Ask the Lawyer

David A. Weinstein is a Moorestown resident and partner with Archer & Greiner in Haddonfield, where he focuses on alternative energy development and financing as well as pubic financing and redevelopment projects. He can be reached at dweinstein@archerlaw.com.

Q. Lately, I have read and heard reports that solar panel installation for homes and small businesses may not be cost-effective. Though I am interested in helping the environment, I also want to save money on energy costs. Is solar still a good idea?   

Solar can still be a good investment, if your approach is for long-term benefits and not a short-term return on investment. Over the past several years, business owners and homeowners alike were able to install solar panels with the enticement of a full return on their investment in under three years. This was due to very high prices for SRECs—Solar Renewable Energy Certificates—purchased mainly by electric utilities to meet New Jersey’s aggressive alternative energy requirements, coupled with a federal grant available under the American Reinvestment and Recovery Act (ARRA), which provided for a cash grant for up to 30 percent of installation costs for qualifying taxpayers. These incentives caused a massive influx of solar installations in New Jersey, driving the SREC prices down from a high of $650 to a current value of approximately $200. If a homeowner or business owner is looking to reduce overall electricity costs, a solar installation, coupled with energy conservation activities, is still an excellent way to aid the environment and provide energy savings.

Under current SREC market conditions, most solar installations will pay for themselves in seven to 10 years. The federal grant providing cash for 30 percent of the qualified energy facility costs, commonly known as the 1603 Grant, expires at the end of 2011, but 30 percent tax credits will continue until 2016. In addition, bonus depreciation up to 50 percent of the qualified energy facility cost can be taken by qualified taxpayers who have systems installed and operational before October 2012, reducing the early tax burden. With the current state and federal incentives, the owner of a solar facility can expect to enjoy the benefit of the solar electricity for up to 20 years, all the while paying little or nothing for the electricity produced and receiving SREC income for the first 15 years after the installation becomes operational.   

Q. What factors should I consider in deciding whether to install panels? Existing roof condition? Location? Amount of power usage?

As with any capital investment, there are additional costs and pitfalls which must be recognized and determined prior to moving forward with the project. Many solar installations are placed on the rooftops of buildings. It is important to review the structural integrity of the roof to support the additional weight of the solar panels, as well as to determine the condition of the roof. If the roof is close to the end of its life, it is often recommended the roof be replaced prior to the panels being installed. In addition, on flattop roofs it is important to review the warranty, as the penetrations may void the warranty on the roof. In addition, a roof with multiple air-conditioning condenser units or other obstructions may make it difficult to install the panels on the roof. Moreover, tall trees or other buildings shading the roof will reduce the panel efficiency, thereby reducing the effectiveness of the system or increasing the overall costs.  

Most operating businesses and homeowners are looking to offset their own electrical usage. In these instances, New Jersey law permits the solar facility to be sized to the average usage over the past 12-month period, or in the case of new construction, sized to the anticipated usage of the property. These systems are typically called “net-metered” or “behind-the-meter” facilities, because they are designed to offset the electrical usage of the system owner or user. In the winter months when the panels produce less electricity, the owner draws more electricity from their local utility provider—in our area PSE&G. In the summer, the panels produce more electricity, often more than the owner can use, so excess electricity is sent to the local utility provider and the owner receives a credit on their bill. The account is adjusted at the end of the 12-month period to reconcile any remaining credits or payments due.

Q. Do I need a lawyer to review the installation and power supply agreement?   

The installation of a solar facility is a large investment, and the use of an attorney should be considered to avoid the pitfalls of the transaction, and to confirm that the contractor you are hiring is on the up and up. There are multiple areas that must be considered when entering into a solar installation. There is the installation agreement itself, which is effectively a construction contract, as well as an interconnection agreement. Consideration must be given to the existing mortgage holder, as there are often restrictions or requirements which must be met prior to making large capital improvement or expenditures. In many instances where the business owner does not desire to use their own credit to purchase the solar facility, the parties will enter into a Power Purchase Agreement (PPA). In such arrangements the property owner will lease or license a portion of their building, usually the roof, or surrounding property to the power provider under the PPA, the property owner will receive the electricity produced from the solar facility, but does not own the system. In these transactions there are additional complexities which must be reviewed. In addition, there are financing documents which often need to be reviewed, as well as SREC purchase contracts. There are many times where the simplest of installations can cause massive concerns and problems due to the failure to review the documentation being executed or the review of existing obligations of the business or homeowner.

Q. How long do panels last, and what happens when they wear out?

Panel technology is getting better and less expensive all the time. A typical solar panel today can last 25 years, and in some instances longer. Most solar panels become less efficient over time, as such the amount of electricity a system is able to produce will decline as well over time. While solar panels require very little maintenance, panels do break and replacement of the panels is sometime necessary. It is recommended a warranty be obtained on the panels from the installer and the manufacturer for at least the term of the anticipated financing.

DISCLAIMER: Information provided in “Ask the Lawyer” is for general informational and educational purposes only. It does not constitute legal advice, and may not be used and relied upon as a substitute for legal advice regarding a specific legal issue or problem. Transmission of the information is not intended to create, and receipt does not constitute, a lawyer-client relationship. Legal advice should be obtained from a qualified attorney licensed to practice in the jurisdiction where that legal advice is sought.