The Law of Solar: A Guide to Business and Legal Issues

The Law of Solar: A Guide to Business and Legal Issues

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Allison C. Smith
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  • Bree Metherall Director of Business Development 503.294.9435

Permitting and Land Use

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It is not enough to have the sun and the land to construct a solar energy facility. One also needs the permits to use the land for energy generation. Even in a regulatory environment that is favorable to renewable energy projects, every element of the facility must have the proper approvals to be legally constructed and operated. Failure to obtain the correct permits can be costly in terms of construction delays related to stop work orders; forgone revenues, tax credits, and commencement of accelerated depreciation; and, in today’s regulatory climate, quite possibly penalties for failure to meet renewable portfolio standards. Further, it is important to identify and evaluate the required approvals prior to committing to a particular property.

I. Facility Permitting Rules. Energy facility permitting is usually a state or local jurisdiction function, unless the facility is constructed on federal land or involves other federal action.

A. State Energy Facility Siting. Many states have agencies, administrative boards, or councils that have jurisdiction over the approval or denial of the siting of energy facilities. In states with centralized siting councils, such as Oregon, Ohio, and Massachusetts, the council renders a decision to approve or deny an application to site a major energy facility. In Minnesota and several other Midwestern states, the state public utilities commission oversees siting of major energy facilities, but states may vary on whether the state certificate or site permit preempts the need to also obtain local permits (e.g., in North Dakota a certificate of site compatibility does not preempt local ordinances). In California, most such decisions are made by the local planning agency, usually at the county or city level. In Washington, siting council jurisdiction for renewable energy facilities is voluntary only; a developer may opt in to state siting council jurisdiction, with the final decision made by the governor upon recommendation by the siting council.

States differ greatly on whether the state or a local agency will assert jurisdiction over energy facilities. Many states, such as Oregon and California, require energy facilities that will occupy a defined acreage area or generate a defined amount of power and/or utilize certain technologies to undergo siting by the state agency while allowing facilities generating amounts under the threshold to be sited by the local jurisdiction in which the facility is proposed. In Minnesota, a project may fall under the state’s siting authority under certain conditions by aggregating several smaller distributed solar projects. Other states, such as Washington, have full authority to site any size energy facility, but do so only at the election of the applicant. Some states, such as Texas, provide for no such state jurisdiction.

Once a solar developer has determined whether state or local siting authority (or in certain cases both) has jurisdiction over solar facilities, it can move forward. The developer should check the state’s jurisdictional requirements carefully to determine whether the solar development will be subject to the state siting process and, if so, whether there are exemptions from or waivers for state siting process requirements.

B. Local Energy Facility Siting. In states in which there is no centralized siting authority or the authority lacks jurisdiction over solar facilities, the siting decisions are made by local jurisdictions, most often cities, towns, or county governing bodies. Commercial solar facilities that are not located on a rooftop often require vast tracts of land for both operations and environmental mitigation purposes. They may also require significant amounts of water. For these reasons, as well as the cost of land and aesthetics, nonrooftop solar facilities are typically located outside of urban areas. In Midwestern states where significant greenfield solar development is more recent, local siting authorities have had mixed success effectively balancing solar development with existing agricultural preservation rules.

Rooftop facilities have become a growing part of the market as a result of ease of permitting and advantageous power pricing. For example, the California Solar Rights Act (Civil Code section 714), enacted in 1978, bars restrictions by homeowners associations on the installation of solar energy systems, but originally did not specifically apply to cities, counties, municipalities, and other public entities. The Act was amended in September 2003 to prohibit a public entity from receiving state grant funding or loans for solar energy programs if the entity prohibits or places unreasonable restrictions on the installation of solar energy systems. Generally speaking, rooftop solar facilities can be installed after obtaining a building permit, significantly simplifying the permitting process.

