Avoiding the Sunburn on Solar Deals
While the heyday of cheap energy from solar projects has largely gone with the fast rise and crash of once-lucrative New Jersey solar incentives, this subsidy program has quietly settled at more sustainable levels, and solar projects still can make good financial sense. Solar systems built on a customer’s property but owned by a third-party solar company are becoming a popular means to “go solar” and still realize energy savings. However, there are many potential legal pitfalls that require careful analysis before signing one of these long-term deals.
While a business or institution can simply pay a solar company to install a solar project on the customer’s site and own it themselves, there are a variety of products that allow businesses to realize savings from solar panel installations but avoid the high initial cost and risk of fluctuating subsidies. These may take the form of a long-term lease or a power purchase agreement (“PPA”). In such deals, the system owner pays to install the system on a customer’s building or land, the customer uses the electricity generated by the system and, in turn, makes payments to the system owner. The customer typically saves money compared to buying solely utility-supplied “brown” electricity, and at the end of the term (usually 10-20 years), the customer often has the option of owning the system for a fraction of its original price.
Of course, solar deals are accompanied by agreements that outline terms of a customer’s use of the system, obligations for maintenance and payments, the system owner’s right to access the system and the rights and obligations of the parties generally. Some of these terms might create scenarios that, unless carefully considered or negotiated before signing, could make the customer regret entering into the long-term deal.
One typical term involves roof repairs required during the term of the agreement that will require shutdown of the system and removal from the roof. Often, the system owner will not only charge the customer for the shutdown and removal of the panels, but will also charge a penalty to the customer for lost electricity production. Many agreements allow for the electricity purchase price to be renegotiated if government subsidies expire or are cancelled. Often, the owner will have unfettered rights to assign the lease or PPA, meaning the company who sold you the deal today may not be the one you call with a problem tomorrow.
Other terms to pay close attention to include: the parties’ rights to use insurance proceeds, as well as insurance coverage requirements; the system owner’s right to access and maintain the system on the customer’s premises; terms of any major equipment warrantees (e.g., solar panels and inverters); requirements to maintain unobstructed access to direct sunlight; obligations to maintain areas near and around the solar project; tax implications for system equipment and sale of electricity, and the customer’s rights at the end of the 10-20 year agreement. There are many others.
In summary, these third-party-owned solar projects can be the ideal way for a business, institution or homeowner to enjoy solar energy, feel good about going green, and save money on their electricity usage by generating electricity from the sun. However, it is critical to have an experienced professional review any proposed agreement to avoid getting burned in the deal.
Pictured Matthew T. Stanger, Esq.
For more information and assistance relating to solar energy project agreements, contact Matthew T. Stanger, Esq., a member of Lauletta Birnbaum, LLC, who has over 10 years of experience in energy, construction and land use law, at 856-369-3020 or email firstname.lastname@example.org.