Three bills are currently pending before the Illinois General Assembly that would impact current and future commercial solar energy producers in Illinois. One bill, the proposed Renewable Energy Facilities Agricultural Impact Mitigation Act, would add an additional step to the process of obtaining a permit for a commercial solar energy facility in Illinois by requiring owners of such facilities to enter into agricultural impact mitigation agreements with the Illinois Department of Agriculture. The other two bills, dueling amendments to the Property Tax Code supported by various county assessors, on the one hand, and solar energy groups, on the other, would clarify and standardize taxation of commercial solar energy systems in Illinois. Select key terms and the potential impact of each bill are discussed below.

The Renewable Energy Facilities Agricultural Impact Mitigation Act (the “Renewable Energy Act”) is an expansion of the Wind Energy Facilities Agricultural Impact Mitigation Act, 505 ILCS 147/1 et seq. (the “Wind Act”). If passed, the owner of a commercial solar energy facility will be required to enter into an agricultural impact mitigation agreement with the Illinois Department of Agriculture to be eligible to receive a permit for its facility.

  • A commercial solar energy facility is a solar energy conversion facility equal to or greater than 500 kilowatts in total nameplate generation capacity, including a solar energy conversion facility seeking an extension of a permit granted prior to enactment of the Renewable Energy Act. Solar energy conversion facilities built or permitted prior to the enactment of the Renewal Energy Act are not subject to its terms.
  • An agricultural impact mitigation agreement is an agreement between the owner of a commercial solar energy facility and the Illinois Department of Agriculture outlining the construction and deconstruction standards for the facility designed to preserve the integrity of any agricultural land impacted by the facility. The meaning of agricultural impact mitigation agreement in the Renewable Energy Act mirrors the definition in the Wind Act and, critically, requires the owner to explain how it will remediate agricultural land impacted by a commercial solar energy facility upon the deconstruction or abandonment of the facility. The preparation of an agricultural impact mitigation agreement is a substantial undertaking, entailing both time and expense. Bryan Cave Leighton Paisner LLP can assist in all aspects of preparation and negotiation of these agreements.
  • Any agricultural impact mitigation agreement with respect to a commercial solar energy facility must be entered into prior to any contact with a third-party landowner for the purpose of entering into an agreement concerning the development of such commercial solar energy facility on the landowner’s property. Effectively, preparing and entering into an agricultural impact mitigation agreement will become among the first steps of a commercial solar energy facility owner’s planning process.

Two pending bills would amend the Property Tax Code with respect to taxation of commercial solar energy systems. Both of House Bill 5284 (the “House Bill”), which is supported by county assessors, and Amendment 1 to Senate Bill 486 (the “Senate Bill”), which is supported by the solar industry, would provide the following:

  • Beginning in assessment year 2018, the fair cash value of commercial solar energy system improvements in counties with fewer than 3,000,000 inhabitants would equal the trended real property cost basis minus an allowance for physical depreciation. Trended property cost basis is the “commercial solar energy system real property cost basis” adjusted for inflation.
  • The provisions of the House Bill and the Senate Bill do not apply to commercial solar energy systems that are owned by any tax-exempt person or entity.
  • Commercial solar energy systems would not be subject to equalization. Equalization is the tool used to adjust average assessment levels to the same percentage of full value.
  • In the year following removal of a commercial solar energy system, land that was assessed farmland prior to the enactment of the House Bill or the Senate Bill would be eligible for assessment as farmland.

However, the House Bill and Senate Bill differ in the certain critical respects:

House Bill

Senate Bill

Commentary

Definition of “commercial solar energy system”

Any device or assembly of devices which use solar energy from the sun for generating electricity for the primary purpose of wholesale or retail sale, and which is not primarily consumed on the property in which the device or devices reside

Any device or assembly of devices that (i) is ground installed and (ii) uses solar energy from the sun for generating electricity for the primary purpose of wholesale or retail sale and not primarily for consumption on the property on which the device or devices reside

The Senate Bill is more narrowly defined and may excluded systems which are not directly installed on a parcel or tract of land

Definition of “commercial solar energy system real property cost basis”

$446,000 per megawatt of system capacity (represents only improvements)

Note: The fair cash value of the land per acre on which the improvements are installed is equal to $10,000 multiplied by the trending factor

$199,000 per megawatt of nameplate capacity (represents both land and improvements)

System capacity is undefined; nameplate capacity is defined at Section 1-10 of the Illinois Power Agency Act

Definition of “allowance for physical depreciation”

The actual age

in years of the commercial solar energy system on the assessment date divided by 40 years multiplied by its trended real property cost basis;

may not reduce the value of the commercial solar energy system to less than 50% of its trended real property cost basis

The actual age in years of the commercial solar energy system on the assessment date divided by 20 years multiplied by its trended real property cost basis; may not reduce the value of the commercial solar energy system to less than 30% of its trended real property cost basis

The Senate Bill allows a higher incremental and total allowance for physical depreciation

Additional permitted deductions from fair cash value?

None

Functional obsolescence and external obsolescence of the solar energy device, to the extent they are proved by the taxpayer by clear and convincing evidence

Survey for ground installed commercial solar energy system; parcel identification number?

The owner of the land upon which the commercial solar energy system is installed may request a metes and bounds survey at the owner’s expense

The owner of the ground installed commercial solar energy system must commission a metes and bounds survey of the land on which it is installed at the owner’s expense

The Senate Bill places an affirmative obligation on the owner of the commercial solar energy system to incur the cost of a survey; both bills would require the county assessor to issue a separate parcel identification number upon receiving a copy of the survey

Limited recourse for unpaid taxes and liens?

No

Despite combined assessment, recourse is limited to the improvements to the land on which the commercial solar energy system is located

Incentive agreements?

No

Permits agreements for payments in lieu of taxes

The Senate Bill provides for payments in lieu of taxes, which are common incentives for commercial solar power producers in many other states

Limited term?

No

Provisions expire in 2033

For questions or more information, contact the authors, Eddie Lowry, at 314-259-2530, Jacob Crabtree, at 314-259-2657, or any member of Bryan Cave Leighton Paisner’s Real Estate or Energy and Natural Resources teams. You may also contact us through the direct link to our Website, Bryan Cave’s Real Estate or Energy and Natural Resources teams. Bryan Cave Leighton Paisner LLP makes available the information and materials in its Website for informational purposes only. The information is general in nature and does not constitute legal advice. Further, the use of this site, and the sending or receipt of any information, does not create any attorney-client relationship between us. Therefore, your communication with us through this Website will not be considered as privileged or confidential.