Nonprofit organizations can benefit from solar power as an energy source because solar power can lower traditional energy bills. To obtain solar power, an organization generally has two options. It can purchase solar panels through a solar panel purchase agreement. Alternatively, it can allow a solar company to install solar panels on its property and purchase power from that solar company through a power purchase agreement. Regardless of the route the organization determines is best, the organization should pay attention to the agreement it is entering into to ensure it reflects the organization’s understanding of the agreement. Solar companies tend to present organizations with form contracts that favor the solar company and that do not always reflect the organization’s situation. The organization should take the following into consideration prior to executing a contract with a solar company:
- The contract should clearly identify which party will obtain the federal and state tax incentives. If the organization is purchasing the solar panels, it is more likely to be eligible for the tax incentives. If the organization is entering into a power purchase agreement, the solar company would likely receive the federal and state tax incentives.
- The contract should address who will be responsible for the maintenance and repairs of the solar panels. If the organization is purchasing the solar panels, it will likely be responsible for the cost of any repairs but will need assistance from the solar company. If the organization is entering into a power purchase agreement, the solar company should be responsible for any ongoing maintenance and repairs.
- The contract should address the organization’s financial obligations if the solar panels stop providing power. If the organization is purchasing the solar panels, the contract should delineate the organization’s payment obligations if the solar panels stop functioning. If the organization is entering into a power purchase agreement, there should be terms explaining how the organization is made whole when power is not provided pursuant to the performance requirements.
- The contract should contain insurance provisions that cover the potential liability and losses associated with the installation, system operations, and system removal, such as worker’s compensation insurance, general liability insurance.
- The contract should not grant the solar company broad access to the organization’s property to access the solar system. Sometimes the contract grants the solar company an easement on the property. An easement is an encumbrance on the property that provides the solar company with real property interests. Organizations should only agree to grant the solar company the right of access through a revocable license. A revocable license is permission to access the property within the specified limits for a specified purpose and does not provide an encumbrance on or an interest in the land.
- The contract should accurately reflect whether the organization is the owner or the lessor of the property where the solar panels will be installed. If the organization is leasing the property, it will likely require permission from the landlord to install the solar panels.
- For a power purchase agreement, the contract should contain provisions that explain whether the organization can relocate the solar panels if the organization moves, sell the solar panels to the new tenant or owner, or assign the power purchase agreement to the new tenant or owner.
- The contract should accurately reflect the costs to the organization. If the organization is purchasing the solar panels, it should be aware of the associated installation and maintenance costs in addition to the costs for the panels. If the organization is entering into a power purchase agreement, it should be aware of the costs of the power, how those costs may change over time and any costs it may incur if it wants to purchase the panels during or at the end of the agreement.
When presented with a power purchase agreement or solar panel purchase agreement, the organization should consult with legal counsel to modify the contract provisions to ensure the organization’s interests are protected.
