When can a county or township prohibit renewable energy facilities from locating in the community?

The siting of renewable energy projects on Ohio farmland is a divisive issue these days, pitting neighbors against neighbors and farmers against farmers.  Some support expanding renewable energy capacity while others oppose losing productive farmland or changing the rural landscape.  A common question arising in this conflict is this:  when can a county or township say “no” to a proposed renewable energy development?  Several new laws, old laws, and recent court cases can help answer this question, although the answer is not always clear.

The “public utility exemption” from zoning.  A long-standing provision of Ohio law that limits county and township land use power is the “public utility exemption” from zoning. Ohio Revised Code Sections 303.211(counties) and 519.211 (townships) specifically state that counties and townships have no zoning authority “in respect to the location, erection, construction, reconstruction, change, alteration, maintenance, removal, use, or enlargement of any buildings or structures of any public utilities.” The historical reason for this exemption is to keep local regulations from interfering with the provision of public utility services to Ohio residents.  But what is a “public utility”?  The exemption does not define the term, leaving Ohio courts to determine what is and is not a public utility on a case-by-case basis.  More on that later.

New powers in Senate Bill 52.  Effective in October of 2021, Senate Bill 52 gave new powers to county commissioners over certain renewable energy developments, setting aside the “public utility exemption” in those situations.  The new law states that counties can designate restricted areas where wind and solar development is prohibited and can prohibit an individual proposed wind and solar facility or limit its size.  These new powers, however, apply only to facilities with a single interconnection to the electrical grid and beyond a certain production size.  For solar facilities, that size is 50 MW or more of energy production and for wind facilities, it’s 5 MW or more. Facilities that aren’t connected to the grid or are beneath those amounts are not subject to the new powers granted in S.B. 52.  Additionally, facilities that had reached a certain point in the state approval process aren’t subject to the new law.  Several Ohio counties have already established restricted areas or worked with townships to determine whether the county will approve individual projects as they come forward.

Authority over “small wind farms.”  New wind power development in Ohio a decade ago led to the “small wind farm” provision in Ohio Revised Code Sections 303.213 (counties) and 519.213 (townships).  This law allows counties and townships to use their zoning powers to regulate the location and construction of publicly and privately owned “small wind farms,” regardless of the public utility exemption.  A “small wind farm” is any wind turbine that is not subject to Ohio Power Siting Board jurisdiction, meaning that it produces less than 5 MW of energy.  Some counties and townships have utilized this provision of law to establish setback distances for wind turbines in residential areas.

The “bioenergy” exemptions.  Yet another Ohio law limits county and township zoning authority over bioenergy facilities.  Found in the “agricultural exemption from zoning” statute, Ohio Revised Code Sections 303.21(C) (counties) and 519.21(C) (townships) states that county and township zoning cannot prohibit the use of any land for biodiesel production, biomass energy production, electric or heat energy production, or biologically derived methane gas production if the facility is on land that qualifies as “land devoted exclusively to agricultural use” under Ohio’s Current Agricultural Use Valuation program and if, for biologically derived methane gas, the facility does not produce more than 5 MW or 17.06 million BTUs of energy.  Ohio now has several facilities that fit within this exemption from zoning authority.

Two recent cases examine when a renewable energy facility a “public utility.”  The “public utility exemption” from county and township zoning was at issue in two similar Ohio cases concerning biodigesters, facilities that process manure and other solid wastes into methane gas that is used to generate electricity.  The most recent is Dovetail Energy v. Bath Township.  The township claimed that the Dovetail biodigester located on farmland in Greene County was an “industrial use” that violated township zoning regulations.  The owners argued that the biodigester was exempt from township zoning under both the “public utility” exemption and the “bioenergy” exemption. 

The case reached the Second District Court of Appeals, which focused a large part of its analysis on the issue of whether the biodigester is a “public utility” that is exempt from township zoning under Ohio Revised Code 519.211.  Relying on earlier cases from the Ohio Supreme Court, the court explained that an entity is a public utility if “the nature of its operation is a matter of public concern” and if “membership is indiscriminately and reasonably made available to the general public” as a public service. 

The court analyzed the “public service” and “public concern” factors for the Dovetail biodigester, examining first whether Dovetail provides a public service, which requires a showing that the facility indiscriminately provides essential goods or services to the public, which has a legal right to demand or receive the goods or services, and that the goods or services can’t be arbitrarily withdrawn.  Because Dovetail generates electricity that is sold into the wholesale energy market and used to provide energy to local utilities and customers and because Dovetail is also required to provide renewable energy credits that it cannot arbitrarily or unreasonable withdraw, the court concluded that the facility is a “public service.”

