As Clarke County contemplates trading a low tech cow pasture for a state-of-the-art 20mW solar electricity plant, “green” is beginning to mean different things to different people. Will “green” power generated from solar panels mean significant revenue increases for Clarke County tax coffers? Can uncertainties about the financial viability of solar power be adequately addressed? What agricultural impacts will the proposed facility have? These questions have some county officials and citizens concerned about clouds in solar’s sunny future.
Cornerstone Partners, Not Your Father’s Electric Cooperative
Cornerstone Partners of Chicago hopes to soon win approval for a 100,000 panel solar power plant in the southwest corner of Clarke County. While power plants are a portion of Cornerstone’s business model, a significant part of the company’s business is consulting services aimed at helping companies identify and implement growth strategies.
According to Cornerstone Partners’s website; “We have deep expertise in valuation, financial modeling, capital structuring and raising capital. We advise clients ranging from financial investors to established industry leaders to early stage start-ups.”
“Cornerstone manages funds that invest in the energy industry. The company currently manages two funds: one that invests in electricity infrastructure and one that invests in financial derivatives, in particular FTRs (financial transmission rights) in the electricity industry.”
FTRs are financial hedges that help protect energy purchasers or generators from price uncertainty caused by transmission losses and constraints.
Cornerstone Partners develops power plants through its affiliate Cornerstone Power Development, LLC. Cornerstone Power Development was the applicant and beneficiary of recently passed changes to the county zoning ordinance clearing the way for a solar electricity plant
Cornerstone Power Development plans to build its 20mW facility on Monty Gibson’s 145 acre farm just north of Route 340 and east of Route 522 near the Double Tollgate power substation. With preferential zoning now in place Cornerstone Power plans to submit a formal special use permit proposal outlining details of its project and addressing concerns that have arisen since the project was first discussed.
The Dawn of Solar Power in Clarke County?
While the profitability of Cornerstone Power’s energy plans may not be a direct concern for Clarke County, loss of financial viability for the operation has raised concerns about the potential of abandoned facilities and administrative costs for Clarke County related to 100,000 solar panels and 20 inverter stations.
“The site could end up being a wasteland of concrete” Supervisor Barbara Byrd (Berryville) said. “We need to be concerned with what happens if it goes under.”
Although Cornerstone Power representative Nick Bullinger told the Supervisors that it was unlikely that the equipment would ever be abandoned. Bullinger has also said “The project should be viable in years 26-50 both based on declining technology costs as well as anticipated improvement in the efficiencies of solar modules and inverters.“
There are two major solar technologies used to generate electricity today; solar thermal and photovoltaic. The technology proposed by Cornerstone Power for the Clarke County facility is photovoltaic (also referred to as solar panels or solar modules.) Photovoltaic panels produce direct current electricity from sunlight. Cornerstone Power will use “inverters” to convert the direct current into alternating current before the electricity is transferred to the national power grid.
Despite the increasing interest in solar energy, some analysts believe that solar energy is still a long way off from competing with electricity produced from fossil fuels.
According to the Paris-based International Energy Agency (IEA), the average cost of producing electricity from solar panels may decrease to as little as 10.5 US cents a kilowatt-hour in sunny countries by 2020. Yet 10.5 cents is still one cent above the average price of power in the United States today.
“The initial project financing will likely be for 20-25 years, so the profitability for the first 25 years is based on the cost of [solar] modules and inverters in the next 24 months, as well as our estimate of replacing the inverters between years 10-15” Bullinger said.
Clarke County Farm Bureau President Clay Brumbach expressed concerns similar to Byrd’s about whether solar power is a good option for Clarke County.
“I like the idea of solar but I don’t know if the financials work for something like this. I have to assume the company has crunched the numbers and know what they’re getting into” Brumbach said. “But we need to have a set plan for handling the property if the project doesn’t fly financially. I’d like to see an exit strategy that includes a way for returning the property to its original state.”
In a presentation to the Board of Supervisors, Bullinger told Supervisor Byrd that the proposed solar plant will be profitable from “day one”. Bullinger also said that Cornerstone Power was willing to set aside the money necessary to reclaim the equipment in the event of financial problems.
