January 12, 2016
As you probably know, in today’s electricity market there are many ways to take advantage of solar energy. Traditional financing models like direct ownership, solar leases, Power Purchase Agreements, and even Community Solar have become increasingly popular in the solar market, but there is little to be said about another solar solution: site leases.
In essence, a solar site lease is exactly what it sounds like; an agreement to lease your property for a solar installation. In a site lease agreement, you turn an unused space – your roof, an open plot of land, a parking lot, etc. – into a revenue stream. The best part? There are no equipment or maintenance obligations or costs to the site owner.
Similar to a PPA, site leases are most often funded by a third party investor; a person or company who will pay for and own the solar array to be built on a piece of property. More often than not, the investor is an experienced solar developer. As a part of this construction, the solar array owner and the property owner enter into a lease agreement, in which the array owner agrees to pay a pre-negotiated lease amount to the property owner each year, in exchange for the property owner hosting the solar array. These agreements typically last a period of 20 or more years – well within the predicted lifespan of most solar panels.
In a typical site lease agreement, the solar energy produced by the built array may be consumed onsite or instead, fed back into the utility’s electrical grid. The solar array owner will identify an off-taker (or multiple) to consume the energy produced. This off-taker can be a business, home owner, organization, utility, or a municipality who wants the economic and environmental benefits of solar electricity but does not have the space and/or resources to build their own. The off-taker executes an off-site PPA, or Net Meter Credit Agreement, with the owner of the solar array (in a separate transaction from the site lease) under which the off-taker agrees to purchase the power produced by the solar array. Virtual Net Metering (VNM), a mechanism enabled by the Utility, allows you to generate solar power in one place and use it in a different place thereby facilitating this arrangement. Check out our earlier blog post, which explains the process of virtual net metering in detail.
Participating in a solar site lease is a great way to support solar energy in your community especially if you are unable to use the power generated from the array at your site. For instance, a recent Solect customer, Mass Tank, was looking to pursue a solar solution, but found that their municipal utility, Middleborough Gas and Electric, has regulations that prevent owning a solar array and using the power on-site. Instead, Mass Tank approached the utility with a proposal; the company would lease their roof to an investor, IGS Solar, house the solar array on their roof, and sell the electricity to the utility as the off-taker. This solution allows Mass Tank, residences, and other businesses in Middleborough to benefit from renewable energy. By leasing their roof to IGS, Mass Tank created an additional stream of rental income for 20 years. You can learn more about this project in this recent press release.
Eligibility for a solar site lease will vary with each specific project, but there are a few requirements that are generally needed with any lease. These include:
- Long-term interest in a solar lease: With most lease agreements lasting 20 years, it is important that a property owner be willing to have panels on their roof for an extended period.
- The Solar area should remain undisturbed long-term: Since solar energy systems have a typical lifespan of 25+ years, it’s important to ensure changes in landscaping, new construction, and other alterations to the property won’t disturb the solar array once it is completed.
- A leased roof should be structurally sound: Ideally, roofs under consideration for hosting solar energy arrays should be less than 10 years old, and fully able to support the array for the lease period. An experienced solar provider can help you determine the structural integrity of your roof before engaging in a solar lease agreement.
- Leased land should be dry, with sufficient setbacks from water, shade, etc.: In essence, leased land should be a good site for solar, without excessive shading, bumpy terrain, ecological reservations, or even zoning restrictions.
Solar site leases are an excellent way for a business, organization or municipality to support solar energy without worrying about the responsibility of owning and maintaining a solar system. By participating in a solar site lease, you convert your roof or land into revenue, and help ratepayers in your community that may be unable to host or own an array, receive the benefits solar electricity. Site leases are one of the many great ways to become a part of the solar energy community!