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Solar Development on Public Facilities and Under-Utilized Land

As local governments take steps to encourage solar energy growth, they can show leadership by installing solar on public facilities or other public land. In this way, municipalities and counties can encourage local residents to install solar by leading through example. As costs continue to decline and new business models are developed, local governments may find they have several sites with a high potential for solar development that match their energy needs or provide a compelling revenue opportunity. These may include:

  • Administrative building rooftops
  • Fire and police station rooftops
  • Remediated brownfields
  • Wastewater treatment plants
  • Capped landfills
  • Parking garages or parking canopies
  • Municipal airports
  • Convention and civic centers
  • City and county parks (e.g. picnic shelters)
  • School rooftops or grounds

This section of the SolSmart program’s Toolkit for Local Governments provides information on how to install solar energy systems on these public facilities.

Choosing a Site for Solar Development

A key step in converting local government-owned land or rooftops into solar revenue generators is to assess municipal properties and determine their potential for solar development. Local governments with adequate in-house expertise can conduct these assessments on their own. Without in-house expertise, local governments should consider procuring the services of an engineer or planning consultant with solar siting experience.

Below are some of the key site selection criteria that municipalities or counties should consider for solar development, including physical characteristics, potential alternative uses, and infrastructure concerns.

Physical Characteristics

Depending on whether the proposed solar array is rooftop or ground-mounted, the relevant physical characteristics to consider will be different. However, two universal considerations that are relevant in all solar installation scenarios are the amount of shading and the orientation of the installation. Excessive shading from vegetation or buildings can negatively affect a site’s suitability for solar by reducing the system’s exposure to sunlight. Because a solar project is a long-term asset, shading concerns may arise with nearby vegetation growth or the development of new buildings over the lifetime of the array. Further, in order to maximize exposure and energy generation, solar installations in general should be south facing.

For ground-mounted solar projects, it’s important to consider the slope of the land and soil types. In general, ground-mounted solar projects are not viable on land with ground slope exceeding 10%, though new ballast technology innovations make installations on steeper grades more feasible. Finally, ground-mounted PV systems require firm, compacted soils for stability, so they should not be installed in either soft and loose soils or excessively rocky soils, which would create difficulties during excavation, ballasting, and solar racking.

For rooftop PV projects, the main considerations beyond shading and orientation are the age and structural soundness of the roof. Local governments should avoid installing solar on roofs nearing the end of their useful lives, since roof replacement would require removing the PV system.

Future or Alternative Use

Leases for ground-mounted solar sites typically tie up land for 20 years or more. Therefore, other potential productive uses of the land should be considered in the site selection. Locations with high-value alternative uses (e.g., future public buildings, parks, etc.) may not be ideal for solar development, while areas with little or no alternative use (e.g., brownfields and closed and capped landfills) may be well-suited for solar projects. In fact, these degraded and underutilized lands might cost money to maintain and keep secure; therefore, leasing them for solar may allow for some of these costs to be recouped. Idle roof space and the tops of parking garages or parking lots present additional opportunities.

Infrastructure Concerns

There are two main infrastructure concerns that are essential to ensure the viability of a solar installation on a given site: (1) proximity to grid infrastructure and (2) site access. Ensuring interconnection to the electrical grid is a key concern for developers. Solar projects located in close proximity to a point of interconnection have significantly reduced costs for equipment such as poles and wires. Early conversations with utilities are important to ensure interconnection can occur on a specific site. Further, adequate site access is essential to install solar. When a project is built on underutilized land, new access roads or other infrastructure may be required to install, connect and maintain a solar system. Certain sites may also need controlled access if they contain sensitive or hazardous materials. Other access limitations to public buildings should be taken into consideration, such as in the case of public schools, where it is common to restrict access to after-school hours, weekends, and summers to minimize impact on student activities. In assessing and procuring a site for installation on public buildings, the local government should ensure that it retains the right of access for monitoring solar and any compatible uses.

Financing

Traditionally, local governments have had two primary methods for installing solar on public property. They can choose to directly own and finance their solar projects, or they can enter into a third-party ownership arrangement such as a power purchase agreement. Each of these options should be carefully considered to choose the correct option for a municipality or county.

