Solar Buyer - Beware

I read with great interest Diane Mastrull's Sunday, May 10th Philadelphia Inquirer column; "Solar power - for rent"

In it she explains that solar, even with the available rebates and incentives, can be prohibitively expensive for many people these days. She then goes on to explain how a small company is offering to pay this upfront cost in an effort to "raise a bumper crop of solar panels across Philadelphia's rowhouse rooftops."

These types of agreements, while new to the Delaware Valley, have existed in various forms over the years. While helpful, there are pros and cons to them. It is important that people know the consequences of 'renting' and may be better off saving their shekels to put down on their own system instead.

The type of agreement described in the article is typically known as a "Power Purchase Agreement". They are commonly used in situations when non-taxable entities like schools, churches or governments want the benefits of solar.

Simply put, a third party pays for the solar installation. As such, the building owner does not 'own' the system and cannot participate in the tax credits or depreciation.

In some cases (like the one described in the article), the leasing company receives all of the available incentives (rebates, RECs) and basically becomes the utility by forging an agreement with the building owner to purchase power from the leasing company (usually at significant savings) for a fixed period of time. At the end of that period, the system usually becomes the property of the building owner for a payment as agreed at the inception of the lease.

While leasing (Power Purchase Agreements) can be helpful, it is important to understand that they are most useful for nontaxable entities to take advantage of credits they would normally not have access to.

Taxable entities must understand, however, that using these types of agreements can strip them of their rights to the kind of incentives that make alternative energies attractive. Consequently, they would likely be better off tapping sources of loan funds or simply saving the money to invest in solar in the future.