Factors determining whether Dovetail’s operation is also a matter of “public concern” that the court analyzed included whether Dovetail “serves such a substantial part of the public that its rates, charges and methods of operation become a public concern.” The court looked to Ohio’s incentives for renewable energy development, the lack of competition in the electric grid, the “heavy” regulatory environment for Dovetail, and its payment of public utility taxes as indications that Dovetail and the energy it produces are “public concerns.”  Meeting both the “public service” and “public concern” components, the appeals court agreed with the lower court’s ruling that Dovetail is a public utility and is exempt from Bath Township zoning regulations.

The Dovetail decision echoes an earlier decision in the Fifth Appellate District, Westfield Township v. Emerald Bioenergy, where the appellate court examined a biodigester on farmland in Morrow County and found that the township could not regulate it because it is a “public utility.”  The court cited factors such as Emerald’s provision of electric to the general public through interconnection agreements that distribute the energy to the energy grid, its lack of control over which customers receive or use the energy, its renewable energy credit requirements that can’t be arbitrarily or unreasonably withdrawn, its acceptance of waste from any customer, its governmental regulations and oversight, and its public utility taxes.  The court also noted that it need not address the “bioenergy” exemption because it found the enterprise to be a “public utility.”

Both townships in the Dovetail Energy and Emerald Bioenergy cases requested a review of the decision by the Ohio Supreme Court.  But the Supreme Court decided not to hear either case, although several of the justices dissented from that decision in each case.  Without further review by the Supreme Court, the appellate court decisions stand.

These cases are relevant for solar energy facilities under 50 MW.  Recall that S.B. 52 allows counties to prohibit or restrict solar facilities that are 50 MW or higher, but no other law addresses solar facilities with a single interconnection point to the energy grid that produce less than 50 MW.  Would such a facility be a “public utility” under the public utility exemption?  As with Dovetail and Emerald, a court would have to examine the solar facility and determine whether “the nature of its operation is a matter of public concern” and if “membership is indiscriminately and reasonably made available to the general public” as a public service.  If so, a county or township could not use zoning to prohibit or regulate the location or construction of the solar facility. 

Learn more about Senate Bill 52 in the Farm Office Energy Law Library at https://farmoffice.osu.edu/our-library/energy-law.

New laws and new resources on wind and solar development in Ohio

Large-scale wind and solar energy development has generated both opportunity and conflict across Ohio in recent years.  For several months, we monitored the progress of Senate Bill 52, a proposal intended to address community and landowner concerns about wind and solar facilities.  This past Monday marked the effective date for Senate Bill 52, passed by the Ohio Legislature in June, and we’ve been busy developing new resources to help explain the laws that are now effective. 

The legislation expands local involvement in the siting and approval of large-scale wind and solar facilities in several ways:

• County commissioners may designate “restricted areas” where such facilities may not locate.
• County citizens may petition for a referendum to approve or reject restricted area designations.
• Developers must hold a public meeting overviewing a proposed facility in the county where it would locate.
• County commissioners may prohibit or limit a proposed wind or solar facility after learning of it at the public meeting.
• County and township representatives must sit on the Ohio Power Siting Board committee that reviews facility applications.

The new laws also require wind and solar developers to submit decommissioning plans and performance bonds to address removal of a facility at the end of its lifetime. 

Our two law bulletins and video series on Senate Bill 52 are now available.  The resources work through each part of Senate Bill 52 and explain which types of facilities will be subject to the laws.  You’ll find the new resources in our energy law library on the Farm Office website at go.osu.edu/energylaw.

Ohio legislature passes solar and wind project siting and approval bill

It’s been a long and winding road to the Governor’s desk for Senate Bill 52, the controversial bill on siting and approval of large-scale wind and solar facilities in Ohio.  The bill generated opposition and concern from the outset, requiring a major overhaul early on.  A substitute bill passed the Senate on June 2 after six hearings and hundreds of witnesses testifying for and against the bill.  It took the House five hearings to pass a further revised version of the bill earlier this week, and the Senate agreed to those revisions the same day.  Now the bill awaits Governor DeWine’s action.  If the Governor signs the bill, it would become effective in 90 days.

S.B. 52 generates conflicting opinions on property rights and renewable energy.  It would grant counties and townships a voice in the siting and approval of large-scale wind and solar projects, allowing a community to go so far as to reject facility applications and prohibit facilities in identified restricted areas of the county.  Supporters of the bill say that new local authority would allow local residents to protect their individual property rights as well as the fate of the community.  On the other side, opponents claim that the bill interferes with the property rights of those who want to lease their land for solar and wind development and unfairly subjects renewable energy to stricter controls than other energy projects.

The bill itself is lengthy and a bit tedious but we’ve organized it into the following summary.  An important first step is to understand the types of projects subject to the law, so we begin with the definitions section of the bill.

