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Posted: November 17, 2009

On the sunny side of the law

Some tips for navigating solar electricity agreements

Giji John

With more than 300 days of sunshine annually and the passage of Amendment 37, Colorado is awash in solar development.

Amendment 37 requires Colorado's largest utilities to obtain 20 percent of their electricity generated from renewable energy sources by 2020, 4 percent of which must be from solar energy sources.

IOUs achieve these percentages by purchasing solar renewable energy credits, or solar RECs, from solar electricity projects--both large-scale projects that generate solar electricity in megawatt hour increments and smaller, distributed generation projects that generate solar electricity in kilowatt hour increments. Those solar RECs are then used by IOUs to show their compliance with Amendment 37's solar electricity obligations.

There are a number of ways to structure agreements for distributed generation projects to be placed on building owners' properties. They usually fall within two broad categories: (1) structures in which developers sell solar electricity and solar RECs to building owners for the owners' electricity needs, or (2) structures in which developers rent building owners' property so that developers can sell the solar electricity and solar RECs to the local electric utility.

Even if you hadn't thought about installing solar panels on your building before, the right amount of sunshine should have enterprising solar developers at your doorstep, offering to develop distributed generation solar projects on your property and carrying any number of agreements to sign. Those agreements may be with both the solar developer and the local electric utility.

Agreements with the Developer

The power purchase agreement, or the PPA, is the agreement that sets out the developer's obligation to sell, and the building owner's obligation to buy, solar electricity. Often times, the PPA also includes the sale of the solar RECs to the building owner.

The PPA may also set out any number of additional provisions, including a construction, installation and commissioning timeline, liabilities and damages payable by the parties, insurance requirements of each party and provisions for the payment for solar electricity even if the building owner shuts down the solar system.

Then there is the solar lease agreement. While a lease agreement should be familiar to most building owners, a solar lease agreement, in addition to requirements to lease and pay rent, may also contain provisions requiring building owners to protect the property from shading that may affect the solar system.

Agreements with the Local Electric Utility

The solar REC purchase and sale agreement is the agreement that sets out the building owner's obligation to sell, and the local electric utility's obligation to buy, solar RECs. Since the local electric utility is looking to acquire solar RECs to meet its renewable portfolio standards' obligations, the solar REC purchase and sale agreement is a must have agreement for the local electric utility.

One thing to note: building owners, understandably, often want to claim that their building is supplied by solar electricity. But there is risk of liability in doing so. Owning solar RECs entitles a party to call their electricity "solar electricity." And, the right to call it such can only happen one time in the chain of solar REC ownership. So, if the solar RECs are sold (or meant to be sold) to the local electric utility, making these claims can invalidate the local electric utility's solar RECs, and result in liability for the building owner.

The net metering agreement and the interconnection agreement are agreements, sometimes combined and other times separate, that set out the local electric utility's obligation to interconnect the solar panels to the electric grid and to net meter building owners' monthly electricity payments.

Net metering is simply a way of calculating payments to be made by building owners or credits to be received, by calculating the amount of electricity that a building buys from the utility as against the amount of electricity that the solar panels on a building owner's property sells to the utility.

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Giji John concentrates his practice in the development and finance of domestic and international energy projects at Holland & Hart, LLP, with a particular emphasis on wind, solar and natural gas-fired power projects. He represents developers, off-takers and lenders in a variety of project development transactions, including debt and equity financing. He can be reached at 303-295-8580 or gmjohn@hollandhart.com.

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