The Virginia Clean Economy Act (“VCEA”) mandates that Dominion Energy Virginia and Appalachian Power, the two largest electrical utilities in Virginia, move to 100 percent renewable energy by 2045 and 2050, respectively. Because they also provide much of the generation capacity used by smaller utilities such as cooperatives and municipals, this effectively means most of the electrical power in Virginia will need to be generated by renewable sources by those dates. The VCEA also provides that much of this renewable generating capacity must be located inside the Commonwealth, and that 35 percent must be privately owned and purchased by the utility, rather than utility-owned. Each utility must provide regular reports to the Virginia State Corporation Commission (“SCC”) on their progress toward these goals.
The utility-based problem with this is that Virginia’s geography is really only well-suited to solar generation. Although Dominion is in the process of developing offshore wind in the Atlantic and a company called Rocky Forge Wind is working on developing a small wind farm in northern Botetourt County, Virginia is chiefly notable for having good sunlight and large areas of flat land, particularly in the Piedmont and Tidewater regions. These areas are ideal for solar generation facilities. However, solar generation facilities only work when there is good sunlight—i.e., during the daytime and when it is not too overcast. To truly have 100 percent renewable generating capacity, utilities will also need battery storage. Batteries are able to store this energy for up to four years in order to release it over time into the grid in order to smooth out the day/night cycles inherent in solar technology.
To encourage the development of battery storage, Virginia has developed a unique regulatory regime. Zoning, siting, and site plan approval is done locally; environmental review is done by the Virginia Department of Environmental Quality (“DEQ”) through a simplified, permit-by-rule (“PBR”) process; and taxation is done through a combination of local and SCC assessment, depending on the situation. The General Assembly also has adopted a complex local taxation regime. Localities may choose either to tax the facilities at a diminished tax value of 80 percent for the first five years, 70 percent for the next five years, and 60 percent for the remainder of its lifetime, or a flat $1,400 per plate AC megawatt-hour, increasing 10 percent every five years until the facility is retired. The valuation on which the taxation is overlaid can vary depending on the owner of the facility and its size—in some cases it is assessed locally as machinery and tools, and in some cases it is assessed centrally as public service corporation property. Analysis of the proper tax treatment and whether taxation or revenue share makes more sense for an individual locality is a complex and case-specific exercise.
This is mixed news for localities. Enacting a robust zoning regime to regulate these facilities is essential for almost every locality in Virginia. Botetourt County, for example, through the efforts of its award-winning staff in its Department of Community Development, the vision of its Planning Commission and Board of Supervisors, and with the help of County Attorney Mike Lockaby and the Spilman Thomas & Battle team, did so prior to this application being filed. The next issue is economic development. For Botetourt County, this facility is located on industrial land adjacent to the Cloverdale substation, one of the largest electrical substations on the East Coast. It is well-screened, and the County imposed strong land-use controls as part of its special exception permit for the site. In other localities, however, it is not as clear-cut. Battery storage facilities need to be located near utility substations. These are often in industrial areas, where localities have future growth plans that include large amounts of taxable investment and job growth and substantial local investment in water and sewer utilities and roads. Battery storage facilities create no jobs, are very lightly taxed, and do not need water, sewer, or natural gas. Poor siting decisions by developers therefore put localities in the position of having valuable land diverted from more beneficial uses, sustaining damage to the tax base, and dealing with the tax and utility cost burden of stranded public investment.
The outlet valve for this dilemma is the facility siting agreement. Virginia requires battery storage facility owners to negotiate siting agreements with local governments to permit additional cash payments beyond the diminished tax revenue to close the local revenue gap and to compensate for stranded utility assets, to provide for the specialized fire protection these facilities require, and for other local protections. The first wave of these agreements under the new legislation has been coming in during the past year, and the tide will likely increase as the PJM grid begins to issue these batteries permits to interconnect into the regional grid for Virginia and the SCC requires Dominion and ApCo to increase their investment. Spilman Thomas & Battle has so far been at the forefront of negotiating these agreements and analyzing the unique needs of localities with respect to individual sites.
As this complex situation evolves, getting out in front on enacting ordinances to provide for zoning and taxation before a facility is proposed and negotiating a strong, common-sense siting agreement once a developer makes a proposal is essential. We look forward to helping localities plan for and respond to these needs.