Solar’s legal risks are changing. Here’s what to watch out for

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Attorneys Matthew Karmel and Yana Spitzer joined the Factor This! podcast from Renewable Energy World to discuss the legal risks facing the solar industry, and they pointed out the potholes to watch out for in the future. Subscribe wherever you get your podcasts.

As the renewable energy industry has grown up, so have its legal risks.

Sure, the industry frequently bemoans the NIMBY groups fighting project development. But renewable energy projects face far more opposition than simply galvanized homeowners in a Facebook group.

More advanced attacks use litigation to stop or delay zoning and permitting approvals. Others will seek damages due to the environmental impact of construction or the project itself. And even within the industry, an entirely new form of contract litigation is bound to emerge as partners pursue the full value of incentives in the Inflation Reduction Act.

Episode 38 of the Factor This! podcast featured two attorneys working really closely on these issues. Matthew Karmel is the principal and chair of the Environmental and Sustainability Practice Group at the national law firm Offit Kurman. Yana Spitzer is in-house counsel at ENGIE North America.

Karmel and Spitzer take us inside the courtroom for a look at the legal risk plaguing project developers today, and they point out the potholes to watch out for in the future.

"We've got a lot of risks in solar development, especially large-scale solar development. Some of these risks are just the cost of doing business, but some of them are risks that we can manage and avoid," Karmel said.

An (un)friendly foe: NIMBYs

The most familiar legal threat to the solar industry is the persistence of not-in-my-backyard (NIMBY) community opposition.

Typically, these challenges hinge on technicalities, like an incomplete zoning or permitting application. And while these errors can normally be fixed by refiling an application, they can lead to project delays, added costs and, potentially, a change in tune from a regulatory board or commission.

"I try to advise my developers who go out in the field to make friends with the homeowners that they're approaching in order to obtain site control and get the feel of the neighborhood to see how much challenge we may face when going for permitting or approvals needed prior to construction so that it's not a surprise to us," Spitzer said.

Take, for example, the 1.3 GW Mammoth Solar project under construction in Indiana. Once complete, Mammoth is expected to be the largest solar project in operation in the U.S.

A group of homeowners who resided within one mile and/or owned property within a few hundred feet of a proposed solar farm petitioned for judicial review of a decision of the county board of zoning appeals (BZA), which approved the application for construction.

Opponents of the Mammoth project say they are defying an “egregious assault on time-honored farming traditions and are standing up to a newcomer that threatens to warp their pastoral way of life with Chinese-made technology.”

The disgruntled homeowners were able to convince both the trial and appellate court that the zoning application for the Mammoth project failed to comply with the minimum requirements of the Unified Development Ordinance, that the BZA should not have considered or acted on Mammoth Solar's incomplete application, and, that by disregarding the UDO's requirements, the BZA's actions were arbitrary and capricious, not in accordance with the law, and without observance of procedure required by law.

Challenges like the one that faced Mammoth Solar developer Doral Renewables are procedural in nature and (usually) won't kill a project. But the bump in the road could result in further delays and additional costs, and those delays and costs can sometimes be fatal.

GO DEEPER: Listen to Episode 20 of the Factor This! podcast: "Clean energy is popular but NIMBYism remains potent. What gives?" The episode features George Hershman, CEO of SOLV Energy, the EPC on the Mammoth Solar project. Subscribe wherever you get your podcasts.

Municipality challenges

It's not only outraged community members that pose a threat to project development, though. Some municipalities are using litigation to stop, or at least slow, the transition to renewable energy.

In Texas, school district and county officials in at least four counties this year have denied requests from solar developers for tax breaks intended to ensure that the projects are economically viable.

Lawsuits often arise because local towns and municipalities are left out of the decision-making process.

It is also noteworthy that as of 2021, more than 100 ordinances across 31 states blocking new solar development and wind projects have been enacted. It has been reported that such opposition is politically motivated and/or funded by fossil fuel proponents spreading misinformation.

This shift to state-wide siting agencies to help move renewable energy projects forward is good for developers, Karmel said. State siting boards can be more difficult to challenge, since they are given statutory authority.

In California, for example, local officials in rural counties pushed back on the state’s passage of a new law that lets developers bypass local permitting by turning to the California Energy Commission for fast-track approval.

"I'm not aware of a single case where one of these state siting boards has been overruled by the courts," Karmel said.

One example of the tension between a state’s goal of expanding renewable energy resources and the longstanding tradition of local control is Tracer Lane II Realty, LLC v. City of Waltham, 489 Mass. 775 (MA Jun. 2, 2022), where the developer of a proposed large-scale solar energy system sought a declaration that the City could not prohibit it from building a road on its property in a residential zone to access the system which was to be located in the commercial zone of a neighboring town.

