Solar Checklist—Is It the Right Time to Go Solar?
Darin Lowder, Esq.
In the past year, U.S. businesses, non-profits, and government organizations have installed more than 1,000 megawatts of new solar photovoltaic installations — enough to power 160,000 households.
The solar industry has a well-developed system of third-parties installing, financing, and managing solar power installations on commercial properties. Because these agreements are typically long-term commitments, some potential commercial customers are uncertain about whether the time is right to install solar power projects on their properties.
The following checklist identifies some key issues to consider in this decision:
- What areas would be feasible for solar installations? If the power system will be installed on a rooftop, the rooftop should be flat and free from all shade. The solar provider may require the customer to prevent future shading of the site. Vacant, unshaded property or parking facilities provide possible locations for solar projects. Buildings with few floors and large footprints, such as warehouse facilities, will usually allow for solar installations to meet a higher proportion of their total power needs.
- Who pays the costs of electricity? Long-term solar power-purchase agreements ("PPAs") or equipment leases ("Solar Leases") typically require fixed monthly costs with annual escalations of 1-3 percent over a period of 15-25 years. When compared with current and expected future utility rates, PPAs and solar leases usually represent cost savings to the customers. The amount of estimated savings depends largely on current electricity rates, historical rate increases, and local and state incentives. The power customer will be negotiating the Solar Lease or PPA directly with the third-party solar provider. Commercial customers usually insist on negotiating key provisions of the agreements.
- Who controls access to the roof? The negotiation process with third-party solar companies is simplified if the customer under the PPA or Solar Lease is also authorized to grant access to the rooftop or other installation area. Otherwise, the interests of the customer and the party controlling access to the project site may not be aligned. For example, a customer expecting to save significantly on energy costs is unlikely to be as concerned about potential damage to rooftop equipment as the property owner. While some leases grant rights for rooftop access and use, others do not, and either impose significant restrictions on rooftop activities or require the landlord's consent for third-party roof access. The top three commercial solar customers (Walmart, Costco, and Kohls) have collectively installed 180 MW of solar equipment on their facilities. Notably, these companies do not own all of their facilities, and instead maintain multiple long-term site access agreements. Their success suggests that it is possible to coordinate roof access among the necessary parties on solar installation and maintenance issues.
- Lease or License? Since a license is a contractual right, rather than an interest in real property like a lease, many property owners prefer to enter into long-term license agreements to grant site access to third-party solar providers. As long as the license is co-terminous with the PPA or Solar Lease and provides adequate access during the term of the agreement (and permits removal at the end of the tem), a license should be acceptable.
- When is the roof due for maintenance or replacement? If the roof requires replacement, potential future savings may offset upfront roof improvements. Additionally, if the roof was recently replaced, careful attention needs to be paid to the terms of the roof warranty, since some installation activities may void long-term warranties.
This checklist provides some concerns to be addressed when considering work with a third-party solar provider to construct, finance and maintain an on-site solar power project. However, a significant advantage is the 30 percent energy tax credit and accelerated depreciation available to solar property owners.
About the Author: Darin Lowder is an Associate with Ballard Spahr, LLP. Learn more at www.ballardspahr.com.