by Lea Maamari and Melody S. Gee
On March 27, SolUnesco president Jon Hillis presented at the 2019 Environment Virginia Symposium. Speaking to other industry and environmental leaders, Jon covered the evolving nature of Virginia counties’ requirements imposed on solar electric generation facilities as part of their permitting process. Jon generally focused on the decommissioning requirements placed by the counties on these solar facilities.
For the past year, SolUnesco has conducted research and published reports on Virginia’s decommissioning requirements across all ninety-five counties (Review of Counties Solar Decommissioning Requirements). At the Environment Virginia Symposium, Jon shared our most recent research into solar decommissioning, as well as provided SolUnesco’s perspectives on best practices for Virginia counties.
Planning the End of a Solar Project
Many residents of Virginia aren’t aware that a solar project is commissioned with the project’s end in mind. The typical life cycle of a utility-scale solar project looks like this:
Roughly three to five years of the project involves development—site identification and control, interconnection, permitting, engineering, and construction.
The next thirty to forty years, the project is in full operation, requiring monitoring, reporting, and maintenance.
After that, approximately one year is planned for the site’s decommission—removing the equipment, structures, and fencing, then restoring the site and the roads to their original – or better – condition.
Solar developers build decommissioning into their solar farm applications to meet the requirements of counties who seek to ensure their community’s interests are well protected. Generally, counties design these conditions to address future risks—thirty to forty years from now. However, technology and business practices may change to the point that rather than decommission the solar facility, the owners will update, retrofit or replace the solar equipment.
Residents and local governments may also wonder: how will a utility-scale solar site leave the land after being decommissioned? SolUnesco advocates for creating an environment whereby the land in returned in as-good or better condition. SolUnesco will recommend planting wild grasses and fescue and leaving roads intact for owners’ future use. Having removed farmland from production for thirty or more years, upon reclamation, the solar project will return it to agricultural uses richer and healthier than before.
Changes in Solar Decommissioning Agreements and Conditions
Just recently, the Virginia General Assembly passed HB-2621, which now requires that “a locality must enter into a written agreement with an owner, lessee, or developer to decommission solar energy equipment, facilities, or devices upon certain terms and conditions.” Essentially, the new law requires a Decommissioning Plan, and it’s left up to the parties to determine the specific conditions. HB–2621 also stipulates that should the solar project fail to decommission the site as required by the Decommissioning Plan, the County has the right to enter the property and conduct the decommissioning operations. To protect the county, the law also stipulates that the solar facility will post financial security to the county’s benefit, to provide sufficient funds for the decommissioning operations.
An Array of Conditions
Solar developers and counties negotiate the decommissioning conditions based on the specific needs of the county and the solar facility. Individual counties may or may not have requested decommissioning conditions, and to varying degrees of specificity.
It is all these project-specific conditions that SolUnesco has been meticulously researching and documenting in order to provide the industry with an accurate account of the array of conditions that exist across the state.
To date, we’ve found some high levels of variation. For example:
- 38 projects/ordinances explicitly require a decommissioning plan
- 15 of those 38 require a plan before approving a site plan or permit
- 42 projects/ordinances require financial security for the decommissioning requirements
- 4 projects/ordinances explicitly disallow for the inclusion of salvage value in the cost of a solar project
Why do these kinds of project-by-project variations matter? Put simply, they impact how counties develop mutually beneficial solar projects or place financial barriers on projects. These utility-scale solar projects stand to make enormous economic and environmental contributions, so finding a good balance of shared benefits, costs, and risks is in the best interest of all stakeholders.
SolUnesco Best Practice Recommendations
Cost Estimate Conditions
One example of decommissioning variation involves the salvage value of solar equipment. In short, salvage value is the remaining value of a power system component at the end of a project’s life cycle. While the Code of Virginia recognizes salvage value, both in the utility equipment removal and commercial transactions, most counties are silent on its inclusion in calculating the net decommissioning costs.
This can be for a number of reasons. First, the final decommissioning costs can be impacted by fluctuations in market prices and changes in technology. Local governments understandably want to protect their interests amid potential price shifts. However, the move to eliminate salvage value from the calculation is not the solution and can in fact create a financial barrier to solar projects, often for little or no benefit to the municipality.
For this condition, SolUnesco recommends a balanced approach of risk mitigation and calculated discounts. By engaging independent, third-party analysts to provide frequent calculation updates, stakeholders can have reasonable confidence in staying ahead of market swings and can calculate a beneficial discount. Consider a general example: if a project decommission is estimated to cost $10 million with a salvage value of $8 million, the difference of $2 million would be posted as security by the developer. This way, neither party is taking on all of the risk or financial burden.
Financial Security Conditions
A second variation can be found in the financial security conditions for decommissioning. These conditions can be in the form of requiring performance bonds, parent guarantees, letters of credit, or certified funds, often posted within 30 days of receiving an occupancy permit.
Rather than requiring the solar developer to present full financial security for the project, SolUnesco recommends a tiered security approach. This can look like the following:
- 10% of the decommissioning net cost estimate secured by a financial assurance to the county (certified funds, cash escrow, bond, letter of credit, or parent guarantee) issued by a financial institution with acceptable credit rating, plus a Moody’s A2-rated or S&P A-rated financial institution, with a capital surplus of at least $10,000,000,000, with the amount increasing annually by an additional 10% during years 2-9 after solar facility operations commence.
- 10% of the decommissioning net cost estimate deposited in as cash escrow.
- Each year the project increases the financial assurance by another 10% of the decommissioning cost estimate until 100% is covered.
- Upon 100% coverage, the 10% cash escrow is released to the project.
A Balanced Approach to the Future
These examples of best practices ensure that all parties reap the mutual benefits of utility-scale solar in Virginia. And the benefits stand to be major. Currently, a sampling of six solar projects across five Virginia counties are estimated to contribute:
- Nearly 1,600 full-time equivalent jobs
- $75 million in direct spending on labor
- $210 million in additional economic output
- 1 GW of energy
And, market forces and policy changes are advancing the development of renewable energy. Examples include Virginia’s Grid Transformation and Security Act, new carbon regulation issued by the State Air Board, and the governor’s Energy Plan. Additionally, the military now has budget language for addressing climate change and is constructing a solar farm on NAS Oceana. And recent major purchases by Microsoft, Amazon, Apple, and Facebook—nearly 1GW combined—indicate clear desire and purchasing power for clean and renewable energy.
As we move forward into future projects, we believe it is possible for all stakeholders to balance and share the rewards, costs, and risks of developing utility-scale solar. SolUnesco remains committed to continuing to provide accurate industry and legislative research about utility-scale solar in Virginia as well as other states, and to developing solar projects with in-depth expertise, experience, and a good neighbor approach.