Definitions – Ohio Revised Code 303.57

The bill defines several key terms used to identify the types of wind and solar projects and applications that would be subject to the new law:

• “Economically significant wind farm” means wind turbines and associated facilities with a single interconnection to the electrical grid and designed for, or capable of, operation at an aggregate capacity of five or more megawatts but less than fifty megawatts, excluding any such wind farm in operation on June 24, 2008 and one or more wind turbines and associated facilities that are primarily dedicated to providing electricity to a single customer at a single location and that are designed for, or capable of, operation at an aggregate capacity of less than twenty megawatts, as measured at the customer’s point of interconnection to the electrical grid.
• “Large wind farm” means an electric generating plant that consists of wind turbines and associated facilities with a single interconnection to the electrical grid that is a “major utility facility.”
• “Large solar facility” means an electric generating plant that consists of solar panels and associated facilities with a single interconnection to the electrical grid that is a major utility facility.
• “Utility facility” means all of the above.
• “Major utility facility” means (a) electric generating plant and associated facilities designed for, or capable of, operation at a capacity of fifty megawatts or more, (and also includes certain electric transmission lines and gas pipelines).
• “Material amendment” means an amendment to an existing utility facility certificate that changes its generation type, increases its nameplate capacity or changes the boundaries outside existing boundaries or that increase the number or height of wind turbines.

Designation of utility facility restricted areas in a county – ORC 303.58 and ORC 303.59

The bill would allow the county commissioners to designate “restricted areas” within the unincorporated parts of the county where economically significant wind farms, large wind farms, and large solar facilities may not be constructed.  

• The commissioners may take this action at a regular or special meeting.
• The commissioners must give public notice of the meeting and proposed restricted areas at least 30 days prior, including to all townships, school districts and municipalities within the proposed restricted areas.
• The restricted area designations shall not apply to utility facilities that were not prohibited by the commissioners in the county review under ORC 303.61, described below.
• The restricted area designations become effective 30 days after the commissioners adopt the resolution unless a petition for referendum, described below, is presented to the commissioners within 30 days of adoption.
• Once effective, a restricted area designation prohibits anyone from filing an application for a certificate or a material amendment to an existing certificate to construct, operate or maintain a utility facility in the restricted area.

Referendum on designation of utility facility restricted areas – ORC 303.59

If a county approves a restricted area, the bill sets up a referendum procedure to allow voters to have a say in the designation.  Residents may file a petition for referendum and request the county commissioners to submit the designation of a utility facility restricted area to a vote of the electors in the county.

• At least 8% of the total vote cast for governor in the most recent election must sign the petition.
• The petition must be presented to the commissioners within 30 days of the resolution adopted to designate the restricted areas.
• Within two weeks of receiving the petition and no less than 90 days prior to the election, the county commissioners must certify the petition to the county board of elections, who must verify the validity of the petition.
• The utility facility restricted area designation must be submitted to electors for approval or rejection at a special election on the day of the next primary or general election that occurs at least 120 days after the petition is filed.
• If a majority of the vote is in favor of the restricted area designation, the designation shall be effective immediately.

County review of proposed wind and solar utility facilities — ORC 303.61

Local residents and officials have expressed concerns that they’re the last to know of a proposed large-scale wind or solar development proposed for their community.  Under the bill, utility facilities must hold a public meeting in each county where the facility will be located within 90 to 300 days prior to applying for or making a material amendment to an application for a certificate from the Ohio Power Siting Board.

• The facility applicant must give a 14 day advance written notice of the public meeting to the county commissioners and to trustees of townships in which facility would be located.
• At the meeting, the facility applicant must present in written form the type of utility facility, its maximum nameplate capacity, and a map of its geographic boundaries.
• Up to 90 days after the public meeting, the county commissioners may adopt a resolution that prohibits the construction of the facility or limits its boundaries to a smaller part of the proposed location.  If the county commissioners do not prohibit or limit the facility, the applicant may proceed with the application.

Ohio Power Siting Board Composition – ORC 4906.021 to ORC 4906.025

The bill also responds to concerns that community members do not have a voice in the facility approval process overseen by Ohio’s Power Siting Board (OPSB).  For every utility facility application or material amendment to an application, the bill would require the OPSB to include two voting “ad hoc” members on the board to represent residents in the area where the facility is proposed.

• The ad hoc members shall be the chair of the township trustees and the president of the county commissioners in the township and county of the proposed location, or their elected official or resident designees, or a trustee and commissioner chosen by a vote of the trustees and commissioners if the application affects multiple townships and counties.
• An ad hoc member or the member’s immediate family members cannot have an interest in a lease or easement or any other beneficial interest with the applicant utility facility and cannot be an intervenor or have an immediate family member who is an intervenor in the OPSB proceeding.
• The ad hoc members must be designated no more than 30 days after the county or township is notified by the OPSB that the application has been submitted and meets statutory requirements.
• An ad hoc member may not vote on a resolution by its county commissioners or township trustees to intervene in the application proceeding.
• An ad hoc member is exempt from restrictions on ex parte communications with parties in the case but must disclose the date and participants of ex parte conversations and shall not disclose or use confidential information acquired in the course of official duties.

