18th August 2022
Rooftop solar isn’t a new technology. It’s been used for power generation and commercialised for many years now. Solar developers/operators may seek to agree a rooftop lease with a building owner in order to generate and sell power to the building occupier and any surplus to the electricity network operator. The building owner would benefit from a base rent and, perhaps, a percentage of the generating revenue received by the operator, without having to bear the capital expense of the generating equipment.
Various factors are challenging how building owners now view rooftop solar:
Within a landlord/tenant relationship, the landlord will generally have control over deployment of rooftop solar, or any other renewable generation or storage equipment on its property. While an occupier may have been granted a lease of the whole of a building or unit, landlord’s consent will usually be required for making any exterior alterations.
A landlord could allow an occupying tenant to install rooftop solar at its own cost, but this would likely result in the removal of it (or financial reimbursement arrangement) at the end of the tenant’s lease. A landlord may prefer, instead, to install the equipment. Whether prior to or during the continuance of a tenant’s occupation, a landlord would derive benefits such as:
In turn, an occupier would derive benefits from:
The PPA will document the commercial terms between a generator and customer for the purchase of power, usually as a price per unit (in kilowatt hours (kWh) or megawatt hours (MWh)) supplied. Where a tenant purchases from its landlord, the landlord is the generator and the tenant is the customer.
Only the parties to the PPA are bound by it. Unlike lease terms, the PPA won’t ‘pass’ to a successor. Anticipating that the PPA is intended, by both parties, to continue for the duration of the term of the occupier’s tenancy, the lease terms will need to accommodate this. Increasingly, we expect landlords to include rooftop solar equipment at their property assets. Where landlords look to sell power to tenants, we expect the PPA to become a ‘standard’ letting document, alongside the lease.
Renewable energy specialists within Walker Morris’ Infrastructure & Energy Group can provide expert advice and guidance on PPA terms, REGOs certificate transactions, landlord and tenant arrangements and, more broadly, utilisation of renewable energy generation and storage technology. The generation and supply of electricity is a licensable activity and the team can also advise on licensing requirements. For further advice or information, please contact Paul Dinning or any member of the Infrastructure & Energy Group.