C. Federal Energy Facility Siting. Solar facilities proposed for construction on federal land fall within the jurisdiction of the agency charged with the land’s management, most often the U.S. Department of the Interior’s Bureau of Land Management (“BLM”) or the U.S. Department of Agriculture’s Forest Service. Federal land management policies encourage the development of solar energy on public lands. BLM issues right-of-way authorizations for solar installations, and the Forest Service issues special use permits. As part of President Obama’s all-of-the-above energy strategy to expand domestic energy production, on October 12, 2012, Secretary of the Interior Ken Salazar finalized a program for spurring development of solar energy on public lands in six western states. The Programmatic Environmental Impact Statement (“PEIS”) for solar energy development provides a blueprint for utility-scale solar energy permitting in Arizona, California, Colorado, Nevada, New Mexico, and Utah by establishing Solar Energy Zones ("SEZs") with access to existing or planned transmission, incentives for development within those zones, and a process through which to consider additional zones and solar projects. It is unknown how these programs will be implemented in the post-Obama era.

The solar PEIS establishes an initial set of 17 SEZs, totaling about 285,000 acres of public lands, that will serve as priority areas for commercial-scale solar development, with the potential for additional zones through ongoing and future regional planning processes. If fully built out, projects in the designated areas could produce as much as 23,700 megawatts of solar energy, enough to power approximately seven million American homes. The program also keeps the door open, on a case-by-case basis, for the possibility of carefully sited solar projects outside SEZs on about 19 million acres in “variance” areas. The program also includes a framework for regional mitigation plans, and to protect key natural and cultural resources, the program excludes a little under 79 million acres that would be inappropriate for solar development based on currently available information.

D. Choosing a Siting Process. To the extent a developer of a large, utility-scale solar photovoltaic (“PV”) facility has a choice of permitting agencies, there are several other factors to be weighed in choosing a siting path. The more extensive resources that are available to a state agency can result in expert review of a proposal. However, these venues are typically costly to an applicant. Local agencies often lack the financial resources to hire various experts, particularly in an emergent field such as commercial solar energy generation. The local jurisdiction may handle this lack of staff expertise by requiring that the developer fund or reimburse the local agency’s costs expended in reviewing a project. A comparison should be made to determine the difference between state and local application fees and processing and review costs.

Another critical factor involves the political nature of energy facility siting decisions. Although solar facilities generally have less immediate visual impact than nuclear cooling towers, smokestacks, or wind turbines, any energy facility can evoke strong sentiments in a community. Siting of a contentious project, when conducted by a state agency, tends to be more objective and less politicized than a town hall-style local forum. When making the decision about which path to choose, the developer should consider the local political climate, and assess any broadly held attitudes and concerns that could signal an unpredictable, politicized process. Additional concerns will be who will be staffing the permit review, who will be making the decision, and what remedies are available under each permitting regime if a negative permit result is obtained.

II. Environmental and Land Use Considerations. Depending on the forum in which an application for a solar facility is processed, a variety of environmental and land use rules will be applied to evaluate the proposal.

A. Federal Environmental and Land Use Review. Approval of a facility on federal land through the issuance of a right-of-way, special use permit, or lease, as well as other federal agency approval actions such as Army Corps permits or endangered species take authority, necessarily involves application of environmental review under the National Environmental Policy Act (“NEPA”). The scope of a NEPA review is broadly designed to assess the environmental impacts of a proposed development and the potential significance of those impacts. This includes assessment of project development impacts to both the built (e.g., roads) and the natural (soil, wildlife, and ground and surface water) elements of the environment. Predictably, the more significant the potential for adverse environmental impacts, the more closely the project will be scrutinized. It follows that the higher the level of review, the longer the process will take. Projects that are categorically exempted from NEPA by federal regulations can result in near-immediate review. However, nonexempt actions must go through an environmental assessment, usually a four- to six-month process, to determine whether the solar project will cause no significant impact (i.e., a finding of no significant impact or “FONSI”) or will likely cause significant environmental impact, which triggers the preparation of a full-blown Environmental Impact Statement (“EIS”). Preparation of an EIS is a lengthy process that involves considerable and multiple public and agency review opportunities, and is rarely completed in under a year. Although NEPA itself is only a procedural and evaluative tool without substantive standards or requirements that must be imposed on a project, the resulting analysis of impacts, alternatives, and potential mitigation serves as the basis for imposition of conditions on projects.