Direct Ownership

Local governments that opt for direct ownership have a number of financing options at their disposal. They can issue bonds, enter into various types of lease purchase and loan transactions, use revenue generated by tax collection and user fees to finance projects, or tap into available cash on hand. Regardless of the manner in which local governments choose to finance their solar projects, they will accrue both the benefits and costs of direct ownership.

The benefits of direct ownership include:

  • A reduction in retail utility bills
  • The ability to make certain environmental claims (assuming they retain solar renewable energy certificates (SRECs)
  • Familiarity with direct financing and ownership of capital equipment
  • Other intangible benefits of directly owning the PV asset outright

However, with direct ownership comes the need to finance the solar project. Financing may require voter approval, and the municipality or county will need available borrowing capacity. In addition, the local government will be responsible for ongoing operations and maintenance (O&M). However, O&M can be contracted out with either the original installer or a separate solar installer. Finally, since local governments are tax-exempt, certain tax benefits such as the federal Investment Tax Credit (ITC) and accelerated depreciation (5-yr MACRS) are not available for the project.

The tax benefits associated with solar projects have been large (up to 50% of the initial capital cost of the project) although such benefits will decline with the phase down of the ITC. In addition, local governments typically have limited access to capital. These tend to be the primary reasons why local governments prefer third party ownership through PPAs for solar projects, rather than directly owning them outright.

Third-party ownership and the Power Purchase Agreement (PPA)

A second option for local governments is to use third-party ownership, which can provide access to solar energy without some of the upfront costs. Power purchase agreements (PPAs) are a common third-party ownership method by which solar is installed on public facilities. In PPA eligible states, a local government agrees to host a system on its property (e.g. rooftop, parking lot or other available land) and purchase all of the solar electricity generated by that system. The cost of electricity under a PPA will either entail a fixed, first-year price (in $/kWh) which will typically escalate annually at some pre-determined percentage, or it will be fixed for the life of the contract. The third-party owner of that system (e.g., the solar developer and its investors), in turn, agrees to finance, install, own, and operate the PV system for some agreed-upon term, typically 20 years. The owner will maintain the system, and will typically offer a guarantee that production from the system will not fall below a certain threshold. At the end of a PPA (and often at set times during the contract), the local government host has three choices:

  • Purchase the system at fair market value (FMV)
  • Extend the PPA (e.g., an additional 5-year term)
  • Request that the system be removed with the cost borne by the system owner

(Another form of third-party ownership is an operating lease. Like in a PPA, the third party finances, builds, owns, and operates the system but leases the system to the property owner to use the power and sell the excess to the grid. While leases are common in purely private deals, they are uncommon in public-private deals because the IRS forbids the third-party owner from benefitting from the federal investment tax credit. There are workarounds to allow the third party to benefit, but they are very complex so most public entities choose to avoid them.)

Some of the benefits of entering into a PPA include:

  • Avoiding the upfront capital cost (or cost of financing)
  • The ability to lock in predictable pricing (in cents per kWh terms)
  • The opportunity to buy the system in the future at a discounted price once the tax credits have been monetized by the investors
  • Outsourced O&M responsibilities

Of course, the PPA option comes with downsides as well. These include:

  • A complicated negotiation process
  • Lack of initial ownership, which can also limit the environmental claims that the local government can make, as the SRECs are typically retained and sold by the third party.
  • No guarantee that the PPA pricing will be competitive with retail utility pricing
  • Inability to use PPAs. PPAs are not permitted in all 50 states (see Figure 1 for a summary of state policies)

Figure 1: State Policies Regarding Third-Party Power Purchase Agreements[1]

 

Long-term Land Leases

Local governments can develop solar by leasing land to a third-party developer who builds, owns and operates a solar system. The developer sells some or all of the power to the grid or to the local government. If the local government is leasing its land with the intention of being the energy off-taker, it should consider what will happen with excess energy. What are the local policies for net metering? Net metering may, for example, only apply to systems below a specific size. Furthermore, what happens if there are reductions in public facility energy load? Energy efficiency improvements or changes in operations may cause the government facility to consume less energy as time passes. If the system was sized to cover the original full load, the municipality may still be required to pay for a contract stipulated amount the power, despite using less of the energy.

