By Howard Lee, VP of Business Development

As the installed price of solar PV installations in the US has decreased by more than 50% from 2002 to 2013[1] and companies such as Walmart and Costco have together installed more than 100MW of solar PV capacity[2], many commercial and industrial (C&I) property owners and tenants (together or separately known as “Hosts” or “Host”) are also considering the deployment of solar generation systems on their properties.  For these Hosts, one of the key considerations in deploying solar is the ownership and structure: who should own it and who will use the solar generated electricity? Regardless of the ownership structure, financing of the solar system is an interrelated consideration that is equally critical.

Hosts can choose among 4 basic ownership structures to deploy solar systems:

Direct Ownership Via Cash Purchase – Simplest method for a Host who has the capital and the tax appetite and wants to capture all of the economic benefits of a solar system ownership by using its own balance sheet to fund the transaction.

Financed Via Debt – An equipment loan (or the equivalent capital lease) from either a bank or financial institution is used to pay for the solar system.

Financed Via Operating Lease – An operating lease (also referred to as a “tax-oriented lease”) is structured for the Host (lessee) to lease the solar system from a bank or financial institution (lessor) and categorize the resulting payments as operating expenses of the business.

Power Purchase Agreement (PPA) With Third party Ownership – A PPA Provider or developer will own, design, install, and operate the solar system at the Host’s facilities – at no cost to the Host.  In return, the Host enters into a PPA with a PPA Provider or developer to purchase all of the generated electricity by the system on the premises over a set number of years at an agreed upon price and agreed upon annual price increases, if applicable.

The ownership structures for solar systems for Hosts are summarized in the table below.

Hosts can decide upon the appropriate ownership structure based upon criteria such as financial return requirements, Host financial condition, initial costs, and level of ownership and operations responsibility. Alternatively, property owners can still enjoy economic benefits from solar deployment on their properties with no solar system ownership or operations responsibility through a Roof Rent model. There are established service providers that can help property owners and tenants understand the choices in efficiently deploying, owning, administering, and maintaining solar systems.

[1] “Tracking the Sun VI,” Lawrence Berkeley National Labs Report, July 2013.

[2]“Companies Unplug From the Electric Grid,” WSJ, Sept 17, 2013.

[3] It should be noted that real estate investment trusts (REITs) are limited in their ability to capture the Federal Investment Tax Credit (ITC) as this credit can only be claimed to the extent it does not distribute all of its taxable income.

[4] Depending on the utility, the system owner may be required to turn in the solar RECs to the utility in exchange for any state/local incentives/rebates.

[5] Possible roof rent for Property Owner.

Go top