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Solar Energy Without the Upfront Costs – Power Purchase Agreements

Posted by attorney Robin Gronsky

Installing solar panels on your property is not cheap. But, there are ways to get solar panels without buying them yourself. This transaction is called a “power purchase agreement." You, the property owner, rent out your roof or parking lot or other large space where solar panels can be installed to another entity. The solar panel installer will be the typical other entity. It will design the system, install it, finance it (either directly or through a financing source), and maintain the system. You get the benefit of cheaper electricity at a set price for the term of the power purchase agreement, but you do not get the other benefits of a solar panel installation (the federal grant, the solar renewable energy credit, or the state accelerated depreciation).

The best customers for a solar panel installation are those with large electricity consumption, good credit, and who own their property (I am not aware of any power purchase agreements with a tenant of a property).

You would contract with a solar panel company who would be responsible for designing the solar installation, installing it, monitoring it and maintaining it. You do not pay for any part of the solar panel company’s services. You do pay the solar panel company for the electricity that you buy from it – the electricity that is generated by the solar panels on your property. The power purchase agreement details how much you will pay for the electricity that you buy so that you know, in advance, how much you will be paying for electricity for a set number of years (typically about 15-20 years). This is unlike your arrangement with your electric company where you pay whatever the going rate is and the rate can increase whenever the utility company wishes to increase it.

Your power purchase agreement may also be with a financing source, either a bank or a private lender, who is providing the money to purchase the solar panels and the services of the installation company. The financing source is usually the one that gets the financial benefits that now exist for the purchase of solar panels.

You, as the property owner, agree to allow the solar panels to be installed on your property, to pay for a certain amount of electricity at a negotiated price, to not take any actions that would interfere with the ability of the solar panels to generate electricity, and to provide access to the solar panel installation when necessary for monitoring and maintenance. You may also contract to purchase the system at a given time into the contract or you may simply acquire the system at the end of the contract.

There may also be an agreement with the local utility who will purchase excess electricity that is produced that you are not using. The utility company would need to connect your solar panel installation to their grid. They may need to place meters on your solar panel installation to count how much electricity you are using against that amount of electricity that the utility will be getting. They may also put a cap on how much electricity they will purchase from you.

There are more challenges to negotiating the power purchase agreement than to simply buy solar panels, however, your upfront costs with a power purchase agreement are negligible. If you are thinking of installing solar panels on your property, this is one way to get it accomplished.

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