Evaluating Legal Obstacles. Local governments also need to ensure there are no legal obstacles that would hinder their ability to enter into solar lease agreements. Local governments should seek advice from a qualified municipal or land use law attorney to determine what authority the government possesses to pursue solar leases, what the term limits are for these leases, and what state or other laws or regulations must be followed in pursuit of these agreements.

Requests for Proposals. Once a local government has a clear understanding of which sites are appropriate for solar development, the next step is to solicit bids. A local government should issue an RFP for a developer who will install, finance, interconnect, operate, and maintain the solar energy system. Developers should also be responsible for negotiating a PPA with the entity(s) or offtaker that will buy the electricity produced by the system. In most cases, developers will retain ownership of these systems over the term of the PPA or lease.

Soliciting bids through a competitive RFP will maximize the chance to receive an offer that matches the local government’s needs at the best available pricing. A local government should consider hiring a consultant (sometimes referred to as an owner’s agent) to assist with the procurement process.

Essential Components of a Lease

There are a few key elements that should be a part of any solar land lease. Local governments should look for these items to ensure they are dealing with a reputable developer and reaping the full benefits of the deal.

Lease Payments. Lease payments are often in the form of affixed dollar amount per acre of land leased. Landowners may increase their revenue by negotiating for a “power sale revenue” payment (in addition to the per acre payment), to be triggered when the developer revenue per acre from power sales exceeds the per-acre lease payment by a certain percentage.

Option Payments. Many lease agreements have developers making payments to the landowner only after a PPA has been negotiated with a third party that will purchase the electricity generated by the system. However, projects can tie up land for a year or more while developers negotiate their PPAs and obtain interconnection authorization. Local governments should seek land option payments to ensure they receive revenue during this initial period.

Lease Escalators. The cost of living rises over time, while many lease payments remain fixed. Because lease payments are made over a period of 15 or 20 years, fixed payments can have a negative impact on the value of the lease in the long run. Many leases contain a small payment escalator (1-2% per year) over the term of the lease.

Insurance. Leases should state that developers will not only obtain property and liability insurance, but also extend that coverage to the property owner, protecting the municipality or county in the event of injury or property damage.

System Removal and Site Decommissioning. Lease agreements should indicate that the developer is responsible for removing the system at the end of the lease (and for ensuring they are financially capable of doing so) and for returning the land to its original state.

Change of law. Lease contracts should specify what will happen should state or federal laws change and negatively impact the economics of the project. It is recommended that parties share the risk of changes in law equally, and that any such change trigger a period of re-negotiation (and, if necessary, arbitration) to determine how to restructure the agreement considering the new financial situation.

Property Taxes. While a private entity would need to evaluate the impact of lease revenues on their property taxes, this is not a consideration for municipal and county entities, which are tax exempt.

Hybrid Financing Models

The method by which local governments install solar on public facilities is not always a binary choice between direct ownership and third-party ownership. Some business models successfully blend elements of each.

Energy Savings Performance Contracts (ESPC). ESPCs are a common financing mechanism for public entities to finance the cost of energy efficiency upgrades, and occasionally renewable energy projects. Under an ESPC, an energy services company (ESCO) will make energy efficiency upgrades in a building (or collection of buildings, such as a college campus) as well as install solar. The ESCO will then guarantee some minimum level of savings (e.g., electricity, gas and/or water) for the local government. However, Figure 2 shows that during the initial years of an ESPC, the bulk of the energy savings (e.g. 90%) will accrue to the ESCO, both to repay the financing it took on to pay for the upgrades and to earn a return on this investment. At the end of the ESPC, all of the energy savings then start accruing to the local government.

Figure 2: Customer Cash Flow Utilizing ESPCs

ESPC can be also be tailored so the title to the energy efficiency upgrades passes to the local government immediately upon installation. The solar project remains property of the ESCO who sells the electricity to the host under a PPA embedded in the ESPC. Such an approach allows local governments to benefit from the tax credits available to the ESCO for solar projects in the form of a lower PPA price.

