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Is Solar a Legal Business to Get into

Aug 22

 

 

The solar business is complex, regardless of whether it involves generating, buying, or selling solar energy. Legal issues counsel can often be very helpful in helping clients understand broad issues and help them navigate through the issues to maximize potential opportunities and avoid potential pitfalls. In an article published in The Legal Intelligence, Manko, Gold, Katcher & Fox, LLP, attorneys from the environmental and energy law firm Manko, Katcher & Fox, LLP, discussed the fundamental issues that must be addressed during a solar project.

Transaction Structure:

Most consumer-scale solar agreements are structured in one of three ways. These include power purchase agreements (PPA), where the energy consumer buys the solar power generated from a solar panel located on their property but is operated, owned, and maintained by another party; solar system ownership, which allows the energy consumer to purchase, own and maintain a solar array and use the generated solar electricity to power its needs; and finally, solar energy system leasing with solar inverter system.

 

Incentives:

One of the most popular financial incentives is the federal tax credit (ITC), which grants eligible entities a tax credit equaling a percentage of eligible costs for a project. Many states also offer attractive loan programs, rebates, grants, and grants for qualified projects. A combination of financial incentives can be used to boost the economic return on a solar project. 

 

Finance:

Projects are typically funded with a combination of existing equity and new debt. There is no single financing solution that works for everyone. Most projects use a mix of equity and debt.

 

Siting, Zoning, and Permitting: 

It's important to make sure that the project is constructed in accordance with all applicable environmental and land use requirements. Also, all permits necessary to operate and construct the system are obtained promptly. It is also important to determine whether liability protections are available from environmental regulatory authorities. When a solar project is located on property owned by a third party, it may be necessary to secure leases, easements, and other access rights.

 

Engineering, procurement, and construction: 

Because large solar energy systems can easily be expensive in the tens of millions of dollars, EPC agreements should be drafted to clearly outline both parties' obligations.

 

Energy Regulation: 

It is possible that a private person or entity that generates solar electricity will become a regulated utility if it consumes power or sells it to third parties as part of a PPA. Or to the general public via 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 upfront. The process of physically connecting a project to the grid or electricity infrastructure of an energy customer can also be very regulated. The parties involved need to understand the regulatory framework and interconnection rules.

 

Renewable Energy Credits:

If you plan to use a renewable energy credit for the purpose of meeting the above-code program requirements, such as LEED-certified green construction projects, it is essential to follow those program requirements. Like all commodities, monetizing REC value can require business and legal expertise.

 

Allocation of risk: 

The failure to perform as anticipated can have serious economic effects. Consequently, cost savings could quickly evaporate. Additionally, if regulatory programs or incentives that are fueling the REC markets are altered or revoked it is possible for the expected financial benefits to not be realized. These and other operational and regulatory risks cannot be eliminated completely but informed solar energy industry participants should identify, evaluate, and contractually assign them appropriately to ensure accurate deal pricing.

 

Operations & Maintenance: 

Owners may consider using a third-party contractor for maintenance and operations. In the financial plans of owners, it is important to account for ongoing costs. When evaluating operational risks, it is essential to consider maintenance costs.