OPSB Authority – ORC 4901.101; ORC 4906.30

There are parameters in the bill for projects that the OPSB may not approve.  The OPSB may not grant a certificate for the construction, operation, and maintenance of or material amendment to an existing certificate for a utility facility in these situations:

• If the utility facility is prohibited by a restricted area designation.
• If the county commissioners have prohibited the utility facility by resolution.
  • Where the utility facility would be in multiple counties, the OPSB must modify a certificate to exclude the area of a county whose commissioners prohibited the facility.
• For any areas outside the boundaries of the utility facility that were changed by action of the county commissioners.
• If the facility has a nameplate capacity exceeding the capacity provided to the county commissioners, has a geographic area not completely within the boundaries provided to the county commissioners, or is a different type of generation than that provided to the county commissioners.

Decommissioning Plans for Utility Facilities – ORC 4906.21 to ORC 4906.212

The question of what happens to a facility when its production life ends has been another issue of voiced concern.  The bill establishes decommissioning procedures for facilities.  At least 60 days prior to commencement of construction of a utility facility, an applicant must submit a decommissioning plan for review and approval by the OPSB.

• A state registered professional engineer must prepare the plan, and the OPSB may reject the selected engineer.
• The plan must include:
  • A list of parties responsible for decommissioning of the utility facility.
  • A schedule of decommissioning activities, which cannot extend more than 12 months beyond the date the utility facility ceases operation.
  • Estimates of the full cost of decommissioning, including proper disposal of facility components and restoration of the land on which the facility is located to its pre-construction state, but not including salvage value of facility materials.
    • The estimate of the full cost of decommissioning a utility facility must be recalculated every five years by an engineer retained by the applicant.

Performance Bonds – ORC 4906.22 to ORC 4906.222

How to and who pays for facility decommissioning is also addressed in the bill.  Before beginning construction of a utility facility, the applicant must post a performance bond to ensure that funds are available for the decommissioning of the facility.

• The utility facility must name the OPSB as the bond oblige.
• The bond shall equal the estimate of decommissioning costs included in the facility’s decommissioning plan.
• The bond shall be updated every five years according to the most recent costs of decommissioning the facility and shall increase if estimated costs increase but shall not decrease if estimated costs decrease.

OPSB Provision of Approved Application — ORC 4906.31

Under the bill, local governments would formally know if a project receives OPSB approval.  The OPSB must provide a complete copy of an approved application for or material amendment to a certificate to each board of trustees and county commissioners in the townships and counties of the facility location.

• The copy must be provided within 3 days of the OPSB’s acceptance of the application and filing fee payment by the applicant.
• The copy may be in electronic or paper form.

Effect on Utility Facility Applications in Process – Sections 3, 4 and 5 of the Act

Many wind and solar facility projects are currently in process, so the bill addresses what happens to those projects should the law go into effect.

• The new law would apply to all applications for a certificate or a material amendment to an existing certificate for an economically significant wind farm or large wind farm that is not accepted by the OPSB within 30 days after the effective date of the legislation. 
  • An application for an economically significant wind farm or large wind farm that is not approved within 30 days after the effective date would be subject to review by the county commissioners, who would have 90 days after the effective date to review the application and act according to the provisions of the new law.
• If an application for a certificate or material amendment to a certificate for a utility facility has not been accepted by the OPSB as of the new law’s effective date, the OPSB must include “ad hoc” members in further OPSB proceedings on the application.
• The new law would not apply to an application for a certificate or material amendment to a certificate for a large solar facility that, as of the effective date of the new law, is in the new services queue of the PJM interconnection and regional transmission organization at the time the application is accepted by OPSB and the applicant has received a completed system impact study from PJM and paid its filing fee.
  • If the facility has multiple positions in the PJM new services queue, all queue position in effect on the law’s effective date are exempt from the new law.
  • If the facility submits a new queue position for an increase in its capacity interconnection rights, the change shall not subject the facility to the new law as long as the facility’s nameplate capacity does not increase.

We’ll keep an eye on the Governor to learn where S.B. 52’s road will end.  Read the full text of S.B. 52 and further information about it on the Ohio General Assembly’s website.

Ohio Ag Law Blog–Ohio Legislation on the Move

Written by: Ellen Essman

We haven’t done a legislative update in a while—so what’s been going on in the Ohio General Assembly? Without further ado, here is an update on some notable ag-related bills that have recently passed one of the houses, been discussed in committee, or been introduced.

