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)

 

It is important to note that New Jersey statutory law, specifically, the Planned Real Estate Development Full Disclosure Act ("PREDFDA"), N.J.S.A. 45:22A-48.2,  lays out very specific guidelines governing the installation of solar panels in common interest communities. 
 

According to the Statute, the extent to which an Association can regulate the installation of solar panels largely depends upon the type of housing unit involved and the way “roofs” are defined in the Association’s governing documents. Overall, a prohibition against solar panels is permitted in communities where the unit roofs are considered “common elements.” Conversely, solar panels cannot be prohibited in communities with single family homes or communities where the unit owners are responsible for the roofs.  However, the law provides that Associations which are required to allow solar panels may also adopt rules and regulations governing their installation.
 

In particular, the Statute provides that an Association can adopt rules governing the following items:

1. The qualifications, certification and insurance requirements of personnel or contractors who may install the solar collectors;
2. The location where solar collectors may be placed on roofs;
3. The concealment of solar collectors' supportive structures, fixtures and piping;
4. The color harmonization of solar collectors with the colors of structures or landscaping in the development; and
5. The aggregate size or coverage or total number of solar collectors
    

If an Association decides to promulgate rules and regulations in this regard, the extent to which it may do so is limited.  The Statute states that an Association shall not adopt or enforce any rule if compliance would increase the solar panels’ installation or maintenance costs by an amount greater than 10 percent of the total cost of the initial installation, including costs of labor and equipment.  In addition, the Statute prohibits Associations from adopting or enforcing any rule which inhibits the solar panels from functioning at their intended maximum efficiency. Therefore, while an Association is given leverage to adopt certain rules and regulations, those rules and regulations must adhere to the specific guidelines expressed in the Statute. 
 

As a rule of thumb, if an Association is responsible for the roofs, it can ban solar panels.  However, if an owner is responsible for the roofs, the Association must allow solar panels, so long as the rules and regulations it has adopted are followed.  As always, it is advisable to have a professional draft or review any restrictions you intend to put into place to ensure your community’s compliance with the law.

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.

According to the FTC’s press release on the matter, the new Appliance Labeling Rule, for the first time, will require the label on the front of a light bulb package to “emphasize the bulbs’ brightness as measured in lumens,” rather than watts.  Watts measure energy use, not brightness, and without information on brightness the task of comparing light bulbs can be more difficult.  The example used by the FTC in its press release in stressing this point is instructive; that is “A compact fluorescent bulb may be able to produce the same amount of brightness as a traditional incandescent bulb, while using significantly less energy, or watts.”     As such, this change is meaningful and should improve a consumer’s ability to compare light bulbs.  The label on the front of a light bulb package must also contain the light bulb’s estimated annual energy cost, “expressed as ‘Estimated Energy Cost’ in dollars and based on usage of 3 hours per day and 11 cents ($0.11) per kWh.” 16 C.F.R. § 305.15(b)(1)(ii).

In addition to the regulatory changes for the front label on light bulb packages, the FTC’s new Appliance Labeling Rule, among other things, mandates the placement of a new “Lighting Facts” label either on the “side or rear display panel of the product package” that includes information about a light bulb’s output, estimated annual energy cost, life expectancy, correlated color temperature (i.e. whether the bulb produces warm or cool light), wattage, design voltage if other than 120 volts and a notice regarding mercury if the bulb contains mercury. 16 C.F.R. § 305.15(b)(3).  The Lighting Facts label may also contain an Energy Star logo for qualified products provided that the manufacturer shall have signed a Memorandum of Understanding with the U.S. Department of Energy or the Environmental Protection Agency that covers such products.  According to the FTC, this new Lighting Facts label was modeled after the “Nutrition Facts” label used on food packages.

The provisions of the new Appliance Labeling Rule discussed above shall become effective on July 19, 2011.

LOA also allegedly overstated the number of lumens that its light bulbs could produce and the number of hours that its light bulbs would last.
 

In addition to a permanent injunction, the FTC seeks rescission or reformation of contracts, restitution, refunds of monies paid and disgorgement of ill-gotten monies on behalf of consumers injured by LOA’s misrepresentations, as the court may award in its discretion, and costs of suit.

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.

State Law - New Jersey
In New Jersey, for example, false or deceptive advertising is broadly regulated through the Consumer Fraud Act (“CFA”).  Under the CFA, any [d]eception, fraud, false pretense, false promise, misrepresentation, or the knowing, concealment, suppression, or omission of any material fact with intent that others rely [thereupon] in connection with the sale or advertisement of any merchandise . . . whether or not any person has in fact been misled, deceived or damaged thereby, is declared to be an unlawful practice.”  The CFA grants to “any person” a private cause of action to redress violations of this act provided that such person has suffered an “ascertainable loss” and there is a causal relationship between such ascertainable loss and any unlawful practice prohibited by the CFA.  The State Attorney General is also authorized to enforce this statute.

State Law - California
In California, the State Legislature has seen fit to regulate directly green product marketing.  Specifically, the California Business and Professions Code makes it unlawful for any person to make any untruthful, deceptive, or misleading environmental marketing claim, whether explicit or implied[,]” and requires “any person” who utilizes certain terms in advertising, such as “ecologically friendly” or “environmentally sound” to maintain and to make available to the public upon request records and information relating to such representations.  Violations of these statutory requirements constitute a misdemeanor and are punishable by imprisonment for a term not to exceed six months or a fine not to exceed $2,500 or both.

