NEWS
Release
January 11, 2010
Gold in the Sunshine on Your Roof – Solar Facility Rooftop Leases Concern over greenhouse gas emissions (GHGs) has produced a new phenomenon – leases of rooftop space for the installation and operation of solar power facilities. Last May Ontario passed the Green Energy Act. One of its main objectives was to establish a feed-in tariff program (a "FIT" Program) whereby the Ontario Power Authority (the "OPA") committed to purchase, at very favourable rates, all of the green energy produced in the Province. In response to this incentive, owners of buildings are likely to be approached by solar power companies wishing to lease rooftop space to install and operate green energy systems.
Pros and Cons Once an application is approved by the OPA, the applicant must sign a power purchase contract with the OPA for a term of 20 years. An important component of that contract is the transfer to the OPA of all of the environmental attributes associated with the project. As a consequence, any carbon credits and renewable energy credits belong to the OPA and not to the solar power company or the landlord of the property on which the solar power facility is installed. Carbon credits arise under "cap and trade" systems such as that which Ontario intends to impose. Under a cap and trade system, energy generating plants, commercial buildings, factories and other facilities are restricted to a prescribed annual allotment of permitted tonnes of GHGs emitted by their operations. If the annual allotment is exceeded, the facility owner must pay a fee or fine to the regulating authority unless it is able to purchase carbon credits. Carbon credits arise where a facility succeeds in keeping or reducing the GHGs that it emits below its allotment. Carbon credits can be bought and sold on a commodities market. Renewable energy credits occur where an authority imposes a requirement that a stated percentage of energy used must be provided by renewable energy sources such as solar
power, wind power, biomass and similar renewable energy facilities. To meet annual targets, users of energy can purchase renewable energy directly from a supplier or they can purchase credits that are used to fund renewable energy products. Twenty-nine U.S. states and the District of Columbia have established regulatory schemes mandating that the energy production of the state must be from renewable energy. U.S. federal legislation is expected to establish a national program and Canada will almost certainly follow suit. At this time, environmental attributes do not have a large value, but it is anticipated that their value will increase (perhaps very dramatically) within the not too distant future. Accordingly, before leasing out a roof to a solar power company, consideration should be given to the potential value of those environmental attributes. In the absence of favourable tax treatment, government grants or other forms of incentive, the cost of installing a solar power facility on a roof might make the investment unfeasible. Typically, a building, even one with a large roof, would provide no more than 20% of its energy consumption through rooftop solar panels. Furthermore, at present, the cost of electricity purchased from the grid is still relatively low. However, as the volume of solar power facilities production increases and anticipated developments in technology take hold, it is expected that the cost of installing solar panels will reduce substantially. It may be in the interest of a building owner to hold off signing away the ability to install its own solar panels and to use its own electricity so that it can benefit directly from the carbon credits and renewable energy credits that the project gives rise to. On the other hand, the time frame during which environmental attributes are likely to become valuable, and the extent to which they become valuable, is uncertain. It may take several years before the markets mature and trading produces substantial benefits.