Virginia’s Solar Facilities are Growing: General Assembly Sets Carbon Neutral Goal

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The future of utility-scale solar facilities in Virginia is bright, and has brightened even more lately. The General Assembly recently adopted an ambitious goal of achieving carbon neutrality by 2045. As a result, Virginia’s major publicly traded energy companies and electric cooperatives must now massively invest in solar energy to meet that goal.

In addition, the General Assembly enacted legislation to address the tension between the state’s policy of encouraging solar development on the one hand, and on the other, rural localities that are in desperate need of revenue and resented the favorable tax structure the General Assembly had adopted to encourage solar development. Those counties believed the tax structure short-changed them in terms of much needed revenue.

Real property values are low in many poorer, rural areas throughout Virginia. Consequently, while many of these localities received increased tax revenue from utility-scale solar properties, they largely were prohibited from levying taxes on tens and sometimes hundreds of millions of dollars worth of equipment that comprise a solar facility. As a result, rural counties, especially in southern and western Virginia, felt they were being forced to subsidize the economic development of the more affluent parts of the state that benefited from the availability of solar energy.

The response of many rural localities was to reject a number of worthwhile projects. Almost all solar facilities need to obtain some sort of local approval, usually in the form of a conditional use permit, special use permit, or special exception permit, depending on the individual localities. Under Virginia Code §15.2-2232, the locality, normally through its planning commission, must also make a finding that the proposed facility is in “substantial accord” and consistent with the locality’s Comprehensive Plan.

Are Virginians Ready for Solar Power?

Large-scale solar facilities are a relatively new phenomenon in Virginia. Many solar projects are met with skepticism by neighbors who fear the facility’s aesthetics will impact adjacent property values. Local residents also have raised a host of environmental concerns that are not based on science or facts about solar power.

The confluence between the rural localities’ simmering resentment about revenue and citizens’ fears of utility-scale solar facilities created the perfect storm for companies seeking to develop a utility-scale solar facility in a rural county. As a result, elected officials in rural counties have rejected numerous solar facility applications. These officials believed their County was not receiving its fair share of the benefits from the solar facility and they had little perceived incentive to resist the vocal few who opposed a project. Many Boards of Supervisors members, as well as their County Administrators, also believed that by consistently rejecting solar facilities, rural localities would gain leverage to change state law and therefore could increase local revenues generated from utility-scale solar projects.

In response to this dynamic, the General Assembly enacted legislation enabling more rural counties to negotiate agreements with solar developers to receive revenue that localities otherwise would have been prohibited from receiving under prior state law.

Under Va. Code §15.2-2316.6 et. seq., a developer seeking to locate a facility in an area that could qualify as an Opportunity Zone, as defined by IRS regulations, can now enter into a siting agreement with the locality in connection with the proposed facility, which provides a vehicle to make payments to the locality. (A siting agreement also eliminates the need to obtain a substantial accord finding under Va. Code §15.2-2232.)

Under Va. Code §58.1-2336, the locality can adopt an ordinance imposing an annual $1400 revenue share per megawatt, with certain exceptions. However, if a locality adopts a revenue share ordinance, it impacts the ability of that locality to receive revenue on a portion of the project’s assessed value under Va. Code §58.1-2636. These statutory changes have made it easier to obtain zoning in rural counties, which are the localities that represent a natural fit for utility-scale solar facilities, given the hundreds if not thousands of acres that utility-scale projects require.

Issue-Spotting is Key to the Zoning Process

Yet obstacles still exist on the local level. In our experience, one obstacle involves the lack of experience many developers have in the zoning process in Virginia. Many solar developers have considerable experience in other states and came to Virginia assuming that zoning is essentially a ministerial function. In structuring deals and costing them out, zoning was often an afterthought. Consequently, little analysis was given to laying the necessary groundwork with the locality and ascertaining the conditions that might be imposed in the zoning process. Developers did not fully appreciate the extraordinary discretion that City/Town Councils and Boards of Supervisors have in deciding whether to grant a conditional use permit, special use permit, or special exception permit.

Unfortunately, early missteps in the zoning process can prove disastrous and be difficult to correct. Once you have identified a feasible site, you may want to include on your team an experienced land use attorney. Such an attorney understands the dynamics of local government and is adept at dealing with local officials and potentially wary neighbors, and understands the complexity and legal consequences of zoning conditions. Counsel can help negotiate and draft siting agreements with localities under Va. Code §15.2-2316.6 et. seq. Land use law often involves a delicate balance between meeting the needs of the locality and elected officials, while not unduly burdening a project and jeopardizing its ultimate success. You want a member of your team that understands that balance.

Land use attorneys also can advise you on legal issues that may not be immediately apparent. For example, many rural properties participate in a land preservation program under which agricultural property is taxed at a lower rate until a change of zoning or use occurs. However, a five-year “rollback” tax is imposed on the property when a change of zoning or use subsequently does occur. In effect, the rollback tax captures the difference between the lower tax rate under the preservation program and what the taxes would have been in the previous five years if not for the preservation program, with interest. Many localities do not consider a conditional use, special use permit, or special exception permit an event that triggers the rollback tax. Such localities “rollback” the tax only after construction begins. But at least one major Virginia locality has taken the position that rollback taxes are triggered as soon as the conditional use is granted, even when the use will not change for years, if ever. You want to be able to avoid these types of surprises when drafting leases or contracts and determining the financial feasibility of a project.

In short, do not treat zoning as an afterthought. The conditions that a locality may seek in the zoning process can carry substantial financial consequences. You want to have a feel for what the locality may seek so you can factor that into your feasibility and profitability analysis.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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