SRECs are those credits purchased by power companies for the production of solar energy. Given that solar energy facility production has exceeded expectations, creating a glut of SRECs available for purchase, the value of the SRECs have dropped to less than half of the pre-glut value.
 

The newly adopted New Jersey Energy Master Plan proposes to accelerate the purchasing obligation of utilities, or take other actions to stabilize the SREC market, and therefore may improve the value of SRECs and increase the ability to finance solar energy facilities. That, along with ongoing federal tax credits, create the opportunity for New Jersey to continue to be one of the national leaders in solar energy production, currently second only to California.
 

However, one significant component of solar energy facilities is the cost of the solar panels themselves. A recent report conducted by Science Daily concludes that the cost of solar panels has dropped by 70% since 2009, significantly enhancing opportunities to make solar energy production a more attractive investment for those producing and selling energy as well as those building net-metered energy facilities, providing energy for on-site use.
 

For the foregoing reasons, opportunities and profitability of solar energy continues to increase and should be considered by most property owners, including those that might have declined to pursue solar energy as recently as a few months ago. Below is the link to the Science Daily article discussing the huge drop is the cost of solar panels.

The drive by commercial establishments and property owners to offset conventional power sources with solar energy certainly comports with current State and federal energy policies.  However, the construction and operation of a solar energy facility may involve a myriad of legal issues for which the advice and counsel of a knowledgeable attorney is essential.
 

Broadly speaking, businesses and individuals interested in hosting a solar energy facility on their premises may do so either by purchasing the solar panels and related equipment outright from a solar developer pursuant to an engineering, procurement and construction contract (EPC) or by leasing the facility long-term (usually 15 to 20 years) pursuant to a power purchase agreement (PPA).  Under both types of agreements, the solar developer may offer to design, build and maintain the solar facility.
 

One threshold matter that applies equally to EPC and PPA contracts is whether to obtain a solar feasibility study for the subject property and the proposed system equipment from an independent technical professional in consultation with an attorney. A solar developer will often perform a property and equipment analysis prior to installing the facility. However, the solar developer’s feasibility study may not include everything that a commercial enterprise or property owner may want to know before committing to the purchase or rental of a solar energy facility. For example, in order for a solar energy facility to operate efficiently and productively the owner or lessee of the system may need to prune or remove trees on site or may need to secure a solar easement from a neighboring property owner to restrict the location and/or height of a building addition, landscaping or other improvements (which might otherwise block access to sunlight).
 

A solar feasibility study should also gauge whether the proposed system size will adequately serve current energy needs (as well as any anticipated change thereto that might occur in the future) and whether the roof of the existing building where the proposed facility is to be constructed and all other structural components and the electrical system can handle the load of the proposed facility. In this regard, by way of further due diligence following receipt of a solar feasibility study, a prospective owner or lessee of a solar energy system should (1) verify with its insurance agent that the proposed facility will not require an insurance upgrade; and (2) contact all companies that have supplied warranties for the roof or other building components that the proposed facility will not require any special inspections to avoid invalidation of any such warranties.
 

Another consideration integral to both EPC and PPA contracts is the procurement of land development approvals and permits for the solar installation.  Indeed, it should not be assumed that the solar developer will obtain any required land development approvals, such as site plan or variance relief (although often they will secure the building permit) or that any failure to acquire such approvals will operate to terminate an agreement with a solar developer.  Therefore, during contract negotiations, a prospective purchaser or lessee should discuss with the solar developer and resolve such matters as which party will be responsible to make application and pay for approvals or permits and whether a failure to obtain any such approvals or permits after making a good faith effort shall operate to terminate the contract.
 

The foregoing represents just a handful of the issues that may come into play when considering whether to install and operate a solar energy system.  If you are interested in learning more about EPC or PPA contracts or have a legal issue relating to solar installations that you would like to discuss, do not hesitate to contact Vincent J. Mangini, Shareholder and LEED Accredited Professional BD+C, here in our Lawrenceville, New Jersey office.

What is NJR Clean Energy Ventures? from Stark & Stark on Vimeo.

Recent Trends in the Solar Industry from Stark & Stark on Vimeo.

What are the different types of solar projects? from Stark & Stark on Vimeo.

How Does Solar Energy Production Work? from Stark & Stark on Vimeo.

The article provides an overview of the the Federal Trade Commission's (FTC) proposed revisions to the guide for the use of environmental marketing claims (the "Green Guides") and evaluates the FTC's decision not to include in the proposed amended and supplemental Green Guides specific guidance for sustainability claims. The article goes on to discuss legal protections afforded to corporate image advertising.

You can read the full article online here. (PDF)

 

1. financing;
2. tax incentives; 
3. construction agreements; and               
4. leases with commercial tenants

Financial Incentives to Green Commercial Space
The Board of Public Utilities (BPU) through its Office of Clean Energy offers a host of financial incentives through the New Jersey Clean Energy Program. Among these is the Pay for Performance Program, which is funded by the societal benefits charge authorized by the New Jersey Electric Discount and Energy Competition Act.  Under this program, a qualifying utility customer may receive for the improvement of an existing building up to 50% of a facility’s annual energy cost (subject to a maximum of $50,000) to offset the cost an energy reduction plan and up to 50% of total project costs (subject to a maximum of $1 million per gas and electric account per building) provided that the implementation of the approved energy-efficient measures will achieve an energy savings of at least 15%.  

