Q. What should I keep in mind when considering a solar energy system for my farm?
For many agricultural needs, solar energy can provide a good, environmentally-friendly alternative or supplement to traditional energy sources which depend on connections to utility grids or the use of fuel burning power generators. Modern, well-designed, simple-to-maintain and cost-effective solar systems can provide energy when and where it is needed and can offer an opportunity to stabilize energy costs, decrease pollution, and avoid the need for electric grid infrastructure improvements. Solar energy systems typically have low maintenance costs, and the “fuel” is free once the initial cost of the system is recovered through subsidies and energy savings.
Know What The System Will Involve, Physically and Financially
The most common type of solar system is a photovoltaic (PV) system which converts solar energy to electric power. PV applications are divided into two categories: on-grid and off-grid systems. On-grid PV systems are connected to the utility grid – energy produced by the system can be used locally, or when the energy produced is not used it can feed it back into the electrical grid. Off-grid PV systems are not connected to the utility grid and provide power onsite in remote areas.Depending on energy output, once installed PV systems can produce onsite energy to power lighting, electric fencing, battery charging, pumps and irrigation systems, ventilation systems, and buildings.
As with any other capital project, a number of financial and legal considerations are implicated in the decision to install a solar energy system, each of which are driven by the farmer’s needs, resources, and options. Because solar energy requires a large upfront investmentthat is recovered through revenues or savings over time, financing availability and options are important. One significant offset to costs is the availability of the Federal Investment Tax Credit, which currently offers a federal tax credit equal to 30% of the expenditures to install a solar system. New York State also offers various rebates and state tax incentives.
As an alternative to outright solar system ownership, where the farm purchases, owns and maintains a solar system and uses the generated solar electricity for its power needs, many vendors offer alternative structures designed to minimize upfront investment costs. To better understand the options available in the industry, we contacted Bill Jordan from Jordan Energy in Troy, New York, a company which has been involved in developing renewable energy projects since 2007.Mr. Jordan explained that vendors typically offer power purchase or lease agreements as an alternative to outright system ownership.Under either arrangement, the solar system is physically located at such consumer’s property, but is owned, operated and maintained by a third-party.
How a Typical Lease Might Work With an Energy Company
Mr. Jordan explained that vendors typically offer power purchase or lease agreements as an alternative to outright system ownership. Under either arrangement, the solar system is physically located at such consumer’s property but is owned, operated and maintained by a third-party. The customer, in turn, essentially purchases the energy produced by the system instead of the system itself. The power purchase agreement typically relies on third-party financing, through financial partners such as banks, looking to take advantage of the Federal tax credit offered for solar (which Mr. Jordan noted is set to be reduced to 10% at the end of 2016).Whether structured as a lease or a power purchase agreement, the end result is the same: the company owns, maintains, and profits from the system and the customer pays a monthly charge for a long-term contract that is offset by electrical cost savings. The agreements may vary in duration from seven to twenty-five years and may include a buy-out or purchase option. Mr. Jordan noted that such arrangements may be useful for farmers looking to reduce their energy costs and promote “green” energy while avoiding significant investment costs.
Make Sure Your Attorney Reviews Any Arrangement
As with any other significant undertaking, any agreements and contracts associated with a proposed solar energy system project should be carefully reviewed with legal counsel to ensure a full understanding of the rights and obligations being assumed. Among other things, the contracts should contain provisions addressing the allocation of operation and maintenance obligations; compliance with all applicable environmental, land use, zoning, and permit requirements; and insurance and indemnification requirements.Special thanks to Bill Jordan and Jordan Energy for their assistance in providing information on power purchase and lease agreements for solar energy projects.
Special thanks to Bill Jordan and Jordan Energy for their assistance in providing information on power purchase and lease agreements for solar energy projects. If you have been approached about putting a solar energy system on your land, our real estate lawyers can help make sure your best interests are protected. Give us a call to schedule your free consultation today.