Energy Law Wisconsin Blog

Topic: Solar

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Finish 2011 on Target (Part 2)

Thursday, November 3rd, 2011

Last Minute Solar Projects Need to Be Aware of Critical Treasury Department Guidance

Required Formal Disclaimer:  Since this entry involves some discussion of legal principles, there is at least a theoretical possibility that one of you out there may read this blog entry and conclude that: (a) you and I have entered into an attorney client relationship; or (b) I am offering you specific legal advice for your specific legal situation.  In the unlikely event you reach either conclusion, I must inform you that sadly, it is not true.  Persons accessing this site are encouraged to seek independent counsel for advice regarding their individual legal issues.

In Part 1 of this topic, I discussed the Treasury Department’s guidance on whether the applicant for a Section 1603 Payment has “begun construction” in 2011.  In Part 2, I will focus on Treasury guidance recently issued on how the Treasury Department evaluates Section 1603
applications for solar photovoltaic (aka PV or solar electric) projects.

Treasury Guidance Regarding Solar Electric costs

The Treasury Department recently published guidance titled “Evaluating Cost Basis for Solar Photovoltaic Properties” (referred to in this post as “The PV Cost Guidance”) indicating how it will evaluate the claimed cost basis for solar PV projects applications for Section 1603 payments to reimburse eligible costs of solar electric projects. The PV Cost Guidance establishes benchmarks for average costs per
watt for solar PV projects. The guidance includes the following table:

 

Residential

Residential/

Small Commercial

 Commercial

Large Commercial/

Utility

Size Range < 10 kW     10 – 100 kW 100 – 1000 kW           > 1 MW
Typical Size 5 kW

25 kW

250 kW

2 MW

Turnkey Price per W +/- $7

+/- $6

+/- $5

+/- $4

 

The PV Cost Guidance indicates that solar electric projects whose claimed cost basis exceeds the benchmarks above will receive closer scrutiny. This doesn’t necessarily mean that costs above the benchmarks will be disqualified. However, there must be a good reason for applicants to exceed the benchmarks.

Finally, Treasury guidance discloses that Treasury views certain other types of situations, including related party transactions (i.e. where two parties in the project are related to one another) as deserving close scrutiny. Treasury’s concern is that if a transaction is not between two
parties negotiating it at arm’s length, the cost for which reimbursement is applied may be inflated. The Treasury guidance concludes by detailing the approaches that Treasury uses to determine fair market value of projects.

If you have specific questions about The PV Cost Guidance, you can go on to the Department of Treasury’s 1603 website to review it yourself. You are also welcome to email me with any questions or comments.

Finish 2011 on Target (Part 1)

Monday, October 31st, 2011

Last Minute Solar Projects Need to Be Aware of Critical Treasury Department Guidance

Required Formal Disclaimer:  Since this entry involves some discussion of legal principles, there is at least a theoretical possibility that one of you out there may read this blog entry and conclude that: (a) you and I have entered into an attorney client relationship; or (b) I am offering you specific legal advice for your specific legal situation.  In the unlikely event you reach either conclusion, I must inform you that sadly, it is not true.  Persons accessing this site are encouraged to seek independent counsel for advice regarding their individual legal issues.

As the Section 1603 payment program draws to a close, solar project developers and owners need to pay attention to two critical sources of guidance issued by the United States Department of Treasury.

The first is the “begun construction” guidance, advice regarding the steps applicants must take to ensure that their project will qualify for federal reimbursement funding, if it is not placed in service by the end of the Section 1603 program on December 31, 2011.

The second type of guidance addresses situations in which Treasury will scrutinize reimbursement requests from solar PV projects.

I addressed both types of guidance at the Solar Wisconsin Fall Conference held at the Monona Terrace Convention Center on October 25. A copy of my presentation outline is here: (Section 1603 Guidance Presentation). I will address the first of these types of guidance in this entry and the second type in another entry that I will post in a few days.

 

Begun Construction Guidance

Under a document titled “Frequently Asked Questions and Answers Begun Construction” (the “Begun Construction Guidance”), the Treasury Department has indicated that if a Section 1603 applicant wants its renewable energy project to be eligible to receive a Section 1603 reimbursement payment equal to up to 30 percent of the eligible cost basis, and cannot place it in service (i.e., have it commissioned
and, if applicable, connected to the grid) by the end of 2011, then the applicant must meet one of the two Treasury “begun construction” tests:

Commence actual physical work on the project. This means actual work at the site or actual work by a project contractor on renewable energy project components that are being made specifically for the project.  Items taken out of existing inventory will
not qualify.  Nor will preliminary activities such as site clearing, demolishing existing structures or money spent to obtain financing or secure permits.

