Agenda - Council Work Session - 04/11/2023

Home

Use of bond financing A frequent theme in this study has been the barrier to solar development imposed by the prior use of state general obligation bonds for remediating closed landfills. When the Legislature first appropriated bonds to the CLP program in 1994, no one could foresee the potential these sites might provide for future solar energy generation. Nonetheless, federal tax law, the state constitution, and state statute impose various restrictions on the use of these sites for nongovernmental purposes; these restrictions must be resolved before large-scale solar developments can advance on bond restricted sites. The state constitution and state statutes require bond funded projects to be publicly owned and used for the governmental program identified by the Legislature. In the case of prior use of bonds for the CLP, this means MPCA must have a qualifying ownership interest (fee ownership or a qualifying long-term lease or easement) in the CLP sites and the sites must be operated in compliance with the CLP statutory program. These restrictions apply for a time period equal to 125% of the useful life of the improved project, which for CLP sites has been deemed to be 37.5 years. The restrictions attach to parcels when bonds are first spent on the property and remain in place for 37.5 years from the last date when GOB funds were used. While MPCA does have authority to enter into leases when a proposal for a property reuse is made it does not have explicit statutory authority to proactively engage in property reuse as part of authorized CLP activities. Even if state law authority amended the CLP statutes to include beneficial reuse of the sites, including solar development, federal tax law prevents the use of bond restricted sites for private use. Private use can include site leases that grant a private solar developer rights to access and use the CLP site for their own purposes. Private use can also include the generation of electricity that is excess to the needs of the power -producing site and that flows into the grid thus benefitting the utility service provider. This second scenario can include arrangements like net metering, interconnection agreements, and power purchase agreements. The consequence of approving private use on bond financed property is that the bonds issued for the closed landfill program may lose their tax-exempt status thus subjecting the state to financial penalties. On bond restricted CLP sites, one avenue to pursue is the installation of publicly owned smaller scale solar installations on CLP sites. Additionally, there are alternative financing mechanisms to consider for CLP sites that are not yet bond restricted. Solar ownership models on CLP sites There are many possible models for solar ownership, operations, and financing. Below are a few examples that may apply to CLP sites. More study is needed to enumerate possible models and fully explore the benefits and risks of each model. land lease In this scenario, the agency or site owner would negotiate a land lease with the developer who would own the solar asset. The value of the lease is dependent on several factors, including distance to interconnection points, ease of access, and cost for site prep. In many, if not most, of this type of agreement a power purchase agreement (PPA) is also included. This PPA may be separate from the lease payment or the lease payment may be factored into the PPA price. A land lease scenario reduces much of the risk and responsibility for the agency and places it with the developer or owner of the solar project. The design, finance, construction, and maintenance become the responsibility of the developer. In return, the developer maintains much of the project revenue and tax advantages. Land lease develop model could be an option for sites that are free from general obligation bond restrictions.