On-Site Solar: Considerations for Property Owners
December 22, 2011

Photovoltaic (PV) solar-energy systems have come a long way from the bulky and frequently unreliable panels that sprouted on residential rooftops and commercial properties here and there. Solar PV systems have become much more commonplace and technologically reliable. Add to this the various public policy-based incentives and electric utility rebate and payment programs, and solar PV systems may now be an attractive option for property owners who are looking to offset the electricity they otherwise would have to purchase from their local electric utility. These developments have spurred the growth of the solar PV industry and, by providing a variety of ownership and financing options, made clean-energy projects like this much more accessible to property owners. However, as with most capital projects, property owners would be wise to consider carefully the unique circumstances of their own property and business, to ensure that what may be presented as a routine solar PV installation and agreement is actually in their best interest. This article provides an overview of some of the considerations that property owners should investigate when exploring a possible solar PV installation.

As an initial matter, property owners must decide whether they want to own and operate their own solar PV system, or have it installed on their property but owned and operated by another party who delivers the electricity output to the property owner. This decision has financing, tax, and other practical implications that may impact the project, so it must be carefully evaluated. Both of these ownership options are possible; however, the financial and technical complexities associated with solar PV systems of any significant size frequently lead property owners to explore the solar-power purchase agreement (SPPA) option. In this case, the property owners make their premises available for the installation of the solar arrays and associated equipment, which are owned by the project developer. The project developer then is responsible for the operation and maintenance of the solar PV system or will contract with a third party to perform these services. The property owner enters into an agreement with the project developer to receive the output from the solar PV system, which energy generally is used to offset the property owner's electricity requirements from the local electric utility.

It is possible that the PV system may generate energy in excess of a property owner's needs, in which case the excess energy may be purchased by the local electric utility. Property owners should be aware of limitations on such excess energy. For example, in Colorado the solar PV system must be sized so as not to exceed 120 percent of the property owner's electricity requirements. The property owner also should carefully consider the appropriate size of the solar PV system, relative to the business' energy needs and how the local electric utility meters those needs. Under an SPPA arrangement, the project developer typically relies upon a certain amount of electricity load that the property owner intends to serve from the installed solar PV system. The SPPA may include limitations on the property owner's ability to lessen that load and may require the property owner to restore any decreased loads or to make payments as a result of such decreased loads. The property owner should carefully evaluate these SPPA provisions if the property owner's business operations may entail variable electricity needs. The property owner also should consider whether the electrical usage is measured by one meter or multiple meters throughout the site. This is relevant to determining the appropriate size of the solar PV system, so as to correspond to the metered electricity usage intended to be offset.

The property owner also must decide where the solar PV system will be located, on the ground or on the roof. If a ground-mounted system is being considered, the owner should carefully consider existing and possible future uses of the property as well as adjacent properties that could detrimentally affect the insolation of the solar arrays by blocking the sun. Are there existing structures or uses on the property that could interfere with the solar arrays? Are there future plans that could cause such interference or that might require the solar PV installation to be relocated to another site? Any such relocation would likely be costly and, if the project involves an SPPA, the landowner might be responsible for payments, to reimburse the project developer for lost output during the period when the PV system was out of service for relocation, as well as additional payments if the new site is not as productive as the original site.

While a rooftop installation may seem to be more attractive than a ground-mounted system, because it is essentially an unused area and may be less likely to suffer from interference from other uses on the property or adjacent properties, this location is not without its own issues, which must be carefully evaluated. In some respects, the property owner's issues are more numerous if a rooftop installation is being considered. These issues begin with the structural integrity of the roof: Will it bear the weight of the proposed solar PV system and be suitable for operations and maintenance purposes? Who will be responsible for making this determination, and who will bear the risk if the roof structure proves inadequate for the project? The property owner also should ensure that the project developer has carefully evaluated less obvious considerations, such as the wind load on the roof associated with the racking angle of the solar arrays. Should roof monitoring devices be installed? Who will be responsible for the cost of any necessary structural modifications? These and other structural issues may warrant the property owner retaining a consulting engineer to help navigate these considerations.

Other practical considerations associated with a rooftop installation include: The property owner should consider the age of the roof and its remaining useful life. How soon is it likely that the roof will need to be replaced? If replacement is likely to be needed during the term of the proposed solar PV project, this could trigger similar relocation issues, as discussed in the context of ground-mounted solar arrays. Who will bear the cost of removing and reinstalling the PV system during any roof replacement or repairs? How will the solar PV system be installed: using a ballast system or through-roof penetrations? Will such installation compromise the warranty on the installed roofing system? What is the nature of the space and operations in the area located within the building below the solar PV system, and how could it be impacted if the roof is compromised by the solar installation? If the solar PV system is to be operated and maintained by the project developer or a third-party contractor, how often will access to and through the facility be required for these purposes?

Other numerous considerations unrelated to practical aspects of the installation, operation, and maintenance of the proposed solar PV system include:

  • If the property is subject to a mortgage or other agreement in which the property serves as security for a debt, does the mortgage or agreement permit the installation of improvements such as a solar PV system? Is the lender's or other secured party's consent required for such an installation? Is it possible that the terms of the mortgage or other agreement may give the lender or secured party an interest in the solar PV system once it is installed?  
  • Who is responsible for ensuring compliance with all applicable zoning and building codes and for obtaining and maintaining all necessary permits and approvals?  
  • Who will own the "environmental attributes" associated with the solar PV system? Renewable Energy Credits, carbon offset credits, and other environmental benefits of the project have value and their ownership should be carefully evaluated when structuring the overall solar project.  
  • Who will be entitled to receive any governmental or local electric utility incentives or rebates associated with the solar PV system or its output?  
  • Who is responsible for payment of property taxes or other governmental assessments resulting from the solar PV system installed on the property?  
  • What are the appropriate insurance requirements to protect against business disruptions resulting from the solar PV system or loss of the system itself?  
  • What are the property owner's obligations in the event of an accident, loss, or other casualty to the solar PV system or the premises where it is installed? Must the property owner provide a substitute site, or can the project be terminated?  
  • Will the existence of the solar PV system more likely be considered an asset or a liability in the event that the property owner desires to sell the property? Can the SPPA or other project agreements be assigned to a purchaser of the property?
  • Finally, does the solar PV project make economic sense? This is a complicated issue and requires careful evaluation of a variety of factors,including present and possible future electricity prices, the delivered electricity price under the SPPA, possible buy-out options, and termination payments.

These are but some of the many issues that a property owner should carefully evaluate when considering installation of a solar PV system. Furthermore, while these issues may seem intimidating, the prudent property owner should approach this opportunity as it would any other capital project: by being informed and seeking appropriate advice from experienced consultants and legal counsel. If you have questions concerning any of these or other issues associated with a possible solar PV project on your property, our team of experienced attorneys can help guide you through this process.

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