Under section 106 of the National Historic Preservation Act (“NHPA”), each federal agency must take into account the effect of its actions on any property listed on or eligible for listing on the National Register of Historic Places and must consult with the state historic preservation officer and interested parties, including Indian tribes in appropriate cases both on and outside Indian reservations, on measures to avoid, minimize, and mitigate any adverse impacts of its action on such properties. An additional level of protection is afforded by NHPA section 110 to National Historic Landmarks. Advisory Council on Historic Preservation procedures for NHPA section 106 compliance are found at 36 C.F.R. part 800. The NHPA requires each federal agency to ensure that its procedures for section 106 compliance are consistent with the Advisory Council’s regulations. Properties of traditional religious and cultural importance to Indian tribes and Native Hawaiian organizations, including wide swaths of public and private land outside Indian reservations in some cases, may be determined to be eligible for inclusion on the National Register and therefore the basis of federal agency consultations with Indian tribes. Like NEPA, the NHPA is a procedural statute that requires agencies to consider effects of actions on historic properties, but these considerations can lead to mitigation measures adopted by agencies as conditions on projects.

B. State and Local Environmental and Land Use Review. Each state and local agency puts its own stamp on environmental and land use review. State and local agencies typically conduct environmental reviews during the permit issuance process, whether the project calls for a siting permit issued by a state or a local permit (typically a conditional use permit).

Some jurisdictions may conduct a comprehensive environmental review of project impacts contemporaneously with the review of the permit itself for land use and regulatory consistency based on a state level environmental policy act. The process in such states is patterned after the federal NEPA framework and is commenced through a separate application for environmental review of the proposed project. The environmental review is conducted as an overlay to the permit review. Because environmental review regulations contain public notice and participation requirements, compliance with those requirements can add considerable time to the review process, sometimes up to a year. The same procedural review is applied by local jurisdictions when reviewing a permit. The developer should consult agency staff and, if necessary, legal counsel early in the process to ascertain the responsibilities of the developer as the review progresses. There are also timelines that accompany review processes. Clarification should be obtained to determine whether timelines set a maximum processing period or a minimum period before the agency may act but not a maximum time limit for rendering a decision.

In California, developers (and, increasingly, public agencies) see the California Environmental Quality Act (“CEQA”) as a statute abused by labor unions, business competitors, and other project opponents to achieve goals that may not be entirely related to environmental protection. Many CEQA lawsuits are filed each year, and they can take two years or more to resolve through the appellate courts. CEQA litigation can significantly slow projects or even stop them from going forward. Additionally, state and federal funding, as well as meeting guaranteed commercial operational deadlines in power purchase agreements, can be jeopardized due to such delays.

Some solar resource-rich states, such as Nevada and New Mexico, do not conduct contemporaneous environmental review processes at all.

Even if environmental review is not a separate process, some states and local jurisdictions will consider environmental issues as part of the permit application itself. Oregon, for example, has adopted criteria, applicable statewide, that address environmental issues. Solar facility developers in Oregon will encounter a host of statewide land use goals with substantive prohibitions built into them. These land use goals apply to both the state’s Energy Facility Siting Council and every political subdivision. Such goals are stringently applied. Although there are processes to seek exceptions, those requests are reviewed narrowly and are judiciously granted, depending on the potential impacts to protected resources. Oregon has a rich history of publishing appellate decisions of land use appeals, and legal counsel should be able to assist in determining whether the criteria for a land use goal exception have been interpreted previously, which can provide guidance for difficult siting decisions.

