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By: Kainoa Casco
In front of you is marketing material stating that by installing renewable energy on your property you’ll see the benefits of a “consistent revenue stream,” “environmental stewardship,” and “green marketing” requiring “no investment, costs, maintenance, or labor!” Sounds like a dream right? You struggle to think of any downside to going through with the proposed deal. That is okay. It is difficult to determine what considerations are involved unless you are in the industry. These considerations will be touched on in this article. But first let’s describe how everything works.
As with any contract there are variations depending on the situation. But generally speaking, you would lease your property to a renewable energy developer/owner who will then sign a Power Purchase Agreement (PPA) to sell renewable energy produced on your property back to the energy. Below is a graphic to help visualize the agreement.
Developers usually target underutilized properties, adding unrealized value to the lessor. After the installation, in many cases, the developer will sell the packaged deal to a new owner who will take over the renewable energy system, lease, PPA, and relating responsibilities.
William Yeager, a solar energy analyst, discussed the considerations of such a contract, which are outlined below.
- Like any lease, you can negotiate a preset rental payment and/or percentage rents based of revenues earned by the solar developer. Fixed payments carry less risk.
- Determine if any better uses exist for the proposed land that would add greater value currently or in the future. Including other ecosystem services, agriculture or cultural practices.
- Ask: Do I want to tie up my property for the defined period of time? This could be 20 years or more.
- Get multiple proposals.
- Look at the value of your site compared to other sites to see if you are getting a good rate. Make calls, site visits, and do online research.
- Ask the renewable energy developer if your portion (circuit) of the grid has any issues with capacity that affect your deal. Available capacity determines if the utility will allow the proposed system on your property to be installed and connected to the grid.
- Understand what is good/bad about your site such as access to the utility lines, slope, solar exposure, and anything affecting the financials of the deal.
- Take a close look at "End of Term" language for what condition you want the site to return to after the lease is over. Ideally you want your leased premises to return to its original state. However, it may be difficult restore your property to its original state if grading, roof penetration, and/or other actions were taken to install the system.
- If installing the system on a roof, determine if your roof needs to be replaced within the life of the system. Be sure to come to terms concerning liability for this expense before signing the lease.
- Understand difference between the owner, developer, and contractor of the project. These can be all the same company or all different. The owner owns the system, the developer coordinates the project, and the contractor installs the system.
- Look at NPV of the cash flows if possible.
- Pay attention to all fine print and disclaimers.
Prior to committing to any deal, you should consult a sustainability professional, accountant, and/or attorney with renewable energy expertise. It is important that any property owner be aware of the risks and considerations involved in order to make the most beneficial decision. But remember: These deals are great opportunities to support sustainability financially, socially, and environmentally and should be encouraged.
Kainoa Casco is the owner of Casco Pacific LLC specializing in sustainable business consulting centered around Hawai’i place-based cultural, environmental, and business solutions. He is also an MBA Candidate in Sustainable Management at Presidio Graduate School.