This blog post originally appeared TriplePundit.com. Hawaii-specific content unique to our islands’ market environment has been added.
In front of you is marketing material stating that by installing renewable energy on your property you’ll see the benefits of a “consistent revenue stream,” “environmental stewardship,” and “green marketing” requiring “no investment, costs, maintenance, or labor!” Sounds like a dream right? You struggle to think of any downside to the proposed deal. That is OK. It is difficult to determine what considerations are involved unless you are in the industry. More on that later, but first let’s describe how everything works.
As with any contract there are variations depending on the situation. Generally speaking, you would lease your property to a renewable energy developer/owner who will then sign a Power Purchase Agreement (PPA) to sell renewable energy produced on your property back to the energy utility via a Feed In Tariff (FIT).
Developers usually target underutilized properties, adding unrealized value to the lessor. After the installation, in many cases, the developer will sell the packaged deal to a new owner who will take over the renewable energy system, lease, PPA and relating responsibilities.
- Like any lease, you can negotiate a preset rental payment or percentage rents based on revenues earned by the solar developer, or both. Fixed payments carry less risk.
- Determine if any better uses exist for the proposed land that would add greater value. Including other ecosystem services, agriculture or cultural practices. In Hawaii, consider the future value of available agricultural land for food independence in Hawaii. Also consider Native Hawaiian cultural significance and appropriateness regarding the leased premises and any issues the project may cause.
- Ask yourself: Do I want to tie up my property for the defined period of time? This could be 20 years or more.
- Evaluate whether you want to invest in a net-metered system to power onsite energy loads, develop your own system to sell energy to the utility or lease property space to a developer for them to sell to the utility.
- Get multiple proposals.
- Look at the value of your site compared to other sites to see if you are getting a good rate. Make calls, site visits and research online.
- Ask the renewable energy developer if your portion (circuit) of the grid has any issues with capacity that affect your deal. Available capacity determines if the utility will allow the proposed system on your property to be installed and connected to the grid.
- In areas with high demand for space on the grid, consider the opportunity costs of not entering the agreement and someone else filling up the available space on the circuit.
- Understand what is good and bad about your site, such as access to the utility lines, slope, solar exposure and anything affecting the financials of the deal.
- Take a close look at “End of Term” language for what condition you want the site to return to after the lease is over. Ideally, you want your leased premises to return to its original state. However, it may be difficult restore your property to its original state if grading, roof penetration and other actions were taken to install the system.
- If installing the system on a roof, determine if your roof needs to be replaced within the life of the system. Be sure to come to terms concerning liability for this expense before signing the lease.
- Understand difference between the owner, developer and contractor of the project. These can be all the same company or all different. The owner owns the system, the developer coordinates the project and the contractor installs the system.
- Analyze the installers reputation and past projects.
- Look at net present value (NPV) of the cash flows if possible.
- Pay attention to all fine print and disclaimers.
Prior to committing to any deal, it is recommended that you consult a sustainability professional, accountant, and/or attorney with renewable energy expertise. It is important that any property owner be aware of the risks and considerations involved in order to make the most beneficial decision. But remember: These deals are great opportunities to support sustainability financially, socially, and environmentally and should be encouraged.
Renewable Energy Resource Resources:
Kainoa Casco is owner of Casco Pacific LLC specializing in sustainable business consulting centered around Hawai’i place-based cultural, environmental, and business solutions. He is also an MBA Candidate in Sustainable Management at Presidio Graduate School.