In addition to environmental review, applications to develop solar facilities will undergo permit review to determine whether a solar facility is in compliance with the jurisdiction’s approved land use laws. The first phase of such review is nearly always to assess whether the use is allowed outright or conditionally at the proposed location. Most often, this is accomplished by reviewing the zoning code to ascertain whether the solar facility is an outright, predetermined compatible use with other uses in the zone, or is a conditional use. If the use is conditionally allowed, the environmental assessment undertaken either as part of the permit review or separately through a NEPA-like process generally provides a host of conditions that can be imposed on the facility that render it more compatible with its zone.

Some states, such as California, have lands that are covered by an agricultural protection statute that may be associated with tax incentives and the like. The Williamson Act in California allows landowners to restrict their land to agricultural and compatible uses in exchange for lower property taxes. As solar development has increased on California’s agricultural lands, the rules governing solar development on Williamson Act lands have evolved. Currently, nearly every local jurisdiction in California requires that a Williamson Act contract be canceled to accommodate solar development. The cancellation process can be controversial and requires the local jurisdiction to make specific findings, but the California courts have confirmed that cancellation of a Williamson Act contract in favor of solar development is permissible under certain factual circumstances. When pursuing solar development on Williamson Act land, it is important to understand the cancellation requirements and ensure the project can meet those requirements. Similar concerns are abundant, but are only more recently being tested, in Midwestern states where prime farmland or agricultural preservation rules must be navigated in order to allow a solar facility to be constructed on certain agricultural land.

An emerging conflict between agricultural land uses and habitat is rapidly materializing in solar PV facility siting. This is particularly true for large utility-scale solar facilities proposed on highly productive farmlands, especially those that are irrigated and have the capability to produce high-value crops. The flip side is pressure to develop areas with potentially important habitat value, including wintering range areas for deer and elk, and areas with substantial water resources. These agricultural and habitat values often emerge in project opposition choosing to use such land attributes as a proxy for perceived aesthetic impacts, as well as generalized anxiety over alterations to local landscapes.

Additional land use laws that may apply to a solar project include surface and ground water quality and quantity protection, as well as shoreline regulations. The genesis for many of the state-administered laws is the federal Clean Water Act, although states such as Washington and California have also enacted shoreline protection laws that superimpose more review and additional permits before a solar facility may be permitted.

For most local permitting decisions, the body empowered to approve a project is a board of county commissioners or a legal equivalent or, less commonly, planning agency administrators.

C. Streamlining the Process. Some jurisdictions are beginning to recognize the value of consolidating the permitting processes for several renewable technologies. For example, a county in Washington has conducted an area-wide EIS for wind energy facilities to create an overlay zone in certain areas for wind development. While the environmental impacts for wind energy development were being assessed, the ramifications of solar energy facility development were considered. As a result, both technologies have been established as permitted uses in certain zones. A solar facility proponent should meet early with the local planning authority to review the compendium of land use laws and determine which permits will be required, as the opportunity to reduce permitting costs is significant.

Energy generators and developers are also taking steps to reduce the time and cost of solar facility permitting by co-locating several renewable energy generation facilities on a single site. An example of this is found at the Wild Horse Wind Power Project in Washington. The wind energy facility owner is a utility subject to the state’s renewable portfolio standards. The facility occupies over 6,000 acres on which are placed only 121 turbines. Because wind turbines occupy a vertical plane and solar panels a horizontal plane, there is room for the two technologies to compatibly occupy the same acreage. Both share transmission facilities, reducing capital facility costs. The environmental impacts for both the solar and wind facilities were constrained to the same site, resulting in a more expeditious and less onerous environmental review process.

Many ground and rooftop solar projects are now being planned for urban areas, which raise unique issues with respect to permitting and due diligence. Individual jurisdictions may have permitting or sometimes building code ordinances for such units. Further, such facilities may be located above brownfields or other contaminated sites that require additional due diligence to understand past environmental issues and how those issues may impact the project. Download The Law of Solar - 5th Edition (PDF)

Key Contributors

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Media Inquiries

  • Bree Metherall Director of Business Development 503.294.9435
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