• House Bill 7, “Create water quality protection and preservation”

This bill passed the House in June, but the Senate Finance Committee had a hearing on it just last month.  HB 7 would create both the H2Ohio Trust Fund and the H2Ohio Advisory Council.  To explain these entities in the simplest terms, the H2Ohio Advisory Council would decide how to spend the money in the H2Ohio Trust Fund.  The money could be used for grants, loans, and remediation projects to address water quality priorities in the state, to fund research concerning water quality, to encourage cooperation in addressing water quality problems among various groups, and for priorities identified by the Ohio Lake Erie commission.  The Council would be made up of the following: the directors of the Ohio Department of Agriculture (ODA), the Ohio Environmental Protection Agency (OEPA), and the Ohio Department of Natural Resources (ODNR) the executive director of the Ohio Lake Erie commission, one state senator from each party appointed by the President of the Senate, one state representative from each party appointed by the Speaker of the House, and appointees from the Governor to represent counties, municipal corporations, public health, business or tourism, agriculture, statewide environmental advocacy organizations, and institutions of higher education. Under HB 7, the ODA, OEPA, and ODNR would have to submit an annual plan to be accepted or rejected by the Council, which would detail how the agencies planned to use their money from the Fund. You can find the bill in its current form here.

• House Bill 24, “Revise Humane Society law”

HB 24 passed the House unanimously on October 30, and has since been referred to the Senate Committee on Agriculture & Natural Resources.  The bill would revise procedures for humane society operations and require humane society agents to successfully complete training in order to serve.  Importantly, HB 24 would allow law enforcement officers to seize and impound any animal the officer has probable cause to believe is the subject of an animal cruelty offense.  Currently, the ability to seize and impound only applies to companion animals such as dogs and cats.  You can read HB 24 here.

• House Bill 160, “Revise alcoholic ice cream law”

Since our last legislative update, HB 160 has passed the House and is currently in Agriculture & Natural Resources Committee in the Senate.  At present, those wishing to sell ice cream containing alcohol must in Ohio obtain an A-5 liquor permit and can only sell the ice cream at the site of manufacture, and that site must be in an election precinct that allows for on- and off-premises consumption of alcohol.  This bill would allow the ice cream maker to sell to consumers for off-premises enjoyment and to retailers who are authorized to sell alcohol. To read the bill, click here.

• House Bill 168, “Establish affirmative defense-certain hazardous substance release”

This bill was passed in the House back in May, but there have been several committee hearings on it this fall.  HB 168 would provide a bona fide prospective purchaser of a facility that was contaminated with hazardous substances before the purchase with immunity from liability to the state in a civil action.  In other words, the bona fide prospective purchaser would not have the responsibility of paying the state of Ohio for their investigations and remediation of the facility. In order to claim this immunity, the purchaser would have to show that they fall under the definition of a bona fide prospective purchaser, that the state’s cause of action rests upon the person’s status as an owner or operator of the facility, and that the person does not impede a response action or natural resource restoration at the facility. You can find the bill and related information here.

• House Bill 183, “Allow tax credits to assist beginning farmers”

House Bill 183 was discussed in the House Agriculture & Rural Development Committee on November 12.  This bill would authorize a nonrefundable income tax credit for beginning farmers who attend a financial management program.  Another nonrefundable tax credit would be available for individuals or businesses that sell or rent farmland, livestock, buildings, or equipment to beginning farmers.  ODA would be in charge of certifying individuals as “beginning farmers” and approving eligible financial management programs. HB 183 is available here. A companion bill (SB 159) has been introduced in the Senate and referred to the Ways & Means Committee, but no committee hearings have taken place.

• House Bill 373, “Eliminate apprentice/special auctioneer licenses/other changes”

HB 373 was introduced on October 22, and the House Agriculture & Rural Development Committee held a hearing on it on November 12. This bill would make numerous changes to laws applicable to auctioneers.  For instance, it would eliminate the requirement that a person must serve as an apprentice auctioneer prior to becoming an auctioneer; instead, it would require applicants for an auctioneers’ license to pass a course. The bill would also require licensed auctioneers to complete eight continuing education hours prior to renewing their license.  HB 373 would give ODA the authority to regulate online auctions conducted by  a human licensed auctioneer, and would require people auctioning real or personal property on the internet to be licensed as an auctioneer. To read the bill in its entirety and see all the changes it would make, click here.

• Senate Bill 2, “Create watershed planning structure”

Since our last legislative post, SB 2 has passed the Senate and is now in the House Energy and Natural Resources Committee. If passed, this bill would do four main things. First, it would create the Statewide Watershed Planning and Management Program, which would be tasked with improving and protecting the watersheds in the state, and would be administered by the ODA director.  Under this program, the director of ODA would have to categorize watersheds in Ohio and appoint watershed planning and management coordinators in each watershed region.  The coordinators would work with soil and water conservation districts to identify water quality impairment, and to gather information on conservation practices.  Second, the bill states the General Assembly’s intent to work with agricultural, conservation, and environmental organizations and universities to create a certification program for farmers, where the farmers would use practices meant to minimize negative water quality impacts. Third, SB 2 charges ODA, with help from the Lake Erie Commission and the Ohio Soil and Water Conservation Commission, to start a watershed pilot program that would help farmers, agricultural retailers, and soil and water conservation districts in reducing phosphorus.  Finally, the bill would allow regional water and sewer districts to make loans and grants and to enter into cooperative agreements with any person or corporation, and would allow districts to offer discounted rentals or charges to people with low or moderate incomes, as well as to people who qualify for the homestead exemption. The text of SB 2 is available here.