5% Safe Harbor Rule. To qualify for the safe harbor, the applicant must have paid (if a cash-basis taxpayer) or incurred (if an accrual basis taxpayer) an amount equal to 5% of the eligible cost-basis of the renewable energy system. Whether or not an expense has been incurred is determined by reference by a multi-part test established under earlier Treasury regulations.  It is important that the monies be spent under a contract that is enforceable under state law and and one that does not limit damages, in the event of breach by the applicant to less than 5% of the total contract price.

 

There are advantages and disadvantages to either approach. If an applicant opts for the physical onsite work approach, there is no established minimum amount of work that must be done. However, once work is begun, it must be continuous. On the other hand, the 5% test does not include the continuous work requirement, only that the threshold amount of money be spent. The 5% Safe Harbor test is not without its own risks: If the applicant spends 5% of the eligible cost basis, as it appears to be in 2011, but if in 2012, the project costs increases so that with 20/20 hindsight the money spent turns out to be less than 5% of the final eligible cost basis, the applicant will fail the 5% Safe Harbor Test.

The requirements in the Begun Construction Guidance are detailed, and require applicants to look carefully at the scheduling of their projects and even the contracts they enter into to create their project, to be sure that they can pass the applicable tests. If you have specific questions about the Begun Construction Guidance, you can go on to the Department of Treasury’s 1603 Program website to  review the guidance. You are also welcome to email me with any questions or comments.

Janesville Gazette Profiles ELW Client Jim Erickson

Monday, September 26th, 2011

At Energy Law Wisconsin, we enjoy what we do, but there are some clients in particular who make it fun. Jim Erickson of Antech Properties LLC is one of them. Erickson, 83 years young, decided last year to install a solar energy system on his commercial office building in the Janesville, Wisconsin area. Why? Because it was smart, a good fit and last but not least, fun.

 

Energy Law Wisconsin appreciates the opportunity to have been of service to Mr. Erickson in this endeavor. In a recent article for the Janesville Gazette, Erickson was profiled about his property and the successful savings he is having with it. The building is included in the 2011 Wisconsin Solar Tour event, occurring on Saturday, October 1.

“Don’t Block My Sun”/ “Don’t Block my Solar Installation”

Monday, September 19th, 2011

Tips for Putting Your Best Foot Forward with Confused Local Governments and Upset Neighbors

Required Formal Disclaimer:  Since what follows involves some discussion of legal principles, there is at least a theoretical possibility that one of you out there may read this blog entry and conclude that: (a) you and I have entered into an attorney client relationship; or (b) I am offering you specific legal advice for your specific legal situation.  In the unlikely event you reach either conclusion, I must inform you that sadly, it is not true.  Persons accessing this site are encouraged to seek independent counsel for advice regarding their individual legal issues.

I have lately been receiving an increasing number of unsolicited calls from homeowners, solar installers and would-be owners of solar energy systems who are running into conflict with their neighbors and local municipalities regarding the installation and operation of solar energy systems.  As the number of solar energy systems (photovoltaic and solar hot water) increase, some of the controversy that has long dogged wind farm developments is starting to spill over to solar installations.  This blog entry is an effort to provide some general tips to the parties who are involved in these disputes and help them minimize cost, controversy and confusion.

Here are a few tips that draw on my experience as an energy transactions attorney and former city attorney to help persons who own or are interested in installing solar energy systems to work and negotiate constructively with neighbors and local governments:

Tip #1: Know and understand the Wisconsin Laws that provide protection to persons with renewable energy systems.  These laws cover wind and solar and detailed discussion of each of these laws and the reported cases interpreting them is beyond the scope of this blog entry.  However, a listing and summary of them can be found on the DSIRE website.

Generally speaking, when applied to solar energy systems these laws attempt to:

  • Protect the rights of persons who own or wish to install a solar energy system, while balancing these rights against the reasonable expectations of neighboring property owners who might want to put on an addition to their home or office. If your solar energy system is already in place, you have greater rights than a person planning a solar energy system.
  • Limit the basis on which local governments and private land use controls can prohibit or regulate solar energy systems.
  • Protect and preserve access to the sun.  This includes providing recourse for when a neighboring property owner creates a “private nuisance” by improperly blocking access to the sun.

Tip #2: If you are seeking local approval for a solar energy system, bring these statutes into the discussion early in the process.  While some of the Wisconsin laws that protect solar energy systems have been in place since the 1980s, the calls I have received suggest that many local officials are unfamiliar with them.   Therefore it is critical to inject them into the discussion as early as possible.  It may be necessary to educate the local municipal planner, building inspector and perhaps even the local municipality’s attorney on the applicable laws protecting solar energy systems.  Doing this increases the likelihood that the discussion over your system will focus on the relevant legal and factual issues, and not get sidetracked by emotionally charged local concerns that are irrelevant or pre-empted by State law.