Public-Private Partnerships (PPP). In certain instances, a local government may borrow money and use those funds to make an electricity prepayment under a PPA. Providing upfront capital will then decrease the overall PPA price. Further, local governments can utilize grants to be combined with a PPA transaction in a similar fashion. There are other hybrid models that local governments can utilize, but it is important that tax counsel is engaged when contemplating these hybrid approaches to ensure that the transaction is structured properly.

 Community Solar. Community solar (also known as shared solar and solar gardens) offers local governments an opportunity to subscribe to off-site community solar projects and offset their utility bills via a mechanism known as virtual net metering. One of the pillars of a successful community solar project is identifying what is known as an anchor tenant, who can subscribe to up to 50% of the solar project’s output. Anchor tenants, particularly credit-worthy ones, can both facilitate access to financing for the project and reduce overall customer acquisition costs.

If a community solar project is available in their community, local governments are well suited to play this anchor tenant role. By doing so, they can avoid the need to find a public site for a PV project, finance it and maintain it.  Local governments in a number of states, including Colorado, Massachusetts and Minnesota are active participants in community solar projects. [2]

For more information on community solar projects, view the SolSmart Issue Brief, “Expanding Solar Participation Through Community Solar.”

Regulatory Issues

Both direct ownership and third-party ownership financing models for public sector solar can give rise to certain legal, regulatory and public policy issues. These include the appropriations process and how it might impact contracts, the need to obtain voter approval, private use of public facilities, and maximum contract terms.

Appropriations

Appropriations refers to the process by which local governments appropriate monies to meet their financial obligations.[3] PPA payments typically require appropriated funds. In other words, if funds are not appropriated, then the local government cannot make the payments due under the PPA, creating risks for the solar developer. Therefore, it is common to see an appropriation clause in a PPA that (1) highlights that the risk exists; (2) lists the steps both parties will take to minimize this risk; and (3) the remedies available to the developer should a non-appropriation event occur. Solar developers have been able to overcome the risks associated with non-appropriation by negotiating in good faith with the hosts and agreeing to mutually acceptable contract terms.

Voter Approval for Bonds

While PPAs may be subject to appropriation risks, they usually aren’t considered public debt requiring voter approval. As a result, the developer can obtain financing and the municipality can avoid the cost and uncertainty associated with seeking voter approval. Conversely, governments wishing to own their solar projects may decide to issue general obligation bonds. To do so, they typically need to seek voter approval (or have previously approved bonding authority in place). There is no guarantee that voters will approve the bond offering that includes funds for the solar project.

Maximum contract terms

Depending on the local jurisdiction, restrictions may exist on the maximum length of contracts allowed for various types of services, including energy-related services. In addition, elected officials may face legal limitations on entering into contracts that create binding obligations for their successors in public office. As a result, whether a local government is considering a PPA, land lease, an ESPC or some other contracting mechanism for solar, it is important to address the maximum contract length early in the process.

Municipal Projects on Brownfields and other Under-Utilized Land

For local governments, one of the most promising avenues for solar development is to repurpose brownfields to accommodate solar projects. Brownfield conversions offer benefits both to developers, in the form of financial incentive, tax benefits, and existing infrastructure; and to communities, by revitalizing underutilized land, promoting economic growth, and offering a clean energy source.

The EPA defines a brownfield as a “property, the expansion, redevelopment, or reuse of which may be complicated by the presence or potential presence of a hazardous substance, pollutant, or contaminant.”[4] The original usage of a given site may range from a municipal landfill to a manufacturing plant. These sites can be located in both urban and rural areas. The EPA estimates there are over 450,000 brownfields across the country, and the agency has identified 80,000 sites have been prescreened for solar potential.

Differentiating Superfund, Brownfield, and RCRA Sites

There are vast areas of land across the U.S. that are in desperate need of remediation for the health of humans, the environment, and local economies. In addition to brownfields, these include Superfund and RCRA treatment sites. The following summary explains the differences between these sites.

Superfund sites are the most severely contaminated sites which the federal government is planning to clean up. Superfund sites pose a serious threat to human and environmental health. They are abandoned, non-operating sites with media contaminated with hazardous substance. They are not suitable for solar development until the remediation is complete.