• Senate Bill 234, “Regards regulation of wind farms and wind turbine setbacks”

Senate Bill 234 was just introduced on November 6, 2019.  The bill would give voters in the unincorporated areas of townships the power to have a referendum vote on certificates or amendments to economically significant and large wind farms issued by the Ohio Power and Siting Board. The voters could approve or reject the certificate for a new wind farm or an amendment to an existing certificate by majority vote.  The bill would also change minimum setback distances for wind farms might be measured.  SB 234 is available here.  A companion bill was also recently introduced in the House.  HB 401 can be found here.

Here comes the sun: understanding important solar lease terms

Written by Evin Bachelor, Law Fellow, OSU Extension Agricultural & Resource Law Program

With all the rain and delayed planting that Ohio farmers have experienced this spring, signing a solar lease has been a very appealing prospect for many farmland owners.  While this may be the right decision for a farm, it is very important that the farmland owner understand exactly what he or she is signing.  Once an energy developer offers to pay you to enter into an agreement, and you sign that agreement, its terms will be legally binding.

In our recent blog post on solar leasing, we discussed some of the early documents that a farmland owner is likely to receive from an interested solar energy developer.  Further, we gave some general advice on what farmland owners should do if an energy developer wants to discuss leasing his or her land.  One of our main suggestions was to take the time to fully understand what the farmland owner is getting into, and that is where this post comes in.

In this blog post, we highlight some of the important provisions of a solar lease that you as a farmland owner should look for in your solar lease, and understand what they mean.  A good solar lease will be very thorough, and include a lot of legalese.  Our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, will go more in depth than this blog post on the terms below and more.  It would also be a wise decision to consult with an attorney to ensure that your understanding of your solar lease reflects what the documents say.

For now, here are a few provisions to be on the lookout for in your solar lease:

The term.  How long does this lease last?  Most solar leases last for 20 to 30 years.  This is the time during which solar energy is being collected and sold.  Solar energy developers like this multi-decade duration because it allows them to use of the solar panels for their expected productive lifespan.

Thirty years is a long time.  Many careers are retirement-eligible after that period, and many farms will transition to the next generation in that amount of time.  This long of a term is not necessarily a bad thing.  It just means that a farmland owner should look back and look ahead.  Think back 30 years to 1989.  What all has changed on your farm?  What would it have looked like to not be able to use this ground for the past 30 years?  Now look ahead.  What do you expect your needs and those of your family to look like when this lease ends in 2049?  Only you can determine if not being able to use your land for that long is a good thing.

Phases.  How is this lease broken up?  We just explained that most solar leases will last for 20 to 30 years, but that clock usually starts ticking once construction has started on the project.  Solar energy developers will often reserve a year or two during which they can conduct their final feasibility studies and obtain necessary permits.  Some leases structure this pre-construction phase as merely an option phase, meaning that the energy developer will pay a small amount of rent to keep its option alive for that one or two-year period, but it does not necessarily have to commence construction.

Further, toward the end of the term, the energy developer may have written in an option to renew for another 5 or 10 years.  These renewals are often structured as a right that the energy developer may exercise merely by giving notice to the landowner.  Additionally, in the middle, if there is a natural disaster that puts the operation out of service for any period of time, a solar lease may stop the clock from ticking until the project is operational again and solar energy is being collected.

The important take-away for the phases is being able to know when each phase begins and ends.  When all of the different phases are combined, instead of just a 30-year lease, you could be looking at a 42-year agreement.  The only way to know how long it could last is to thoroughly read the entire lease.

A description of the premises.  Every solar lease will contain a description of the premises.  If an entire parcel is being leased, then this part is fairly easy.  However, if only a portion of the parcel is being lease, the farmland owner will want to make sure that the lease provides an adequate description so that the leased portion can be easily determined on the ground.  Often, this will include a survey and maps.  Knowing the boundaries is important because these leases are often exclusive, such that the farmland owner has little or no use or access of the leased land throughout the term.

Easements.  What rights are being granted to the solar energy developer?  Solar leases include a series of easements that give the solar energy developer the right to use your land.  Some of the common easements include a:

• Construction easement: a right to cross over portions of the farmland owner’s property in order to construct the solar facility
• Access easement: a right to cross over portions of the farmland owner’s property to reach the solar facility
• Transmission easement: a right to install power lines, poles, and other equipment to transmit the energy produced by the solar panels to the grid
• Solar easement: a right to unobstructed access to the sun without interference from structures or other improvements
• Catch-all easement: a general right to do whatever is necessary for the benefit of the project

Solar energy developers want their easements to be as broad and generous as possible in order to maximize their flexibility with the project.  This is not always to the advantage of the farmland owner.  If the lease is general enough to allow the solar energy developer to sub-lease to another entity such as a telecommunications company, the landowner will have a difficult time preventing the solar energy developer from doing so.  The farmland owner wants to make sure that the easements being granted are specific enough to not result in any surprises.

