Whether generating, purchasing or selling solar energy, the solar business can be quite complex. Many times, legal issues counsel can be helpful in understanding broad issues and can help guide clients through issues to maximize opportunities and avoid potential pitfalls. Attorneys with the environmental and energy law firm of Manko, Gold, Katcher & Fox, LLP, shared fundamental topics that need to be addressed in the course of a solar project in an article in the journal “The Legal Intelligence” (Volume 243, No. 113, which can be found at www.mgkflaw.com). An abbreviated version follows here:
Transaction Structure: The majority of consumer-scale solar arrangements are structured in three typical ways, each of which has its own benefits, costs and complexities: (1) power purchase agreements (PPA), under which an energy consumer purchases the solar power generated by a solar system physically located at such consumer’s property, but which solar system is owned, operated and maintained by a third-party; (2) solar system ownership, where an energy consumer purchases, owns and maintains a solar system and uses the generated solar electricity for its power needs; and (3) solar energy system leasing, a financing alternative to ownership.
Incentives: The most used financial incentive is the federal investment tax credit (ITC), which provides qualifying entities with a tax credit equal to a certain percentage of the eligible costs of a project. In addition, many states offer grants, rebates and attractive loan programs for qualifying projects. Often, a combination of financial incentives may be used to increase economic returns on a solar project.
Financing: Purchase money for projects is typically a mix of existing and new equity and debt. There is no one-size-fits-all financing solution, and most projects are completed using a combination of both equity and debt.
Siting, Zoning and Permitting: It is important to ensure that the project can be constructed in compliance with all applicable environmental, land use and zoning requirements, and that all necessary permits to construct and operate the system can be timely obtained. The availability of liability protections from environmental regulatory agencies may also need to be assessed. In addition, leases, easements and other access rights may need securing when a solar project is hosted on a third-party’s property.
Engineering, Procurement and Construction: Since large solar energy systems can easily cost in the tens of millions of dollars, EPC contracts should be drafted and negotiated to clearly set forth both parties’ respective obligations and responsibilities.
Energy Regulation: The point at which a private individual or entity generating solar electricity becomes a regulated utility may depend on whether such an individual or entity consumes the power it generates or sells power to third-parties under a PPA, or to the public generally through the grid. These questions can be jurisdiction-specific so it’s important for a power provider to evaluate and resolve these and other similar regulatory questions up front. Likewise, physically interconnecting a project with an energy customer’s electrical infrastructure or the grid can be highly regulated and the parties involved must understand the regulatory framework, the Regional Transmission Organization (RTO) interconnection rules, and the requirements of the local public utility.
Renewable Energy Credits: If intending to use a Renewable Energy Credit (REC) for purposes of meeting above-code programs such as for LEED-certified green building projects, it will be important to ensure compliance with those program requirements. As with all commodities, monetizing REC values can require both business and legal issues expertise.
Allocation Of Risk: A project’s failure to perform as predicted can have economic impacts, and anticipated cost savings can quickly vanish. In addition, if the regulatory programs or incentives fueling the REC market are modified or revoked, the assumed financial benefits may not be realized. While these and other iterations of operational and regulatory risk cannot be eliminated entirely, informed participants in the solar energy industry should identify and evaluate risks, contractually allocate them accordingly and ensure that deal pricing accurately reflects such allocation.
Operations & Maintenance: System owners may seek to engage a third-party contractor to perform operations and maintenance services. The ongoing costs of such services should be factored into the owner’s financial models. Further, maintenance responsibilities should be accounted for in addressing the allocation of operational risks.
James Bell says
As a consumer, you relied upon the installation company who is a licensed contractor I presume, to have the knowledge of scope of work, technical aptitude and experience in your jurisdiction to complete the project and continue to work with the local AHJ (authority having jurisdiction) to obtain a permission to operate the system (PTO). It is not the consumer’s responsibility to determine these facts and procedures of the local utility and most utilities have lists of contractors who have qualified to conduct business as a result of obtaining the utilities’ acceptance of qualifications, license, etc.
This incidence appears to be negligence on the part of the contractor, as they should have made certain such details were implicit within their contract.
If the consumer qualifies a contractor before signing any agreement and relies upon that contractor to obtain all necessary requirements to install and proceed to operate a solar system then the consumer should be relieved of any fault that prevents the system from operating within the rules and requirements of the utility. Since the terms of the contract were not met by the contractor, then the entire agreement should be voidable and the responsibility of making the consumer whole would be left upon the contractor.
Now, let’s determine what type of business contracts or relationship does the finance company have with the contractor and determine who is responsible for the consumer’s protection against fraud.
Daniel Sloan says
We had Sunpro out of Houston put our solar system on 27 January 2020 we have a WCEC Electric Co-op the electric company refused to allow us to turn our solar on due to we have a Anolog meter said we had to have the smart meter due to health reasons for the smart meter we refused and we requested the Net Metering system they refused we are now making payments on our system but is not up and running.Our lawyer requested to have the Solar Company remove the system and fix our roof