Got Rooftops? Consider Your Solar Options
November 1, 2010

We have all heard Colorado averages 300 days of sun per year. Whether that is an accurate statistic probably hinges on your definition of a "day of sun." Still, nobody will dispute the fact that Colorado is one of the sunniest states in the country. The sun makes it a breeding ground for solar energy developers.

With the big push this year in the state legislature to become one of the leading alternative energy states, the Colorado legislature passed a bill (House Bill 10-1001) mandating that by 2020 investor-owned utilities (IOUs), namely Xcel Energy and Black Hills Electric, must generate at least 30 percent of their electricity from alternative sources including solar, wind, geothermal, biomass, new hydro, or recycled energy. The legislature had already adopted a law that required all qualifying retail utilities organized as cooperative electric associations or municipally-owned utilities to generate at least 10 percent of their electricity from alternative sources by 2020. C.R.S. §40-2-124(1)(c)(V).

Given the amount of sunshine in Colorado, the state's utilities are becoming increasingly dependent on solar generation to meet these standards. In fact, Colorado's IOUs are subject to an additional requirement that 3 percent of all retail electric sales come from distributed generation by 2020, half of which must be generated onsite at customers' facilities (Retail Distributed Generation). Distributed solar developers throughout Colorado are installing photovoltaic panels on urban and rural rooftops, allowing customers to become less reliant on centralized utilities as a source of power and helping utilities meet the renewable portfolio standards.

The following are some basics to help you understand the rooftop solar options available to you and the issues you must consider when installing a photovoltaic system at your facilities or on your property.

First, understand how much electricity each of your facilities is consuming. Under Colorado law, to qualify as a Retail Distributed Generation, solar equipment located at your facilities must be sized to supply no more than 120 percent of your average annual consumption of electricity by the property owner. C.R.S. §40-2-124)(a)(a)(V).

Second, in general, there are two ways to structure the ownership and installation of a photovoltaic system on your property: either you own the system ("Customer Owned") or a third-party entity owns the system ("Third-Party Owned"). With a Customer-Owned system, you purchase the system, pay to have it installed, operate and maintain the system, and are required to obtain insurance on the system satisfactory to your utility company. In exchange, you own all of the energy produced and become eligible for the various rebates and renewable energy credits (RECs) your utility makes available to you, which vary depending on the utility and the system "online" date. You will want to consult your utility or legal counsel to understand the current rebates, RECs, and other rebates or tax credits available to you.

If you prefer to avoid making an upfront capital investment and do not want to be responsible for the operation and maintenance of a photovoltaic system, a Third-Party Owned system can be an advantageous alternative. In a Third-Party Owned system, the third-party entity, or solar retailer as they are occasionally called, usually composed of a solar developer together with a capital investor, owns the system, installs it on your rooftop or in your open space, maintains and operates the system, pays for the utility-required insurance on the system, and receives all or most of the rebates and RECs. The property owner and the third-party solar retailer usually enter into a long-term (commonly 20 years) power purchase agreement (PPA) whereby the third-party entity sells power to you at a rate discounted from the price paid to the utility. Typically, you will receive an option to purchase the system after a predetermined number of years.

Under either the Customer-Owned or Third-Party Owned structures, you have an opportunity to hedge against future utility rate increases. In the Third-Party Owned structure, however, your electricity rates will typically escalate during the term of the PPA in accordance with an agreed upon formula.

The above-mentioned structures each create unique property interest related issues. In a Third-Party system, for example, the third-party solar retailer will request an easement across your land, buildings, and rooftops to obtain the appropriate access for the installation of the system. You will want to understand your rights relating to this easement and what happens to the easement upon removal of the system. If your property is encumbered by a deed of trust or mortgage, you will want to ensure that the installation is not a violation of such deed of trust, mortgage, or any other loan agreement with the lender. If you plan to sell your property, you will also want to understand the consequences of a sale under either of the two structures. In particular, you will want to ensure you can assign a PPA to a purchaser of your property.

Finally, in both a Customer-Owned or Third-Party Owned system, if the solar system is being installed on the roof of a building, you will want to consider the life of your roof, whether roof replacement will be necessary while the equipment is installed, and whether removing the photovoltaic system to make roof repairs may subject you to having to return any portion of your rebates or RECs or put you in default under your PPA.

If you are interested in installing a photovoltaic system on your property, you will want to understand the legal implications of doing so. Some solar developers have a standard form of power purchase agreement, but like any business transaction, most terms are negotiable. Our firm ?has lawyers experienced in power purchase agreements, easement agreements, and the effects of these agreements on your real property interests. We also have attorneys familiar with the rebates, renewable energy credits, and tax credits available for these types of projects. Call us if we can help.


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