Landowner obligations and rights.  What does the lease require of you as the farmland owner?  Usually private solar energy developers include a non-interference provision, a quiet enjoyment provision, and an exclusivity provision.  All combined, these provisions are a promise by the farmland owner to not enter the solar facilities without prior permission, not interfere with the solar facilities, and not allow anyone else to do so for the duration of the term.

Further, solar leases often include a confidentiality provision that courts will enforce as legally binding.  These provisions allow the solar energy developer to control the flow of its proprietary information, and also prevent landowners from talking with one another about topics such as rent rates.  It is important to understand:

• What information is protected
• If there are any exceptions
• When consent might be granted
• If specific penalties apply
• How long confidentiality lasts

The solar lease may also include a provision about farmland owner improvements.  These explain if and when the landowner needs to obtain prior approval of the solar energy developer in order to build a structure or plant something that may interfere with the solar project.

Property maintenance.  Who is going to mow?  Ohio landowners have a legal duty to cut noxious weeds, and a well drafted lease will cover which party to the lease bears responsibility for keeping the leased land clear.  Usually, the solar energy developer will take this responsibility, but it helps to have this in writing.

Cleanup terms.  Cleanup involves a lot of questions.  Does the solar lease require the solar energy developer to restore the land to its previous state?  If so, how is this measured?  Will all stakes and foundations be removed?  Will all improvements, like roadways, be removed?  How will the solar energy developer guarantee that it will be able to pay for this cleanup in 30 years?  Does it post a security, and if so, when?  A thorough lease will answer these questions.

Tax and conservation penalties.  Tax and conservation also involves a lot of questions because constructing and operating a solar facility will make the property ineligible for the full benefits of CAUV and most conservation programs.  Does the lease require the solar energy developer to cover real estate taxes?  Does the lease require the solar energy developer to cover the three-year lookback penalty for removing land from CAUV?  What will the solar energy developer do toward the end of the lease so that the land can be put back into production and made CAUV eligible again?  Similar questions must be asked for conservation programs.

Compensation.  It’s not that we saved the fun and best part for last.  We just wanted to make sure that compensation is not the first and only thing considered when deciding whether or not to enter into a solar lease.  While it certainly is important, some of the issues discussed above must be just as carefully understood.

The solar leases that we have seen involve cash rent that increases over time based upon a fixed escalator.  The escalator is a percent increase.  If the escalator increases at a rate greater than inflation, then the farmland owner will receive more bang for his or her land.  However, if the escalator increases at a rate lower than long-term inflation, then the solar energy developer will have to pay less over time.

Another point of compensation to consider is how damages will be calculated for harm to property and crops.  When the solar energy developer decides it is time to start construction, its option and easements grant it the right to begin construction even if there is a crop already in the ground.  This makes it in a farmland owner’s best interest to have this issue addressed up front.  These damages will often be calculated my multiplying the number of acres by the average county yield for that crop by that crop’s commodity future price with the Chicago Board of Trade for a given date.  This provides an objective calculation for damages.

Verbal promises.  A note of caution: if the solar energy developer makes you a verbal promise, ask for that promise to be included in the written lease.  If there is a conflict between what a representative of the solar energy developer tells you and what is written in the lease, the terms in the written lease are likely to prevail.

The activity we are seeing across Ohio right now with solar reminds us of the early stages of the recent wind and shale energy booms.  Some of the biggest regrets that we hear about are from landowners who thought they were getting a better deal than they actually did.  Reading through, understanding, and thinking about the lease is an essential part of calculating whether or not the lease being offered is actually a good deal for a farmland owner and his or her family.  Don’t be afraid to reach out to your team of professionals in this process.  Your attorney, tax professional, extension educator, and others can be a great resource.

Here comes the sun: considerations for leasing farmland for solar development

We haven’t seen much sun in Ohio lately, but that hasn’t stopped an increase in solar development.  In the past two years, the Ohio Power Siting Board has approved six large scale solar projects with generating capacities of 50MW or more, and three more projects are pending approval.   These “solar farms” require a large land base, and in Ohio that land base is predominantly farmland.   The nine solar energy facilities noted on this map will cover about 16,500 acres in Brown, Clermont, Hardin, Highland and Vinton counties. About 12,300 of those acres were previously used for agriculture.

We’re hearing that solar energy developers are on the lookout for more land in these and several other counties across the state.  As the markets fluctuate and weather continues to prevent planting, leasing farmland to a solar energy developer might look pretty appealing.  But we always urge caution and due diligence for any leasing situation, and solar energy is no exception.

