Dispute over third-party ownership may put Virginia solar goal out of reach

In 2015, Virginia Gov. Terry McAuliffe was lauded by advocates for setting a goal for the state government to meet 8% of its electricity needs with solar energy by the end of 2018.

However, with less than two months left in his administration, questions loom as to whether the goal can be met.

By the end of October, roughly half of the goal was set to be met with solar power operations either operating or under contract, according to the state’s Dept. of Mines, Minerals and Energy (DMME). Three of those projects, totaling 50 megawatts, were either developed or purchased by Dominion Energy, the state’s largest utility. A handful of relatively small projects currently in the design stage could potentially count toward the goal.

One reason for the slow pace is because 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.

According to DMME Director Ken Jurman, “we planned to do 25% of the installed capacity on state facilities as third-party PPAs, but were told by the Department of Accounts that we’re not allowed to enter into long-term PPAs.”

A solar PPA is owned by a third party, typically a project developer. It contracts to sell electricity to a buyer or buyers — which in this case were to have been state agencies and universities who are unable to take advantage of tax credits. 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.

Without the Investment Tax Credit, many solar projects would not be profitable and likely wouldn’t get proposed in the first place.

Three counties, which traditionally adhere to state procurement rules, don’t interpret the state law the same way the Comptroller does: Arlington, Ablemarle and Middlesex. Each has entered, or intends to enter, into PPAs to purchase electricity.

“They’re interpreting GAAP (Generally Accepted Accounting Principles) differently than the state is,” said Hayes Framme, Deputy Secretary of Commerce and Trade and a key advisor to McAuliffe on energy and infrastructure issues.

John Morrill, the energy manager for Arlington County, said its procurement office amended a local ordinance to accommodate the use of a PPA as public-private partnership that does not involve owning a solar system.

“We have found that purchasing offices across the commonwealth,” Morrill said, “will interpret purchasing matters differently, perhaps to a surprising extent. Which is funny because localities in Virginia have to adhere to the state public procurement act.”

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.

Framme said the McAuliffe administration has tried repeatedly in recent years with proposed legislation to instruct the Comptroller to interpret PPAs the way the three Virginia counties and many others do, with no luck.

“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,” Framme said. “State governments work certain ways to make their decisions. It’s our job is to try to convince them otherwise.”

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