The 2020 session of the Virginia General Assembly likely will be remembered as a watershed moment for energy policy in Virginia. With passage of the Virginia Clean Economy Act (VCEA), Virginia’s two incumbent utilities are required to produce electricity from 100 percent renewable sources by 2045 and 2050, respectively. The VCEA also sets forth an aggressive schedule for those utilities to increase the amount of energy they source from renewable energy generation facilities.
Concurrent with passage of the VCEA, the General Assembly passed other laws effective July 1, 2020, that are intended to provide more opportunities for developers of large-scale solar energy projects to successfully obtain local land use approvals. In recent years, developers have met resistance in obtaining local land use permits for solar energy projects, in part because of the perceived lack of financial benefits for the local government approving those projects due to the abatements of machinery and tools taxes applicable to solar project facilities. The new legislation is intended to give solar developers more options to provide local governments with financial and other benefits to assist with localities’ capital and public needs. Also, local governments now have the option to impose an ordinance that replaces the typical taxes levied on solar energy projects with a level, more predictable revenue stream.
While these new statutes should provide opportunities for solar developers to offer more benefits to the locality when seeking approval of solar energy projects, there are some potential risks for the solar project developer under the legislation. This is particularly true if the project is encumbered with obligations through local permitting that strain the project’s financial viability. The statutes and an introduction to the potential risks are described below.
Siting Agreements for Solar Facilities in “Opportunity Zones”
This legislation allows a solar project developer to negotiate a “siting agreement” with a locality where a solar facility will be developed on property located in an “opportunity zone” (i.e., a low-income census tract eligible to be designated for tax benefits under the 2017 Tax Cuts and Job Act). Once the developer gives a locality notice of its intent to develop a commercial solar energy generation or storage facility in an “opportunity zone,” the locality must meet, discuss and enter into negotiations for a siting agreement with the developer. The siting agreement may include terms and conditions including (i) mitigation of any impacts of such solar facility; (ii) financial compensation to address the locality’s capital needs as set out in the locality’s capital improvement plan, its current fiscal budget or its fiscal funds balance policy; or (iii) assistance with deploying broadband in the locality. If the locality approves a siting agreement (after a public hearing), the developer still must obtain necessary zoning approvals before a project may be developed (although other state-required approvals are deemed satisfied).
The intent of the siting agreement legislation is to give the local government the opportunity to address certain community needs and allow the solar project developer to help address those needs outside of any taxes or other fees paid by such project. Ultimately, for the siting agreement legislation to work, both the developer and the locality must act reasonably. If the local government’s required terms involve financial contributions that unduly affect project economics, the developer will need to navigate a path toward approval that maintains the viability of the project.
Special Exceptions for Solar Projects
While localities have the authority to require a developer to obtain a special exception permit (a.k.a. a special use permit or conditional use permit) before the developer can develop a solar project, the new legislation expressly allows such permits to include conditions that require the developer to make dedications of real property of substantial value to the locality or substantial cash payments for or construction of substantial public improvements. This new statute requires that the condition be reasonably related to the project; however, the need for the cash, property and/or improvement(s) need not be generated solely by the project approved.
As special use permit conditions are generally negotiated by a developer and the locality as part of the approval process, this new legislation allows the local government to impose an obligation that the project provide financial and other benefits to the locality over and above offsetting the development’s impacts on the community. This legislation, coupled with the siting agreement legislation (where it applies), will require a solar project developer to be ever mindful of the overall financial impacts of the financial obligations contained in the siting agreement and the conditions imposed through the special exception process.
Revenue Share/Local Option by Ordinance for Solar Projects
This legislation creates a local option for localities to adopt an energy revenue share ordinance to assess a revenue share of up to $1,400 per megawatt. If a locality adopts a revenue share ordinance, regulated solar projects greater than 5 megawatts are entitled to a 100 percent machinery and tools tax exemption (as opposed to the 80 percent exemption that is currently available). No ordinance may apply retroactively to any project for which an application was filed on or before July 1, 2020, except by agreement.
Extension of M&T Exemption for Solar Projects
This legislation extends the 80 percent exemption for solar projects from machinery and tools tax assessments from Jan. 1, 2024, until June 30, 2030. The statute also changes the date the exemption is triggered to the date the application is filed with the locality, and creates a “step-down” schedule that decreases the 80 percent exemption to 60 percent for solar projects for which an interconnection request was filed after Jan. 1, 2019.
Solar Projects and Comprehensive Plans
Under current law and subject to some exceptions, a utility-scale solar project may not be constructed until the local planning commission determines that its “general location or approximate location, character, and extent …” is “substantially in accord” with the locality’s adopted comprehensive land use plan. Under the new legislation, a locality can elect to waive the requirement for a solar project to obtain this determination, which will be deemed satisfied if the project otherwise receives a special exception permit.
Use of National Standards for Solar Projects
This legislation allows localities to incorporate generally accepted national standards for solar projects and battery storage into zoning ordinances for solar projects. However, this legislative authority does not allow a locality to create its own standards that vary from these national standards.
A Note on the Siting Agreements and Special Exception Legislation
Although the use of agreements like siting agreements are not without precedent in Virginia, these types of agreements are rare. Also, the authority of localities to impose special exception conditions that require cash payments, dedication of land or other contributions arguably is unprecedented (even when compared with the voluntary cash proffer system in the rezoning context). Consequently, there is no identifiable roadmap for localities and solar developers to move forward under the new legislation. Solar project developers should expect that localities likely will need time to establish a process for determining locality needs, reviewing siting agreements and reviewing impacts from solar energy projects. Moving forward will require a careful and considered strategy to obtain successful approvals of solar projects under the new legislation.
Senior vice president Preston Bryant with McGuireWoods Consulting was directly involved in certain aspects of the legislation. Attorneys Brennen Keene and Ann Neil Cosby regularly handle land use and transactional matters in these areas. To learn more, contact Preston at [email protected] or (804) 775-1923, Brennen at [email protected] or (804) 775-1005, or Ann Neil at [email protected] or (804) 775-7737.