Brownfields differ from Superfund sites in their degree of contamination. Since they do not pose a serious health or environmental threat, they are suitable for solar development, allowing communities to put the land to productive use.

RCRA treatment, storage, and disposal facilities are regulated by the Resource Conservation and Recovery Act. These facilities differ from brownfields and Superfund sites as the owners and operators are currently using, managing, or disposing of hazardous wastes.

Benefits of Redeveloping Brownfields

Installing solar energy systems on landfills, former industrial sites, and other types of contaminated land offers numerous benefits to the developer, property owner, and community.

Developers can benefit from the existing infrastructure, open space, and financial incentives that brownfields provide. Landfills, for example, can offer large areas of unobstructed sunlight and often provide a favorable slope for a solar array. Former industrial sites are often located near high-capacity transmission lines, reducing construction costs for new transmission, which can be as high as $3 million per mile.[5]

Local governments and residents also have a great deal to gain from the redevelopment of brownfields for solar projects. State and local governments can reduce the amount of money spent on upkeep for these sites, generate clean energy for the community, and save productive land for future use. Residents may also see an increase in their property values. One study concluded that cleaning up brownfield properties increased property value by 5-15% within 1.3 miles of the site.[6] Further, local governments could receive additional tax revenue. One study estimated $29 to $97 million in additional tax revenue in a single year after cleanup.[7]

Finding Potential Sites

The EPA has made it easy to take the first step in determining whether a brownfield site is suitable for solar. The agency pre-screened 80,000 sites which amount to over 43 million acres of land suitable for solar energy, translating to a total of 6.7 billion MW of potential solar capacity.[8] The EPA RE-Powering Mapper provides location data for over 130,000 contaminated lands that have been pre-screened for renewable energy potential. The tool can be accessed here: https://geopub.epa.gov/repoweringApp/.

Figure 3:  EPA Re-Powering Mapper 2.0[9]

Navigating Regulatory Requirements

State and local governments are the primary administrators for brownfields. While brownfields present an excellent opportunity for solar developers, navigating regulatory requirements can be challenging. The American Planning Association cites the “fear of liability related to the presence, or potential presence, of contamination” as the most substantial barrier to brownfield redevelopment.[10] To reduce the burden of liability on solar developers, the APA recommends that states and counties either determine the level of contamination on all potential sites, or work with developers on the cleanup and site investigation process.

Despite these challenges, brownfield sites represent exciting opportunities for communities to expand solar energy development and return the land to productive use. To encourage a smooth process, local governments should provide clear information to solar developers on the opportunities and regulatory requirements for brownfields development, using the information in this toolkit and other resources listed below.

Learn More: View the SolSmart Webinar, Developing Solar on Brownfields 

Return to the Table of Contents: Solar Energy: A Toolkit For Local Governments

Want to learn more about making your community solar-ready? Get More information on the SolSmart Program

Additional Resources

PVWatts Calculator

http://pvwatts.nrel.gov/

The National Renewable Energy Laboratory (NREL) developed the PVWatts Calculator. It is a Web-based tool that allows users to estimate the electricity production of a grid-connected solar PV system. Users provide basic inputs, such as location, system specifications, and electricity cost. The calculator generates an output of monthly solar radiation, energy production, and energy value. Communities, along with residents and business owners, can use PVWatts as an initial site assessment tool. Although not a robust tool, it provides a simple way to get a preliminary understanding of a site’s potential.

System Advisor Model (SAM)

https://sam.nrel.gov/

SAM is a no-cost, downloadable program developed by NREL that allows users to model various types of solar energy systems with a variety of financing mechanisms. Users can customize the location, system design and costs, financial parameters, incentives, and electricity rates in the model. These inputs feed into an output containing system generation, net present value, payback period, and other important performance metrics. It provides communities with a more robust modeling tool than PVWatts and allows a community to estimate the costs and production for grid-connected installations.

