BY STEPHEN E. LUTTRELL, COUNSEL, WHITEFORD, TAYLOR & PRESTON, LLP
When it comes to solar energy development, Maryland ranks 17th nationally for total installed solar capacity with 1,294 megawatts (“MW”) and 14th nationally in the share of solar jobs with 178 solar companies operating in the State. Yet over the next five years, solar capacity growth in Maryland is expected to fall to 24th nationally. This drop in growth comes amid renewed federal support for solar energy development through the federal investment tax credit (“ITC”) and other supportive renewable energy policies. In Maryland, the capacity restrictions on certain classes of solar projects create project financing challenges through higher capital costs. While anecdotally, solar developers say that the state-wide impact of local planning restrictions makes it difficult to establish a reliable pipeline of ground mounted solar projects.
Regionally, much of the growth in solar capacity is happening through rooftop, carport, and smaller ground-mounted projects. These projects are sometimes referred to as “Community Solar” as opposed to larger “Utility Scale” projects or individual residential solar installations. Community Solar projects, particularly ground mounted projects, must pass through state and local regulatory hurdles before starting construction – to say nothing of the financing structures enabled through the ITC and other tax incentives and solar renewable energy credits (“SRECs”). At the State level, solar projects may require approval by the Public Service Commission (“PSC”) before proceeding, depending on the size of the project and subscriber (end user) base. At the local level, local planning bodies are authorized to adopt ordinances addressing solar energy projects without a statewide framework. As a result, embarking on a new solar project in Maryland may require navigating a complex web of state and local requirements.
As an energy generation facility, Community Solar projects are regulated under the Public Utilities Article of the Maryland Code. The code permits qualifying “eligible customer-generators” to own and operate solar Community Solar projects up to 2MW in capacity. Md. Code Ann. Pub. Util. Cos. § 7-306(g)(1). These projects are tied into the local utility network, referred to as the “interconnection,” with the electricity produced by the project flowing out to the utility grid. The local utility company is required to install a “net-meter” capable of measuring the outflow of electricity to the grid, allowing the outflow to be deducted from the customer’s bill to show the “net” energy usage. See Md. Code Ann. Pub. Util. Cos. § 7-306(c), (f)(1)-(7). Net metering can be done with systems that are co-located with the eligible customer-generator or located elsewhere on the same local utility network. See Md. Code Ann. Pub. Util. Cos. § 7-306(a) (4).
The 2MW cap on Community Solar projects imposes an economic constraint that limits a solar developer’s ability to take advantage of economies of scale. (Community Solar projects rely on tax incentives to attract investors meaning that smaller projects increase transaction costs and limit growth.) On the other hand, Community Solar projects are exempt from the requirement to obtain a Certificate of Public Convenience and Necessity (“CPCN”) from the Public Service Commission (“PSC”), which can be a time consuming and expensive process. As a general rule, PSC approval is not required for solar projects unless the generating capacity exceeds 2MW. See Md. Code Ann. Pub. Util. Cos. § 7-207.2(a). However, Community Solar project developers who intend to sell the power to retail customers must obtain a Maryland electricity suppliers’ license. See Md. Code Ann. Pub. Util. Cos. § 7-507(a). This requirement does not apply to net-metering or virtual net-metering arrangements where a solar developer sells all of the power generated from its facility to a single customer. An example of these single-subscriber projects would be a rooftop solar project that sells all of the produced power to the building owner at a reduced rate via a “Power Purchase Agreement,” as is common with retail and warehouse-based projects.
At the local level, treatment of ground-mounted Community Solar projects varies significantly by county. Let’s take two counties as examples to compare. In Howard County, solar facilities are a conditional use permitted only in certain rural districts with minimum lot sizes (10 acres), setback requirements (50 feet), landscaping buffers, and a visual impact analysis demonstrating the solar project will not “harm” the scenic characteristics of a public park, designated federal, state, or local scenic byway, or a historic structure. Howard County, Md., Ord. Zoning Sec. 131.0(52)(a)-(n). If the solar project is proposed for land in the Agricultural Land Preservation Program, a separate review by the Agricultural Land Preservation Board is required. Id. With roughly 21 percent of land in the county subject to preservation easements, finding suitable land for solar projects can be a challenging task. Across the Chesapeake Bay in Worcester County, Community Solar projects are subject to the County’s Alternative Energy Facility planning ordinance. Worcester County, Md., Ord. Zoning Sec. 1-344, et seq. Worcester County permits solar facilities in any zoning district, provided the project can meet certain conditions and limitations that vary by system size and zoning district. For instance, the required minimum lot size varies from 20 acres to 30 acres and set back requirements may vary from 50 feet to 100 feet. Id. In addition to these requirements, Community Solar projects must go through the major site planning review process. Id.
These differences and variations propagate across Maryland’s counties. The limitations on Community Solar project size, coupled with a varied, often restrictive, approach to local planning, impede expansion of the State’s Community Solar resources. It is difficult for solar project developers to invest in new projects when revenue is capped at 2MW and the availability of project sites is significantly restrained, or burdensome to navigate at a statewide level. There are initiatives to improve the outlook for Maryland Community Solar projects. For instance, a bill currently under consideration could expand the statewide cap on Community Solar projects to 5MW. If successful, this and other measures may help boost Maryland’s outlook for solar capacity growth.