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Will Utilities Lease Rooftops of Commercial Buildings for Solar Power Generation?

May 3, 2016 By Carl Weinschenk

Cedars Sinai SolarThird-party leasing of rooftops or other spaces for solar arrays is a growing trend. Last month, for instance, Energy Manager Today posted a blog about a project being run by Soltage, LLC. The company is providing Quinsigamond Community College in West Brookfield, MA with about 2.4 MWh of energy. The 5,800 photovoltaic panels generating the energy are 25 miles away in Worcester, MA.

To date, these creative net-metering arrangements have largely been the work of entrepreneurial companies. That may change, however. Roy Palk, the Senior Energy Advisor for the law firm of LeClairRyan, thinks that the utilities are set to more actively participate in these this sector. “I thought about utilities getting more involved and embracing commercial rooftop solar,” he said. “Rather than utilities fighting rooftop solar, why don’t they go out and lease rooftops as if they were buying or leasing ground?”

The company leasing the rooftops can make money from these arrangements. “They have an additional revenues stream, instead of an empty roof on top of the building,” Palk said. “The second is if they are in a state where net-metering is allowed…they can sell what they don’t use back to the grid.”

The arrival of the utilities is entirely predictable and could create a more robust sector due to their relationship with customers and ownership of the infrastructure. A theme of recent (and perhaps not so recent) technology is that incumbents watch a nascent market with great interest. When the technology gives reason to believe it is the wave of the future or becomes a threat to its core business – or a combination of those interrelated threats – it reacts.

For instance, the incumbent telephone companies spent years waiting to see if voice over Internet Protocol (VoIP) was robust enough to displace traditional circuit switched telephone approaches. When it became apparent that the answer was ‘yes’ – and that it therefore would threaten its core business – telcos reacted by becoming providers themselves. The best defense, they collectively felt, was a good offense.

The same thing could happen in the solar business. If net-metering and sending energy into the grid explodes and utilities don’t get involved, it will hurt their revenue base. At some point, Palk suggests, the utilities will understand that though they are already part of the process – the energy collected at the remote location goes into their grid, after all – they can benefit in several ways by running the lease arrangements themselves.

An increasing number of states allow net-metering, which is the key necessary regulatory element. The utilities in states most likely to be early adopters must have renewable portfolio standards (RPS) – laws that require the increase of energy from renewable resources – in place.

The commercial entity, Palk said, has to consider four elements when contracting with the utility. Of course, the facility must be physically capable of accommodating the solar array. Proper insurance must be in place and a precise power purchase agreement (PPA) must be agreed upon.

The last step can be tricky. “The power agreement would include how much [electricity] is going to be taken, when it might be demanded, what the price would be and how often the contract can be amended,” Palk said. “Any regulatory approval by state commissions would have to be cleared. But even if the utility buys a tract of land some of the same issues will at stake anyway.”

A wide array of models is emerging in which solar energy is generated in one place and the main financial transaction based on a home or business is in another. To this point, utilities have only infrastructure has been used, but they are otherwise out of the loop. This is likely to change as renewables and net-metering evolve.

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