The Challenges of Developing Utility-Scale Renewable Energy Projects on Land Under Williamson Act Contracts
In the current renewable energy boom, developers of utility-scale solar and wind projects share a common need: large tracts of relatively flat, undeveloped land. California possesses an abundance of such land with high solar and wind resource potential, but over 30 million acres is already under agricultural production. One of the principal hurdles facing development on much of this agricultural land is the California Land Conservation Act, commonly known as the Williamson Act (“the Act”).
Passed in 1965, the Williamson Act seeks to stave off the loss of agricultural land to urban development. The Act is overseen by the Department of Conservation and implemented by local governments, typically counties. It authorizes local governments to establish agricultural preserves and offer contracts to landowners that provide property tax reductions in exchange for long-term restriction on the use of their land to agricultural or compatible open space uses. Until recently, these contracts had a 10-year initial term, and contracted land in Farmland Security Zones had 20-year initial terms. Under Assembly Bill 1265, passed in 2011, local governments may reduce the contract term from 10 to nine years, and from 20 to 18 years, respectively.
As of 2009, there were approximately 15 million acres across 54 counties under Williamson Act contracts – about half of all farmland in California. Because utility-scale renewable energy developers need large tracts of contiguous land, typically hundreds, if not thousands, of acres, they frequently encounter parcels under Williamson Act contracts and thereby restricted to agricultural uses. Parties interested in utilizing contracted land for such projects have four options to move forward.
Option 1: Compatibility Finding
The first option is to obtain a finding from the local government that the renewable energy project is compatible with the Act. Generally, a use is compatible so long as it does not significantly compromise, displace or impair the current or future agricultural use and capability of the land, or result in significant removal of adjacent contracted land from agricultural or open space use. In addition, the Act provides that “electrical facilities” are compatible uses as a matter of law, but the courts have not resolved whether this extends to utility-scale renewable energy projects or is limited to facilities that support existing agricultural uses.
Wind farms appear amenable to a compatibility finding. Although the size of the overall project site may be several thousand acres, each wind turbine can be separated by hundreds of feet, depending on height and rotor diameter, and each tower’s foundation occupies a relatively small footprint within the project boundary. Because the turbines are widely spaced and the rotors are far above the ground, agricultural activities can continue to be carried out within the project area. In fact, many counties, such as Kern County, have made general findings that wind farms are compatible under the Act.
Compatibility findings for solar farms prove more difficult. These projects consist of dense installations of energy generating equipment (e.g., arrays of photovoltaic panels) mounted close to the ground. This makes it difficult for the land underneath the arrays to support active agriculture use, and impractical for the use of agricultural equipment. Therefore, in most cases, such intensive development may be incompatible with agricultural or open space uses.
The Act provides a fall back option for projects that cannot obtain a compatibility finding. The local government may issue a conditional use permit allowing the project to be built on contracted land if, among other things, the conditions will avoid or mitigate impacts to on- and/or off-site agriculture, the use is consistent with the purposes of the Act, and the findings consider the productive capability of the land.
Option 2: Solar Easement Under AB 618
In recognition of its competing policy directives to preserve agricultural land and open space, on the one hand, and achieve a 33 percent renewable portfolio standard, on the other hand, and perhaps in recognition of the “compatibility barrier” noted above that solar developers face, California enacted a solar easement program last year under Assembly Bill 618.
AB 618 authorizes parties to a Williamson Act contract, after approval by the Department of Conservation and in consultation with the Department of Food and Agriculture, to mutually agree to rescind the contract in order to simultaneously enter into a temporary solar-use easement. The term of the easement must be no less than 20 years. In addition, the local government must charge the landowner a 6.25 percent fee based upon the fair market value of the property at the time of rescission.
This program is not applicable to all agricultural land, however. The subject land must not be designated as prime or unique farmland, or of national importance, unless the Department of Conservation determines otherwise. In addition, the land must consist of soils with significantly reduced agricultural productivity due to synthetic or natural chemical contamination or other physical reasons.
Option 3: Cancellation
The third option is for the landowner to cancel the Williamson Act contract, which is both difficult and expensive, and disfavored by the courts.
There are only two circumstances under which a local government may approve cancellation of a contract. The first is where cancellation is deemed consistent with the purposes of the Act. This requires the local board or council to make five mandatory findings, including that there is no non-contracted land nearby that is suitable and available for the project, and that cancellation will not result in the removal of adjacent land from agricultural use or cause discontiguous patterns of urban development.
The second, and more promising option for renewable energy developers, is where the city or county finds that cancellation is in the public interest. Specifically, the local government must find that other public concerns substantially outweigh the objectives of the Act and there is no non-contracted land nearby that is both available and suitable for the alternative use. Indeed, the Department of Conservation has noted that “because it is the policy of the State to require that a portion of its energy is generated using renewable sources, it is logical to expect that a local jurisdiction could find that the siting of a solar energy project makes the public interest findings required for cancellation of a Williamson Act contract.” The same can be expected for wind farms, although because they have a greater chance of succeeding under the compatibility option, they are more likely to avoid seeking cancellation.
Cancellation removes the agricultural use restriction, but at significant expense. The landowner is assessed a fee equal to 12.5 percent of the fair market value of the property, which reduces this option’s appeal.
Option 4: Non-Renewal
Non-renewal is the last option for developing a renewable energy project on land under Williamson Act contract. The process is straightforward: the landowner files a notice of non-renewal and waits out the remaining term of the contract, a minimum of eight years. The use restrictions remain in effect until the contract expires and the property taxes gradually increase to a fair market value assessment during the term of the cancellation. Although this is a relatively straightforward option, it is the least viable from a project development standpoint. The expiration period is simply too long a time period for project developers to invest capital, lock down financing or meet energy delivery deadlines under power purchase agreements.
Other than non-renewal, each option for developing a renewable energy project on land currently under Williamson Act contract bears the risk that it could be undone by the courts. The Act provides that compatibility findings may be challenged in court by any owner of land that is under Williamson Act contract in the local jurisdiction, as well as all landowners within one mile of the subject land. In addition, any person that has participated in the public process may challenge the issuance of a conditional use permit or contract cancellation by petitioning the court for a writ of administrative mandamus. How smoothly the new AB 618 solar easement program functions and is interpreted by the courts also remains to be seen. Without a doubt, given the environmental and financial stakes at issue, we can expect each option to be tested, challenged, and in many cases successfully utilized in the years to come.
Moreover, obtaining adequate land is but one hurdle a renewable energy project developer faces. Obtaining the necessary permits and entitlements is another, as is finding a buyer for the power and obtaining sufficient financing. Then there’s building the darn thing and connecting it to the grid. But it all starts with finding the right spot.
This article is reprinted with permission from the April 9, 2012 issue of The Recorder. © 2012 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.