Cities can largely do what they want. They can deny applications for whatever reason they want. Citizen concerns are very important here (they need to keep voters happy to keep their jobs). But their main mandate is to protect the public good. If a project isn’t in the interest of their community, they ca deny it.
Whether or not it’s legal is another question. And NIMBY and… and… there are lots of potential concerns. But this article is about Wisconsin, where the question is really what are we going to do with this land and how are going to power it.
Your post mentions a lawsuit near you. This is a feature, not a bug. Even if the city is unlawfully denying an application, the denial still has the desired effect — a de facto denial for the length of time it takes to resolve in the courts. By dragging out the time for a lawsuit to be resolved, the city hopes that the developer will just go away and find someplace else.