If Cornerstone Power’s operation will be profitable immediately, as Bullinger suggests, further clarification may be needed about why the power plant will not be viable until years 26 – 50.
Agriculture Land Use Compatibility
Agriculture is Clarke County’s largest economic sector with 496 active farms covering nearly 68,000 of Clarke’s 114,000 acres. Local farmers have long understood that farming viability is directly related to keeping large sections of the county in agricultural uses.
“Whenever you allow a commercial operation in an Agricultural-Open Space-Conservation (AOC) zoning district you’re setting up a direct competition with agriculture” said Supervisor David Weiss (Buckmarsh). “It’s already hard enough for farmers to compete with houses and land prices.”
Farm Bureau President Clay Brumbach said that the Bureau’s members had varying opinions about whether the proposed solar plant should be permitted in an AOC district.
“I hate to see any land taken out of production” Brumbach said. “But the site is marginal ground so this might be an OK use. That site is not the most productive farmland but it also hasn’t had much management either.”
Brumbach said that he would like to see a plan for putting the property back into farming in the event that the solar power generation use did not work. “Little by little every farmer is losing ground. If there isn’t a plan in place beforehand to reclaim the property, then the margins in farming are probably too small to justify the costs to get back the land back into its original state later.”
One of the quality-of-life benefits valued by Clarke residents are the scenic vistas provided by Clarke’s farm-friendly zonings laws. Existing landowners near the site will bear the brunt of converting the Gibson farm to an industrial site as their view shed is traded for a power shed. Cornerstone Power estimates that the site construction activity will require five months.
Once the site has been developed, Cornerstone Power has promised to use landscaping design to buffer local landowners from the eight-foot tall solar modules.
“I’m concerned about what people will be looking at from nearby homes” Supervisor Barbara Byrd said. “After all, that is their little piece of Heaven down there.”
Green Tax Dollars
Tax dollars from a non-polluting industrial application, like the one proposed by Cornerstone Power, offer real benefits to rural locations like Clarke County. Attracting industrial development that doesn’t also bring traffic, pollution and other urban problems is particularly difficult in a down-economy.
Tax revenue from the Cornerstone project will mainly come from two sources; land and solar power equipment.
First-year tax revenues from Cornerstone Power’s proposed facility can be quantified fairly precisely. However, multi-year tax revenues become less certain due to a number of factors including projected changes in the cost of solar generation equipment and the rapidity that Cornerstone Power, or some other future controlling company, may decide to swap-out existing solar modules and inverters.
Warren Arthur, Clarke County’s Commissioner of Revenue estimates that Cornerstone Power will pay $413K in taxes during their first year in business. Arthur says that approximately $348K of the total will be attributable to the solar modules and inverters.
The amounts are based on Clarke County’s standard commercial tax rate for “Machinery & Tools” of $1.25 per $100. For tax valuation purposes, Clarke County allows an immediate 50% depreciation against the value of new equipment.
Once the land is rezoned to reflect its more intensive commercial use as a solar plant Arthur plans to enlist the help of a professional land assessor with a state-wide perspective to find comparable usages. Review of comparable parcels statewide will help Arthur assess the value of the land for tax purposes.
“In the past we’ve used tax experts from Richmond who can look across the entire state for comparable uses” Arthur said. “This is a unique land application.”
In addition, removing the land from its AOC tax protection status will require the landowner to pay a one-time tax penalty. “The county will also receive rollback taxes from the current landowner when the land is removed from agricultural use” Arthur said.
Although the value of the solar modules and inverters would seem easy to calculate, Arthur said that he relies on the initial equipment value reported by the taxpayer, in this case Cornerstone Power, when computing tax bills.
Because Clarke County computes taxes based on equipment value, cheaper panel costs will mean lower tax revenues. Decreasing solar equipment costs are a certainty if the industry is to ever become competitive with other power sources.
“We rely on the business to accurately report what the value of the property is” Arthur said. While Arthur can use civil procedures to subpoena cost documentation to derive the value of a business’s equipment if necessary, such procedures are rare. However, once the initial value of the solar panels and inverters is established for tax purposes, nothing prevents Cornerstone Power from replacing the equipment in the future if the cost of new solar generation equipment falls as dramatically as some experts predict.