Tip #3: Try to resolve disputes at the lowest level.  It costs less and takes less time to resolve an issue at the Plan Commission level than have to overturn an unfavorable plan commission decision at a follow up appeal before the Zoning Board of Appeals.  It can be much cheaper (perhaps by as much as a factor of 10 or even more) to resolve a dispute over a solar energy system before a local government board than to go in unprepared, lose before the municipality and then have to fight it out all over in Circuit Court.  I sympathize with homeowners who lack the funds to hire an attorney or are understandably reluctant to spend money on legal fees before they know they have a fight on their hands.  If this describes you, then I recommend you meet with the local planner early and flush out any issues or concerns they, the local body or your neighbors may have.  If there will be objections, you may find that, “An ounce of prevention, is worth a pound of cure”.

Tip #4: Make a record and stick to the law/facts. If you find yourself embroiled in a controversy over your solar energy system, keep in mind how such disputes are resolved.  If legal issues emerge at the local level the local government may involve the local municipal attorney to provide some legal analysis of the issues.  When I was a municipal attorney I had a number of duties, including seeing that my clients followed the applicable law.  Help the municipal attorney to do his or her job by addressing the legal issues directly and succinctly.

If you are unlucky enough to find yourself on the way to Circuit Court, remember that the woman or man who will ultimately resolve your dispute will be not a scientist or a renewable energy supporter, but rather a judge (i.e., a person with a law school education and a lawyer’s perspective on legal issues).  For this reason as well, it is critical to stick to the relevant facts and applicable law.

Based on the calls I have been hearing lately, here are some suggested dos and don’ts:

  • Don’t surprise the government body and do invest time in educating decision-makers and even potential opponents.  Surprising witnesses helped TV lawyer Perry Mason obtain murder confessions in the 1960s show, but surprise is rarely an effective technique at the local level.  Local officials may become frustrated or may even angry when they are surprised by new issues raised in an approval proceeding.  In addition, injecting new issues at the last minute invites the local decision-maker to push the matter back to a later meeting.  This costs you money and delay.  It pays to get your ducks in a row and invest the time necessary to educate staff and even potentially upset neighbors before you go before the local body.
  • Do make a record.  This includes creating a paper trail that inserts the applicable statutes and relevant facts that support you with a narrative that puts your project in the best possible light into the local decision making process.   Pay attention to how the proceeding will be recorded.  If the only record of a meeting will be the local clerk’s notes, you are well-advised to submit a written summary of your position that puts your best foot forward.  Otherwise you are hanging your hat on the clerk’s selective memory as to what was said.  Even recorded proceedings can have subsequent problems with microphone pick up or technical difficulties.  Without a record, an appeal can deteriorate into dueling memories.  This puts the appellate body is at a disadvantage and hurts you if you are appealing.
  • Do remember that local decision-makers are people just like you.  Members of local commissions and boards don’t get paid a lot of money.  It is common for them to take a fair amount of grief in the course of performing their duties.  Treat them with kindness or at least respect.  It can’t hurt and may help.
  • Don’t fall prey to the temptation to make political or activist statements. Heaping praise or scorn on current and past politicians for their commitment or lack of commitment to renewable energy is not germane to the decision on your local permit.  Nor is it relevant or helpful that you were down with solar, before solar was cool, and therefore you believe that you are more highly evolved than the rest of your neighbors.  Politically charged or activist statements are risky, especially in a state like Wisconsin, where opinions appear to be evenly divided on most policy issues.  Stick to the objective facts and relevant laws.

These tips of course don’t, by themselves, guarantee success, but if you follow them, you will increase the likelihood that your project will be evaluated and hopefully approved based on the proper criteria.

Good Luck!

 

What is “Energy Law Wisconsin” : A Collection of Actual Project Photos

Wednesday, August 4th, 2010

Many people have asked me, “Just what is Energy Law?”  I have quickly learned that to answer this question with precise details of the laws in place and tasks involved is a good way to make peoples’ eyes glaze over.

It is easier to explain what I do is by showing the results, so here are a few pictures.  These are the types of projects I help people with:

Wind Energy

Kewaunee Wind Farm

Solar Farms

Efficient Cogeneration Power Plants

MGE Cogeneration Facility

LEED Certified Buildings

Wisconsin Energy Conservation Corporation Headquarters

Other types of projects I work on that are not pictured above include replacing coal with biomass as a fuel for power generation, helping energy startup companies  get off the ground (kind of like holding your hands around a newly struck match while starting a campfire on a windy day), and helping municipalities convert garbage and sewage into energy.

There are a host of legal issues wrapped up in the journey from start to finish on all of these types of projects.  They include legal issues relating to raising money, protecting new ideas, getting government approvals, contracting for labor and materials, connecting to the electrical grid, putting together a financial package of grants, tax credits and other incentives and positioning the project for optimal use of renewable energy certificates and carbon credits it may produce.

My plan is to share a few of my stories from my practice. I’ll try to weigh in on some of the issues that people face when trying to change the energy status quo.  If you have any comments I’d love  to hear from you.  I’ll do my best to answer questions, time permitting.

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