How South Carolina became a major solar market… and why the industry may be threatened
By Edward Kluiters | Partner | Nelson Mullins
By now, most of us have caught a glimpse of a solar farm driving on the interstate or a rural highway in South Carolina, something that was not a very common sight a few years ago. What explains the sudden appearance of these farms?
The rise of solar energy production in the state can be attributed to three factors. First, the South Carolina legislature modified or lifted several restrictions that made solar development very difficult if not impossible. In addition, the investor-owned utilities operating in South Carolina have been mandated by a number of other states’ “renewable portfolio standards” to have a certain percentage of their energy production generated by renewable sources, like solar, wind and hydropower. South Carolina does not have a renewable portfolio standard, but, due in part to the laws in other states, utilities are embracing solar energy as a way to meet these standards, as well as their own self-imposed sustainable and environmentally friendly goals.
The second reason for the rise of South Carolina’s solar power industry relates to simple economics: federal and state tax incentives related to the investment in solar power production facilities and the dropping prices of the equipment are driving solar development. Investors in solar farms count on the income stream from the power purchase agreement with the utility and any available tax credits that could possibly be monetized (sold) to help reduce the cost of construction of the facility. In addition, solar panels are increasingly more efficient and long-lasting in the production of energy. There are also promising developments in the area of energy storage for these facilities.
Finally, more of the larger utility customers, including major manufacturers and service industries, are demanding that a portion of the power supplied to them be generated by renewable energy sources as part of their corporate social responsibility policy. The presence of solar production facilities therefore assists in the retention and expansion of existing industry and the promotion of the community as a progressive, green energy-friendly community.
Solar facilities can be classified into large-scale “utility sized” solar farms which sell energy directly to utilities and smaller “distribution line” facilities which sell energy to either a corporate user or a utility. Although there is no uniform definition, utility sized solar farms under South Carolina’s regulatory scheme are those that generate over two megawatts of power.
The development process of a solar farm generally consists of locating an undeveloped agricultural site located close to a power transmission or distribution line. After rights to develop a solar facility are obtained from the landowner—who typically retains title to the property—a feasibility study is conducted by the developer. The feasibility study includes such matters as the location of any wetlands, the topography of the site, title to the land and environmental due diligence. The solar facility interconnects with the distribution system of the utility company which owns the line, requiring an interconnection study to determine the feasibility of the interconnection with and the supply of the power to the particular line. All this takes time and it is not unusual for the development of a large-scale utility solar farm to take three to five years.
A positive development for South Carolina
The development of a solar farm is not without its challenges. The site may need to be rezoned to comply with local zoning laws or the county or municipality may initially not be in support of the solar farm. The objections most often encountered are the visual impact of the development and the decommissioning of the facility once the lease with the landowner ends or the solar facility otherwise ceases to operate. These concerns are addressed through set back and vegetative screening requirements and the posting of a bond to secure the costs of decommissioning the facility.
Of particular concern in South Carolina is the high property tax burden that exists for solar farms. This makes the development of a solar project economically impossible without the benefit of a fee in lieu of taxes agreement between the project owner and the county. These types of arrangements have in the past been used for industrial and commercial projects and are an indispensable tool to make solar development feasible.
There are some significant positive aspects associated with the development of a solar farm in a community. The landowner receives regular rental payments which often exceed the income generated by the property’s agricultural use. The Wall Street Journal recently reported on the positive impact this alternative income stream has on the U.S. farming population. The local tax authorities see property tax revenues increased substantially, as agricultural use land does not generate any substantial ad valorem taxes in South Carolina. This revenue increase occurs without any additional demands being placed on local public services or infrastructure such as schools, roads, water and sewer, and police and fire protection.
As a result of a recent S.C. Public Service Commission decision, South Carolina’s emerging solar market is now threatened. The decision has set dramatically lower rates for the power sold by these solar farms and limits the term of the power purchase agreements between the solar farms and the utilities. Although this decision can and may be reconsidered or reversed in the future, for now it is a significant threat to the state’s solar market.
Hopefully, South Carolina’s solar industry will overcome this challenge as it has been able to overcome challenges in the past and we will continue to see solar farm development while driving on our roads.
Edward Kluiters is a partner in Nelson Mullins’ Columbia office. He assists U.S. and foreign-owned businesses with locating, expanding and operating in the U.S. and works closely with development authorities and governments in advising businesses and industries on economic incentives, site acquisition and financing, and addressing business, contract and other issues. Contact him via email, firstname.lastname@example.org.