Changing Financials of Solar Power
In recent years, global photovoltaic production has been increasing at a rate of 50 percent per year, so that accumulated global capacity doubles about every 18 months. This so-called “Photovoltaic Moore’s Law”, modeled after the well-known algorithm used to predict steady declines in computer processor costs, states that with every doubling of capacity photovoltaic costs will drop by 20 percent.
So far, the Photovoltaic Moore’s Law has proven to be an accurate predictor of photovoltaic costs. In 2004, installing photovoltaic modules cost about $7 per watt, compared to $1 per watt for wind. In 2007, experts say, as solar power generation increased, average global solar costs dropped to between $4 and $5 per watt, right in line with the Photovoltaic Moore’s Law projection. Extrapolate those gains out to today and, as predicted; photovoltaic costs are now competitive with wind power.
But an end to solar module price declines is nowhere in sight. Energy consultant Element Energy, under commission from the UK government, forecasts solar photovoltaic costs will fall by around 50% between now and 2020. Similarly, analyst predictions at other research and industry firms including Photon Consulting, Solarbuzz and the Prometheus Institute suggest decreases of 20 to 50 percent.
Cornerstone Power’s Bullinger says that it is difficult to estimate how much solar module and inverter costs might decline over the next 50 years. “During the past 15 years some industry experts have assessed that solar module costs have decreased 30-40%” Bullinger said. “Certainly the costs will not continue to decrease at that rate, but many industry experts expect some continued decrease.”
Bullinger says that currently Cornerstone Power plans to replace the solar modules every 25 years and the inverters will be replaced approximately every 10-15 years.
Supervisors Face Green Policy Decisions for Clarke County
As Cornerstone Development prepares its formal special use permit request, county lawmakers will face a number of policy decisions for ensuring that the proposed solar plant is a good corporate citizen.
Concerns about the financial viability of solar energy and the impact and costs associated with a failed operation must be resolved. One option could be a requirement to set-aside funds in a contingency account to cover removal of the equipment.
Construction provisions designed to minimize the impact on the land supporting the solar modules could be designed to facilitate returning the acreage to farming in the future.
In addressing taxes and the financial viability of the Cornerstone Power plant specifically, Clarke County could use a “creative taxation” approach by requiring a discounted “up-front” tax payment instead of a traditional annual payment schedule. Such a plan would eliminate any uncertainty about future tax receipts for the county while also providing a contingency fund against future financial problems.
A.R. “Pete” Dunning (White Post), the Clarke Supervisor responsible for the voting district where the solar plant would be located, has said that the Supervisors shouldn’t “nitpick” Cornerstone Power’s application. “If the company feels it can make money and a bank is willing to lend it” Dunning said “the project should be allowed to go forward on its own merit.”
America’s Power Future Remains Uncertain
By every indication, “green” power is coming soon to an outlet-plug near you. Whether the source of that power is solar, wind or some yet-unknown alternative is still anyone’s bet.
For example, the cost of power from solar thermal plants, a rival technology to panels that uses the heat of the sun to produce steam like a standard power plant, could also fall as low as 10 cents a kwh according to the International Energy Agency. Solar thermal plants can be easily integrated with conventional power plants because they use standard turbines and retain heat long enough to continue generating power after dark, and during brief interruptions of sunlight by passing clouds.
Jenny Chase, the lead solar analyst at Bloomberg New Energy Finance, a clearing house for data on the renewable energy sources, believes that solar thermal technology is likely to get more support from many governments because it is a more secure electricity source.
“The next 10 years are a “critical window” â€¦ during which photovoltaics are expected to achieve competitiveness with the power grid retail prices in many regions” according to the International Energy Agency. “Achieving grid parity will require a strong and balanced policy effort in the next decade to allow for optimal technology progress, cost reduction and ramp-up of industrial manufacturing for mass deployment.”
In the end, the future success, or failure, of a solar power plant in Clarke County may have less to do with decisions made by either Clarke County’s Supervisors or Cornerstone Power Development and more to do with tax incentives and energy policy decisions made in places like Washington and Saudi Arabia.