The California Legislature has even gone so far as to prohibit describing plastic bags on their label as being “biodegradable,” “degradable” or “decomposable” or as being “compostable or “marine degradable,” except when “at the time of sale, the plastic bag meets the applicable . . . standard specification[.]”  Manufacturers and suppliers of plastic bags must produce evidence of compliance with these statutory requirements, which are set forth under the waste management provisions of the California Public Resources Code, within 90 days of a request for same.  Offenders of California’s plastic bag labeling law are subject to civil penalties.  It should be noted, as well, that during the last full week of August 2010, both houses of the California Legislature passed a bill (SB 1454), which essentially extends the said plastic bag labeling law to all plastic products.  It remains to be seen whether California’s Governor, Arnold Schwarzenegger, will sign Senate Bill 1454 into law.  If he does, advertising the green attributes of any plastic product in California will undoubtedly become more challenging.

Conclusion
The sampling of laws and guidelines that we have briefly summarized in Part I of our two-part series on the legal risks in green marketing, and here, shows the importance of planning out promotional strategies for green products.  This cannot be emphasized enough!  How one describes the environmental benefits of a good or service - deciding what data goes into an advertisement and what data gets left out - is often essential to the truth and veracity of a marketing claim and has the capacity to “make or break” a consumer’s purchasing decision.  Clearly, the way in which one goes about performing this task will become evermore important and will likely be subjected to tougher scrutiny by government, consumers and competitors.  Therefore, to avoid legal liability, businesses who produce or advertise a green product should seek counsel from a knowledgeable attorney before disseminating any advertising materials into the market.

Part I of this two-part series on the legal risks in green marketing treats two of the principal federal laws that require attention in devising a green marketing plan.  Part II, which will be posted next week, samples a few state laws that impact marketers of green products and services.
 

Federal Trade Commission Act - Green Guides
Section 5 of the Federal Trade Commission Act authorizes the FTC to regulate the advertising of goods and services.  Persons and corporate entities who engage in any unfair or deceptive acts or practices in their marketing activities are subject to disciplinary action, which may include injunctions, corrective advertising, restitution and/or civil fines of up to $16,000 for each violation.

In 1992, the FTC first issued its Guide for the Use of Environmental Marketing Claims, also known as the "Green Guides," for the purpose of assisting advertisers of products and services having environmental attributes to avoid making deceptive or untruthful marketing claims in violation of the FTC Act.  The Green Guides establish general principles that apply to all sales promotional activities and provide direction on particular environmental marketing claims.  Some "general principles" under the Green Guides include (1) the use of clear, conspicuous and understandable qualifications and disclosures in advertising, (2) the avoidance of overstatements relating to environmental attributes, especially ones created by implication, and (3) substantiation.  Direction on particular environmental marketing claims in the Green Guides relates to the use of terms connoting general environmental benefits, such as "eco-friendly," and representations on specific attributes, such as degradability, recycled content, and ozone safety and friendliness.

Although in years past, the FTC had not prosecuted very many companies for making false and unsubstantiated marketing claims relating to the alleged environmental attributes of their products, this has started to change.  For example, in 2009, the FTC brought seven enforcement actions over claims related to the biodegradability of certain paper products and claims related to the bamboo content of certain textile products and, early this year, the FTC issued written warnings to 78 retail operations, such as Bloomingdale’s, Bed Bath & Beyond and Sears, instructing them to refrain from labeling and advertising certain clothing items made from rayon as bamboo products.

The FTC’s stepped-up efforts to curb false, misleading or unfair green marketing claims, sometimes referred to as “greenwashing,” should give pause to every business that participates in the green economy and should encourage these firms to develop and update regularly a marketing plan that is compliant with the Green Guides.  In this regard, there is no better time than the present, as this task is likely to become even more challenging once the FTC amends and supplements its Green Guides, which is expected to occur at the end of this summer.  Indeed, in a recent article published online by Advertising Age, the author predicts that these new Green Guides could “radically reshape” what marketers may say about the green goods and services they sell and includes comments about how the new Green Guides may even “render most of the more than 300 environmental seals of approval now in currency on packaging and products largely useless and possibly in violation of FTC standards.”  If this speculation turns out to be true, advertisers of green products and services will likely have no choice but to rethink their marketing strategies.

Lanham Act
Moreover, the FTC is not the only watchdog to be concerned about.  On the contrary, commercial competitors may file a private lawsuit for false advertising under Section 43(a) of the Lanham Act.  This statutory provision and Section 5 of the FTC Act are similar in that they both contain broad generic standards of "misrepresentation" and "deceptiveness."  Businesses have already utilized Section 43(a) of the Lanham Act to challenge the validity of their rivals’ green marketing claims and will likely continue to do so, making this statutory cause of action a powerful tool against greenwashing.

Conclusion
The foregoing demonstrates some of the legal pitfalls at the federal level that manufacturers, producers, suppliers and advertisers of green goods and services may encounter and must consider when devising a marketing plan for product packaging, labels or promotional literature.  Potential liability is also significant at the state level.  Stay tuned for Part II of this series, which will feature a discussion of selected state consumer protection and specific green marketing laws.