City officials determined that the road located on residentially zoned land could not be used to access the one-megawatt solar project on commercially zoned land. In a case of first impression, the MA Supreme Judicial Court held that statutory protections afforded to solar energy systems against local zoning regulations applied to the access road, and the City’s arguably allowing solar energy systems in industrial zones did not preclude the developer from laying down the road.

The court reasoned that Waltham, like all municipalities, maintains the discretion to reasonably restrict the magnitude and placement of solar energy systems, but an outright ban of large-scale solar energy systems in all but 1-2% of a municipality’s land area restricts rather than promotes the legislative goal of promoting solar energy.

Consumer protection issues

Consumer protection issues aren't as kind to developers, Karmel said. The law generally protects consumers more than it protects developers.

The tie between developer and end-consumer has always existed in the residential solar sector.

In Minnesota, the attorney general filed suit against Brio Energy LLC and its affiliates, as well as company executives and lenders, alleging they engaged in deceptive and fraudulent practices involving marketing and selling residential solar panel that cost far more than the average Minnesota solar PV system.

After locking consumers into contracts and finance agreements, sometimes without their knowledge, Brio Energy allegedly failed to complete solar projects within promised timeframes, did not meet interconnection requirements and deadlines, falsely blamed consumers’ utilities for delays, and ignored status update requests.

When homeowners tried to cancel their projects, Brio Energy allegedly threatened them with large termination fees, collections efforts, lawsuits, and liens.

A new touchpoint between commercial solar developers and consumers has been created by the expansion of community solar across the country. Karmel expects to see more litigation around community solar contracts in the future, especially given that community solar projects are being sited in low-income and minority communities and regulators are increasingly focused on protecting these environmental justice communities.

Inflation Reduction Act

Inside Toledo Solar's manufacturing plant, where the company produce cadmium telluride thin-film solar modules.(Courtesy: Toledo Solar)

The Inflation Reduction Act includes incentives for renewable energy project development to drive domestic content, prevailing wages, and development in disadvantaged communities.

The Treasury Department has yet to release all of the details of how developers will qualify for certain incentives. But there are likely to be contract disputes among project partners over who is responsible for meeting the requirements.

"I'm expecting that there's going to be substantial contracting surrounding whose responsibility it is to make sure that prevailing wage is paid or content used meets domestic content standards," Karmel said. "So, it's really important to put those systems in place in your contracts. But on the back end, it's just not always going to work out."

Keeping track of incentive obligations is going to be a full-time job for somebody, Spitzer added. While ENGIE North America expects its contractors to keep track of that information, they will also track compliance internally.

However, no matter how well the compliance obligations are outlined in contracts, this is also bound to be a growing area of litigation while developers, contractors, and project financiers get used to the new framework and requirements.

Flying under the radar

While most in the industry will be familiar with NIMBY opposition to renewable energy projects, there's a growing litigation risk that's flying under the radar. The intersection of climate and environmental litigation with renewable energy project development is beginning to emerge.

Take, for example, Honey Bee Ranch in California, which is located near a mid-sized solar project.

Court documents allege that the solar project developer did not conduct certain grading and stormwater management activities that they promised to do, resulting in significant stormwater damage. The ranch was awarded $6.5 million in damages.

"Flooding is going to be more and more of a problem for the world in general over the next decade," Karmel said. "Solar projects, if not designed properly, can have significant stormwater impacts because we're creating impervious surfaces, and that can be exacerbated by climate. I think we're going to see more of this."

On the flip side, Karmel forecasts that litigation could soon target how climate change is impacting projects, like insurance ligation arising from greater storms and fires. Developers can't overlook environmental issues as they're building projects, he said.

Another overlooked legal risk in the coming years could come in the form of decommissioning issues. While the fast majority of solar projects were built in the last decade, and are still a decade or more from ramping down, it's time for developers to prepare for future challenges.

"There's times when we talk about decommissioning with our asset operations teams and in the back of my mind, I'm thinking 'I hope I'm not here when this happens,'" Spitzer said. "I have not been involved with those issues yet, but I can see that being at the forefront of litigation risks."

Block and tackle

Avoiding legal risks in solar project development largely involves executing on the basics. Missteps in the development of renewable energy projects could be used as fuel for future opposition.

"We talk about those things an enormous amount," Yana said.

Yana said stormwater runoff issues from homeowners are some of the most common complaints that she deals with. Even when a developer takes all of the appropriate steps to mitigate environmental impact, changing weather can create new challenges.

"Sometimes," she said, "it's just out of your hands and you deal with it as things come."