Contemplating Solar?

For the past several years we have seen a wave of solar development in New York State. In the beginning, many school districts were approached about entering into payment in lieu of tax agreements (“PILOTs”) directly with the solar company. While solar development and PILOTs continue, developers have started to contact school districts with a new opportunity – net credit purchase agreements.

What is a Net Credit Purchase Agreement?

Net credit purchase agreements involve the purchase of renewable energy credits to support local solar projects. An energy credit is typically expressed in the form of a discount rate. The purchaser buys the credit at the discounted rate, then that credit is applied to a subsequent energy bill. By way of example, if the discount rate is ten percent, the purchaser would buy $100 worth of credits for $90 dollars. That $100 of value is then applied to the purchaser’s energy bill. Put another way, it is similar to buying a gift card at a discounted rate; i.e. purchase a gift in the amount of $50 yet paying $45.

Who Can Participate?

You may have received a notice in the mail at your personal residence advising you of community solar project in the area. Unlike traditional solar, where a solar array is installed on your roof or property, community solar is installed at an offsite location. Individuals may then subscribe to the project and receive credits on their regular energy bills. In addition to community residents subscribing to the energy credits, commercial businesses and other non-residential entities may serve as what is known as an anchor tenant. The anchor tenants do not house the solar project, but instead act as the large-scale purchaser of credits. Each project may have up to forty percent of the solar credits purchased by a nonresidential entity, such as a commercial business, town, or school district. These non-residential entities are considered the anchor tenants.

School districts are considered to be ideal anchor tenants due to their stability and high credit rating. As an anchor tenant, a school district would commit to purchase a certain quantity of renewable credits to apply to its energy bills. Although there are some parameters involving the location of the solar project from which a school district would purchase credits, there is no requirement for solar project to be adjacent to the school district’s property or even in the same town.

Solar developers are touting this opportunity as a maintenance-free option to benefit from solar. By comparison to the purchase of solar panels, there are no upfront costs, ongoing maintenance issues or concerns related to changes in technology. That being said, our firm does not advocate for or against entering into such agreements.

Legal Considerations

Most importantly, although a solar developer may tell you otherwise, you cannot simply have your Board approve an agreement. There are multiple considerations when making this decision, from legal requirements to school district current energy usage and contemplated future usage.

NYSERDA has confirmed that solar energy credits are considered a commodity and are subject to competitive bidding requirements. There are also restrictions surrounding the length of the agreement. Additionally, school districts should consider that any agreement for the purchase of credits should be tailored to the district’s specific needs. As such, plans surrounding future energy performance projects, building expansions, and projected student enrollment are other factors which should be analyzed.

If you are approached by a solar company, or you are interested in pursuing an opportunity, we recommend you consider the factors we identified above and contact our office.