Key Issues in Negotiating Solar Power Purchase Agreements
Installing solar energy panels for you, your business, homeowners’ association or condominium association is a great business decision that can keep utility costs controlled and ascertainable. Once this decision has been made and a reliable solar company located, the next step is entering into a Power Purchase Agreement (PPA). This article addresses the four biggest issues to spot when negotiating a PPA. This article presumes that the decision to install solar panels has already been made and the necessary hurdles cleared: businesses have cross-checked their lease provisions and utility / CAM requirements; and associations have recorded the necessary amendments and fulfilled their obligations under their governing documents.
What is a PPA? A PPA is a service contract between a business / association and a solar company where the latter finances, owns, and operates the solar energy system at the business / association’s site and sells energy to the business / association at a fixed price for the term of the contract. Through the PPA, the solar company acts as an investor in the solar energy system. The business / association has no capital investment, no maintenance costs, and needs only to provide the installment site, access thereto, and purchase the solar energy provided.
PPAs are often long and complex. In fact, the largest pitfall – especially for businesses / associations attempting to negotiate alone – comes upfront in the Recitals section. There are often three parties negotiating PPAs: the business / association, a power supplier, and a system provider. The latter two are separate entities, often working in conjunction; so negotiating to ensure fair terms in the PPA is essential.
In our experience, the following four issues come up each time we review a PPA and are asked to provide our legal opinion or to negotiate the contract:
Energy Price. PPAs often include, by incorporation, a grid outlining the costs per kilowatt hour that the business / association is expected to pay for solar energy. Double check this grid to make sure that the fixed fee is applied throughout the calculation. Because this grid outlines the main terms of the PPA, refer to it specifically throughout the contract; instead of arbitrary or vague language regarding costs, fees, or just the fixed kilowatt hour price. Instead, cite the grid. If it’s not accounted for in the figure (where hard numbers rule over language), don’t agree to pay for it.
Energy Production. PPAs require a business / association to purchase 100% of the solar energy produced by the solar company. But how much energy is that? Will it be enough to provide the business / association’s need? Including language or clauses that amount to an assurance or guarantee about how much the solar company will be obligated to produce each month protects the business / association from purchasing insufficient amounts of energy.
Incidental Costs. The business / association has no capital investment and no maintenance fees for the life of the PPA because the solar company bears those costs. The PPA also spells out other requirements that have incidental costs that must be accounted for. Does the lease or governing documents of your business / association require a bond or insurance during installation of the solar panels? If so, make sure the PPA spells out whose responsibility it is. Additionally, the solar company will often agree to acquire the necessary permits for installation. If there are incidental costs associated with the permits, or updating and renewing the permits as necessary, ensure that the PPA states which party will cover these costs.
Scope of Services. Installation and removal of the solar panels, as well as maintenance fees are usually covered by the solar company. The solar company also often agrees to “assist” the business / association. What is the scope of that assistance? Will the solar company help in obtaining the net energy metering agreement (NEM) with the utility? Will the solar company help with securing connectivity to the utility grid? Make sure that the PPA spells out the full scope of services that the solar company will provide and what, if any of the services, are costs born by the business / association.
As with any contract, there are a plethora of other issues that may come up in each individual PPA. Having an attorney review each PPA on your behalf to negotiate the most beneficial terms for your particular interest is advised. Remember: Review Carefully. Draft Specifically. Protect Your Investment! Call today for a free consultation 808-465-2500!