In 2014, the Virginia General Assembly approved legislation that gave certain tax abatements for solar facilities installed as part of a solar energy project, which abatements depended in part on the size of the project. The renewable energy industry saw the tax abatement as a key incentive to jump-start development of utility-scale solar energy projects in Virginia. That tax abatement greatly reduced, and in some cases eliminated, the machinery and tools taxes paid to local governments, and local governments raised a number of concerns about permitting solar energy projects that generate significantly less revenue than would be the case without the tax abatement.
The tax abatement became a central issue when permitting solar energy project before local governments. In its 2020 session, the General Assembly approved the Virginia Clean Economy Act (VCEA) and concurrently approved legislation designed to give local governments more opportunities to derive more revenue from solar energy projects through the use of siting agreements and/or adoption of a revenue share ordinance. (See McGuireWoods’ May 5, 2020, legal alert, “Virginia’s New Solar Project Development Laws Offer Opportunities and Potential Risks.”) The General Assembly further expanded the siting agreement legislation in the 2021 session to provide more opportunities for solar developers and localities to enter into siting agreements. However, solar energy projects 5 MW or less in size (distributed generation or DG projects) are exempt from the revenue share and the siting agreement legislation, and DG projects continue to be subject to a 100 percent tax abatement under the solar project tax abatement legislation.
As part of the adoption of the VCEA, the General Assembly modified Virginia’s energy policy to include the objectives of “[e]nabling widespread integration of distributed energy resources into the grid” and “[r]emoving impediments to the use of carbon-free resources … including distributed renewable energy generation resources ….” (See Code of Virginia §§ 67-101(13) and (14).) As noted in a July 1, 2020, McGuireWoods legal alert, the General Assembly created more opportunities for the development of DG projects. However, some local government officials have raised concerns that DG projects do not generate direct revenue to the locality, and in some cases, local governments have considered adopting zoning ordinances that would impede or prohibit the siting of DG projects. Those local ordinances, if and when adopted, likely conflict with Virginia’s energy policy and may be subject to legal challenge.
Virginia Energy Policy and Related Legislation
The state’s energy policy was first enacted in 2006 to guide state and local decision-makers in recognizing and helping achieve Virginia’s energy objectives. (See Code of Virginia §§ 67-101 & 102.) The energy policy directs that, for any discretionary action with regard to energy issues, local governing bodies must recognize the elements of the energy policy and, where appropriate, act in a manner consistent with the policy. (See Code of Virginia § 67-102.C.) Local governments are required, among other things, to act in a manner that promotes the use of renewable energy sources and to promote the generation of electricity through technologies (like solar energy) that do not contribute to greenhouse gases and global warming. (See Code of Virginia §67-102.A.1., A.5 and C.)
In 2011, the General Assembly adopted legislation specifically articulating the role of local governments in achieving the objectives of the energy policy. State law currently requires that, in the development of any local ordinance addressing the siting of solar energy facilities, the ordinance must:
- be consistent with the provisions of Virginia’s energy policy;
- provide reasonable criteria to be addressed in the siting of any solar energy facility, which criteria should protect the locality in a manner consistent with Virginia’s goals to promote the generation of energy from solar resources; and
- include provisions establishing reasonable requirements upon the siting of any such renewable energy facility, including provisions limiting noise, requiring buffer areas and setbacks, and addressing generation facility decommissioning. (See Code of Virginia § 67-103.)
Thus, while local governments maintain their authority to regulate the siting of solar energy facilities, they must do so in a reasonable manner that promotes the generation of solar energy. This obligation was amplified relative to the DG projects by the addition of the objectives in the 2020 session relative to the enabling widespread integration of DG projects and the removal of impediments to the use of DG projects.
Local Ordinances Restricting Small-Scale Solar Projects
Contrary to the energy policy and their role in achieving the state’s objectives with regard to the promotion of solar energy, a growing number of localities are considering ordinances that either restrict or eliminate the opportunity to develop new DG projects while continuing to permit development of utility-scale projects greater than 5 MW in size with approval by the local governing body and subject to such development standards and/or conditions imposed by the jurisdiction.
There can be no reason that DG projects should be treated differently than larger projects and prohibited in a locality when utility-scale projects are allowed. Such differential treatment is not authorized by state law and is contrary to the state’s energy policy and state laws establishing the role of local governments as facilitators of solar energy in Virginia. Local ordinances prohibiting small-scale projects when larger projects are allowed may be facially “arbitrary and capricious” if challenged and subjected to circuit court review.
As Virginia moves toward a carbon-free economy, each renewable energy project should be reviewed against reasonable regulations that protect a locality in a manner that is consistent with Virginia’s goals to promote carbon-free energy generation. Prohibiting DG projects does not protect local citizens and clashes with the clear language and intent of state laws and policy. Local governments should consider the required provisions contained in these prohibitions and adopt only those regulations that truly protect the health, safety and general welfare of their communities.
Senior vice president Preston Bryant with McGuireWoods Consulting regularly assists renewable energy project developers on policy and permitting matters for projects developed in Virginia. Attorneys Brennen Keene and Ann Neil Cosby regularly handle land use and transactional matters for renewable energy project development in Virginia and beyond. 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.