In the realm of renewable energy, the BPU offers New Jersey utility customers, who pay the societal benefits charge, access to the renewable energy certificate market and rebates for the installation of renewable energy systems, such as wind and sustainable biomass facilities at existing buildings and in connection with new construction located in Smart Growth areas (i.e. Planning Areas 1 and 2 and designated centers).

Planning is Key to Ensuring Profitability with Tenants
It is important to have a solid “green” plan in place, before seeking tenants to fill spaces in a renovated or newly constructed facility.  For example, a landlord may need to prepare and implement interior fit-out guidelines for incoming tenants to achieve and sustain energy efficiency goals and preserve building integrity.  Guidelines, such as these, might specify that construction in tenant spaces shall conform to the LEED protocols, contain product and material specifications, or require that tenants employ a construction manager who is a LEED accredited professional.

The FHA PowerSaver pilot program, as proposed, is designed for persons who are interested in installing energy conservation measures that improve home energy performance or facilitate such results.  In this regard, HUD will insure “single family property improvement loans,” as such term is defined in the Title I Program regulations (24 C.F.R. § 201.2), through FHA-approved lenders that are originated during a two-year period to eligible borrowers.

Eligible borrowers must either hold fee simple title to the property they are seeking to improve or hold a contractual interest therein evidenced by a properly recorded land installment contract.  In either case, the property (i) must be a single family, detached home, (ii) must be the borrower’s principal residence and (iii) must be within one of the geographic areas identified by HUD as being optimal for this pilot program.

Loan terms will likely be limited to 15 years, so that the repayment term will closely match the useful life of most energy conservation measures.  However, according to the HUD notice published in the Federal Register on November 10, 2010, a 20-year loan term may be approved for improvements that have a longer useful life, such as renewable energy facilities or geothermal systems.

In addition to guaranteeing home improvement loans, HUD will have at its disposal $25 million, which Congress allocated for the Energy Efficient Mortgage Innovation pilot program through the Consolidated Appropriations Act, 2010.  According to the November 10th Federal Register notice, “HUD will utilize those funds primarily to provide incentive payments with grant funds to participating lenders to support approved activities that deliver bona fide benefits to borrowers, with remaining funds available to support the evaluation of the [PowerSaver] Pilot Program.”

HUD will be accepting comments on the proposed PowerSaver pilot program until December 27, 2010.  Instructions on how to submit comments are included in the November 10th Federal Register notice.  HUD is expected to announce formally the establishment of and final details for the FHA PowerSaver through the issuance of another notice in the Federal Register following its review of public comments.

Mercer County and other areas of New Jersey are likely to see more solar farms “crop up” in light of the State Legislature’s passage of favorable legislation over the last few years.  For example, in 2009, a law was enacted amending Section 3.1 of the Municipal Land Use Law (L.1975, c.291, C.40:55D-4) to define wind, solar or photovoltaic energy facilities and structures as “inherently beneficial,” making it easier to obtain approvals for and install solar equipment and other alternative energy facilities where they are not permitted under local zoning regulations and require a use variance.  Also in 2009, the Legislature passed and the Governor signed another amendment to the MLUL (P.L. 2009, c. 35), which allows a “renewable energy facility,” such as a solar farm, to be located on a parcel or parcels of land owned by the same person comprising at least 20 contiguous acres within every municipal industrial zoning district.
 

This year, on January 16, 2010, the Governor signed into law a bill (P.L. 2009, c. 213), which authorizes a person who owns preserved farmland to install and operate biomass, solar or wind energy generation facilities, structures and equipment on the farm for the purpose of generating power or heat.  Among other things, this bill also adds to the list of permitted activities that may be conducted on commercial farms "the generation of power or heat from biomass, solar, or wind energy."
 

Additionally, newly proposed legislation (Senate bill S2126) permits the construction and operation of a solar or photovoltaic energy facility or structure on a closed landfill or quarry or a legally existing or closed resource extraction operation.  In light of what is currently going on in New Jersey in the way of landfill redevelopment, this bill is timely.  According to an article published online by NJBiz on September 27, 2010, thus far, two “solar-on-landfill projects” have been built in New Jersey and “15 others are proposed or in development.”  An example of a solar-on-landfill installation currently in the pipeline (but which apparently still requires certain State and local approvals) is being proposed by the Walters Group at a former landfill site in Stafford Township, Ocean County, New Jersey.  This solar project, which forms part of a much larger redevelopment of the landfill site, is proposed to be constructed on 55 acres and will contain 1,026 solar arrays possibly making it “one of the largest and most ambitious solar projects in New Jersey.”
 

Although the State Senate overwhelmingly passed S2126 by a vote of 35 to 0, its future is uncertain.  Certainly, if Senate bill S2126 is ultimately adopted by the Assembly and signed into law, it will further encourage and facilitate the growth of solar farms and may even be of assistance to the many solar-on-landfill projects currently being proposed in New Jersey.

The Auburn Road Associates case may or may not have merit, but it demonstrates the potentially severe consequences that professionals may suffer if they fail to do their homework in preparing plans for improvements that are intended to meet the stringent energy efficiency goals or other “green” objectives of the project owner.