Another Arcane Obstacle to Solar Power

Virginia Comptroller David Von Moll

Some of the barriers to solar energy in Virginia are tucked away in the bowels of state government and the byzantine rules by which it operates.

One obstacle, since resolved, was a state rule granting solar projects an 80% tax exemption from property taxes under the guise of pollution control equipment. One would think the tax break would improve the economics of solar projects, but through a circuitous set of linkages involving the calculation of the Composite Index used in distributing state education dollars (described here) local governments would lose tax revenue from solar deals, which discouraged them from granting the necessary zoning and permitting approvals.

Jim Pierobon, writing in Southeast Energy News, has identified another obscure regulation: “An accounting rule, as interpreted by the Virginia Comptroller, effectively prevents Virginia from using a financing option used by many local governments: contracting through long-term power-purchase agreements (PPAs) with third parties to buy electricity.”

In a solar PPA, a third party project developer owns the solar farm and contracts to sell electricity to buyers such as universities or state agencies that are unable to take advantage of solar tax credits. Without the credits, many solar projects do not pencil out, and will be never be built. Writes Pierobon:

The Comptroller currently interprets a PPA to be a lease of capital equipment, and thus a debt owed by the state. Under that scenario, solar developers don’t own the electricity that they supply. That means a developer cannot claim the existing 30% federal Investment Tax Credit.

Why the state Comptroller, David Von Moll, interprets PPAs to be capital leases is a unclear to many solar developers. Neither he nor his office responded to requests for comment.

The McAuliffe administration had planned to do 25% of the installed solar capacity in state facilities as third-party PPAs, but were told by the Department of Accounts that the state could not enter into long-term PPAs.

“We’ve been trying to educate [Von Moll and his staff] as much as possible. We’re just not there yet. It’s incredibly frustrating,” said Hayes Framme, Deputy Secretary of Commerce and Trade. “State governments work certain ways to make their decisions. It’s our job to try to convince them otherwise.”

To be fair to Von Moll, there is a thin and tenuous line between solar PPAs and solar leases. Here’s how Energy Sage describes the difference:

While the terms “solar lease” and “solar PPA” are used interchangeably on this page, and are very similar in practice, there is a key difference between the two. With a solar lease, you agree to pay a fixed monthly “rent” or lease payment, which is calculated using the estimated amount of electricity the system will produce, in exchange for the right to use the solar energy system. With a solar PPA, instead of paying to “rent” the solar panel system, you agree to purchase the power generated by the system at a set per-kWh price.

Von Moll, who has worked in various positions in the Department of Public Accounts for 22 years, oversees the state’s financial management and internal control policies. He may be part of the executive branch, but it appears that he doesn’t knuckle under to pressure from the governor’s office. Whether that’s a sign of rock-ribbed integrity or pure bull-headedness, I’ll let readers render judgment.

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4 responses to “Another Arcane Obstacle to Solar Power”

  1. Steve Haner Avatar
    Steve Haner

    What is and what is not a capital lease is a complicated business, with plenty of accounting rules, regs and precedents behind it. In any theoretical argument between the Governor and GASB, this taxpayer wants the accounting rules applied….
    Absent evidence which you do not provide, I would doubt the Third Floor has pressured anybody over this.

    1. Steve Haner Avatar
      Steve Haner

      Well, reading the piece more closely, apparently they have argued with Von Moll. I should read twice before posting…. Singling him out for pressure publicly is not cricket, IMHO. I still think that GASB rules cannot be just ignored if inconvenient. No reason not to assume as a default position that we are looking at integrity. A rebutable presumption.

      1. Reed Fawell 3rd Avatar
        Reed Fawell 3rd

        To the degree that undue pressure is is fact being applied it makes all government decisions on solar, past and future, more problematic. This then would amplify collateral concerns on solar discussed elsewhere on this blog.

  2. GASB requirements are not unique to Virginia. Surely there is a national body of interpretation out there on similar solar leases in other States.

    But the very point here — that a solar PPA should be interpreted as a sale of electricity and not a lease of equipment — is precisely why the retail electric utilities, like Dominion and APCo and the coops, are opposed to it! They see this as a competing retail sale of electricity within their exclusive retail service territories. Arguably that’s nobody else’s business if the solar equipment is located on the same property as where it’s consumed — but don’t go asking Dominion to allow transmission and sale of that solar power to its exclusive customer from a remote location, unless there’s a specific law requiring it. Maybe if it were treated explicitly as an equipment lease and the “sale” characterization were dropped, such PPA arrangements might be deemed acceptable by the traditional utilities — and we could get past an issue that’s been a thorn in some solar promoters’ sides.

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