Ibid.
[9] Ministère de l’Énergie et des Ressources naturelles, “Program for the awarding of lands in the domain of the state for the installation of wind turbines,” (10 May 2017), online (pdf): <https://mern.gouv.qc.ca/wp-content/uploads/GM_programme_eolien_ang.pdf>
[10] Ministère de l’Énergie et des Ressources naturelles, “Wind Farm Construction on Public Land,” online:  <https://mern.gouv.qc.ca/en/energy/wind-energy/wind-farm-public/>
[11] Ministère de l’Énergie et des Ressources naturelles, supra note 9.
[12] Ibid.
[13] Prince Edward Island Energy Corporation, “Annual Report 2020-21,” (21 June 2021), online (PDF): <https://www.princeedwardisland.ca/sites/default/files/publications/peiec_annual_report_2021_final_21jun2021.pdf> at 27. [PEI Energy Corporation Annual Report 2020-21]
[14] PEI Energy Corporation, “Island Wind Energy – Securing Our Future: The 10 Point Plan,” (2009), online (pdf) at 20: <http://www.gov.pe.ca/photos/original/wind_energy.pdf>
[15] PEI Energy Corporation Annual Report 2020-21, supra note 13 at 15.
[16] Government of New Brunswick, “Allocation of Crown Lands for Wind Power Projects Policy,” (7 February 2012), online (pdf):<https://www2.gnb.ca/content/dam/gnb/Departments/nr-rn/pdf/en/Publications/CLM0172005.pdf>
[17] Ibid.
[18] Crown Lands and Forests Act, SNB 1980 c C-38.1.
[19] Government of New Brunswick, “Using New Brunswick Crown Lands,” (21 July 2021), online (PDF): <https://www.pxw1.snb.ca/snb7001/e/1000/CSS-FOL-SNB-60-0045_E.pdf>
[20] Government of Nova Scotia, “Fees for Activities on Crown Land” (1 April 2015) Department of Natural Resources, online (pdf): <https://novascotia.ca/natr/land/pdf/Fees-Activities-on-crownland.pdf>
[21] Government of Nova Scotia, “Guidelines for the Preparation of Crown Land Lease Applications,” (21 September 2015), Department of Natural Resources, online (PDF): <https://novascotia.ca/natr/land/pdf/Guidelines_Applicants_Crown_Land_Leasing.pdf>
[22] Daniel BR Johnson, Matthew Schneider & Yi Liu, “Moving Forward by Looking Back: Toward a Renewable Conservation Scheme in Alberta,” (2021) 59:2 Alta L Rev at 294.
[23] Government of Manitoba, “Some Questions and Answers Regarding Manitoba’s Crown Land Policies for Wind Farms,” (6 June 2019), online (PDF): <https://www.gov.mb.ca/sd/pdf/question_answers_wind_farms.pdf>
[24] Daniel BR Johnson, Matthew Schneider & Yi Liu supra note 22 at 294.