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Commonwealth's Counties

Legislature passes complex changes to laws regarding the siting and taxing of solar and energy storage projects

In 2020, the General Assembly passed legislation providing counties new tools and taxing options in addressing the growing demand to site utility-scale solar projects. In 2021, the legislature adopted additional changes to incorporate large-scale battery storage within this new landscape, while at the same time expanding local authority to address impacts related to land use and local revenue generation. The result is a complex and opaque mix of interrelated bills. This narrative summary attempts to unravel how each piece fits within the larger whole and their potential impact to counties where such facilities seek to be located.

New law effective July 1, 2020, requires any applicant seeking to locate a utility-solar energy or storage facility greater than 5 Megawatts (MW) in generating or storage capacity on any census tract meeting the eligibility requirements for a federal opportunity zone to execute a host siting agreement with the local jurisdiction prior to issuance of a state permit. The execution of such agreements can include “… i) mitigation of any impacts of such solar facility; (ii) financial compensation to the host locality to address capital needs set out in the (a) capital improvement plan adopted by the host locality, (b) current fiscal budget of the host locality, or (c) fiscal fund balance policy adopted by the host locality; or (iii) assistance by the applicant in the deployment of broadband…” HB 2201 (Jones) and SB 1207 (Barker) expand this new law to apply to any project greater than 5 MW. This removes the geographic limitation requiring a host site agreement to only those census tracts meeting the opportunity zone criteria.

However, it is important to note that the legislation includes an enactment clause that states “… the provisions of this act shall not become effective with respect to energy storage projects unless the General Assembly approves legislation that authorizes localities to adopt an ordinance for taxation of energy storage projects such as solar projects with a local option for machinery and tools tax or solar revenue share.” What does this mean? This is where HB 2006 (Heretick) and SB 1201 (Petersen) come into play. Without their passage, HB 2201 and SB 1207, even should they become law, would carry no effect. HB 2006 expands the option for a locality to replace the machinery and tool (M&T) tax on solar generating energy generation equipment with an energy tax of up to $1,400 per MW of capacity to now include “energy storage systems” (typically large-scale chemical battery installations) equipment per MW of storage capacity. It is important to note that these energy storage systems can (and many will likely) be separate from solar panel installations. Counties should also take note the bill also applies the same mandatory exemption from local M&T tax (80% exemption for the first 5 years of operation; 70% exemption for years 6-10; and 60% exemption for years 11 and beyond). The potential revenue reduction from this mandate can conceivably be offset by payments to counties through the expansion of the host siting agreement authority for any project as provided in HB 2201 and SB 1207.

The final piece of legislation passed and awaiting the Governor’s signature is HB 2269 (Heretick). This proposal amends the local option for an energy tax of up to $1,400 per MW by allowing localities to increase this amount by up to 10 percent every 5 years starting July 1, 2026. For example, in 2026, the $1,400 could be adjusted up to $1,540 per MW and similarly in subsequent 5-year intervals as follows:

Year Tax per MW
2026 $1,540
2031 $1,694
2036 $1,863
2041 $2,050
2046 $2,255
2051 $2,480
2056 $2,728
2061 $3,001

The purpose of the escalator is to address the diminishing value of the dollar due to inflation thereby providing an added incentive to adopting the energy tax versus M&T.

The sum of all these bills should once they become law indicate that the legislature seeks to grant counties greater authority in the siting of these facilities, particularly through expansion of the host-siting agreement to all projects greater than 5 MW in generating and storage capacity, while at the same time providing enhanced revenue options for local consideration.

VACo Contact: Joe Lerch, AICP

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