 Database of State Incentives for Renewables & Efficiency (DSIRE)

http://www.dsireusa.org/

SAM requires the input of federal, state, and local incentives to accurately calculate an output. DSIRE is a tool provided by the North Carolina Clean Energy Technology Center that lists all incentives and policies related to renewable energy and energy efficiency technologies. By entering a zip code and filtering for solar PV, a community can determine all relevant incentives and policy in the region. Communities can use this information to determine the factors (or lack thereof) that contribute to the feasibility of solar PV locally.

Cost of Renewable Energy Spreadsheet Tool (CREST)

https://financere.nrel.gov/finance/content/crest-cost-energy-models

CREST is an economic cash-flow modeling tool developed by NREL. This no-cost, Excel-based tool can act as a complement to SAM, as it allows users to determine how the cost of energy (COE) and levelized cost of energy (LCOE) are affected by incentives and other economic drivers in a less technical and less detailed way. CREST also allows users to experiment with incentive rates and project characteristics.

 Cities Leading through Energy Analysis and Planning (Cities-LEAP)

https://energy.gov/eere/cities-leading-through-energy-analysis-and-planning

The Cities-LEAP project, led by U.S. Department of Energy staff, provides communities with resources and localized data to help them integrate energy analysis into decision-making processes. Communities can use the associated State & Local Energy Data (SLED) portal to view a localized energy profile that includes information such as renewable energy resource potential and electricity generation. The SLED portal can be accessed here: https://apps1.eere.energy.gov/sled/.

 National Solar Database (NSD)

http://www.seia.org/research-resources/national-solar-database

The Solar Energy Industries Association (SEIA) tracks domestic solar companies across the supply chain. The NSD is a map that displays solar companies with pins, which are color-coded based on one of three main categories: manufacturer, installer, and other. Clicking on a pin will display a company’s name and primary solar-related enterprise (e.g. contractor, installer, distributor, etc.). By reviewing the NSD, a community can determine whether there are solar companies in its jurisdiction. The company information can provide a starting point for a dialogue with an installer, project developer, or another relevant party.

Environmental Protection Agency Brownfields Website

In addition to providing background information on brownfields redevelopment, the EPA website offers a comprehensive list of tools and resources, including links to grants and other funding opportunities.

Key links:

ENDNOTES

[1] Database of State Incentives for Renewables and Efficiency, 3rd Party Solar Power Purchas Agreement Policies, Accessed August 22, 2019.  http://ncsolarcen-prod.s3.amazonaws.com/wp-content/uploads/2019/07/DSIRE_3rd-Party-PPA_June_2019.pdf.

[2] MetroDenver Economic Development Corporation, Denver chooses Community Solar, July 2015. http://www.metrodenver.org/news/news-center/2015/07/denver-chooses-community-solar/;

[3] Investopedia, Appropriation Definition, Accessed August 22, 2019.  http://www.investopedia.com/terms/a/appropriation.asp.

[4] U.S. EPA, “Brownfields Overview,” Accessed August 22, 2019. https://www.epa.gov/brownfields.

[5] U.S. EPA, 2017 Brownfields Federal Programs Guide, May 2017. https://www.epa.gov/sites/production/files/2017-06/documents/final_2017_bf_fed_guide_5-8-17.pdf.

[6] Haninger, Kevin, Lala Ma, and Christopher Timmins, The Value of Brownfield Remediation, Journal of the Association of Environmental and Resource Economists, January 2017. https://www.journals.uchicago.edu/doi/pdfplus/10.1086/689743  

[7] Sullivan, Karen, Brownfields Remediation: Impact on Local Residential Property Tax Revenue, Journal of Environmental Assessment Policy and Management, September 2017. https://www.worldscientific.com/doi/pdf/10.1142/S1464333217500132.

[8] U.S. EPA, RE-Powering America’s Land: Siting Renewable Energy on Potentially Contaminated Land, Landfills and Mine Sites, Accessed August 22, 2019. https://www.epa.gov/sites/production/files/2015-03/documents/repower_technologies_solar.pdf.

[9] U.S. EPA, Re-Powering Mapper 2.0, Accessed August 22, 2019. https://geopub.epa.gov/repoweringApp/.

[10] Morley, David, Recycling Land for Solar Energy Development, American Planning Association, December 2012. www.planning.org/research/solar.