What should you do if an energy developer wants to discuss leasing your farmland for a large scale solar energy facility?  Our best advice is not to jump too quickly.  Instead, take the time to fully understand what you’re getting into.  A typical solar lease can last for 30 years and thus can have long term legal, financial and social implications for a farmland owner.  An important initial question is how does this type of land use fit into your future vision for your land, your farm operation, and your family?  If you don’t yet know much about large scale solar development and what it means for your land, give a listen to this webinar from our partner, the National Agricultural Law Center.

In this post, we’ll focus on the beginning of the solar leasing legal process.   The large scale solar projects in Ohio range from 600 to 3,300 acres of land, so a developer first has to assemble the land base once it identifies an area for a solar development project.   Leasing the land is the typical mechanism used for the solar projects in Ohio.  If a developer is interested in leasing your land, the first documents you may receive from the developer are a letter of intent and/or an option to lease.  These documents are the precursors to a solar lease but, like a lease, are written in favor of the developer and establish legal rights for the developer.  Careful review is critical, as these documents can tie up the land and the landowner for several years or more.

The letter of intent.   Some developers use a written letter of intent to notify a landowner of the developer’s interest in a parcel of land.  The purpose of the letter is to begin the process of considering the land for a long term solar lease.   Note, however, that a letter of intent might also contain a confidentiality clause that would prevent the landowner from talking with other developers about the land or sharing details of the developer’s interest with anyone.   Be aware that courts will generally enforce a signed letter of intent as a legally binding contract if the developer has offered the landowner a payment or similar benefit for signing the letter.   By signing confidentiality provisions in a letter of intent, a landowner can be foreclosed from considering other solar leasing opportunities.

The option to lease.  More commonly, the first document a solar developer will ask a landowner to sign is an option to lease.  Don’t be fooled by the name of this document and think that it’s not a legally binding agreement.  While an option is not the same as a lease, it can have the same legal effect of tying up the land for a certain period of time and might also dictate many of the terms of the lease if the developer decides to move forward on the project.

An option to lease grants the solar developer rights to explore the possibility of using the land for a solar project, but the developer may choose not to lease the land or develop the project.  The option period, typically up to five years, gives the developer time to conduct due diligence on the property, assemble other land parcels, secure financing, and obtain government approval for the project.  At the end of the option period, the developer should decide whether or not to proceed with the project.  An option also can give the developer the right to terminate and back out of the option at any time prior to the end of the option period.

On the other hand, a landowner doesn’t have an option to back out once he or she signs an option to lease.  The landowner is bound for the entire option period.   Like a letter of intent, an option can contain confidentiality and “exclusive dealing” provisions that prevent the landowner from sharing details or entering into leasing opportunities with other developers during the option period.  The option might also require the landowner to cooperate with the developer’s due diligence and help the developer obtain approvals and permits.  Many options also include language that allows the developer to assign the option to another solar developer.

Be aware that an option can also contain significant leasing terms that carry over if the developer proceeds with the project.  For example, in addition to allowing the developer to consider the land for a project, the option to lease could also include provisions for the period of the actual long term solar lease, the lease payment amount, easement rights, and landowner obligations.  Landowners might think that such terms could be negotiable later if the parties sign an “official” solar lease, but the option language may bind the landowner to the leasing terms that are presented in the option.  Sometimes, the option itself becomes the lease.  The net effect:  a landowner who thinks he or she is just signing a five year option agreement might also be committing to a 30 year solar lease and a predetermined lease payment.

What about crop production during the option period?  An option might contain language stating that the landowner may continue managing and operating the property in the same way after agreeing to the option.  But the option might also allow the developer to enter the property and proceed with the project at any time, including when crops are in the ground, although the option might not provide the landowner payment for the lost production.  In that case, the landowner simply loses out on the crop if the option doesn’t contain provisions for lost production.

As for payment for the option, a landowner usually receives an initial payment for signing the option, perhaps several thousand dollars or more.  During the option period, the landowner also typically receives an annual payment that is based on number of acres, perhaps $20 dollars per acre or more.

Should you have an attorney review an option to lease?  Yes.  Option language can vary and we surely haven’t addressed all potential issues in this post.   A close examination by an attorney shouldn’t take much time or cost a lot and will ensure that you fully understand the legal implications of entering into the option to lease.

Are the terms of an option negotiable?  That’s up to the landowner and the developer, but don’t assume that the developer won’t negotiate.  If you’re faced with an option to lease and don’t like the terms, try negotiating.  An attorney can be helpful here, also.

In our next solar leasing post, we’ll review the terms of a solar lease and consider how the lease can impact agricultural landowners over the typical 30 year lease period.  Watch also for our upcoming Ohio Farmland Owner’s Guide to Solar Leasing, due out in the next month, which will provide a detailed examination of the solar leasing process.