Considerations for entering into a Solar Power Agreement

Introduction

As the adoption of solar energy continues to grow, many individuals and businesses are considering entering into solar agreements to harness the benefits of renewable energy. However, before committing to such an arrangement, it is crucial to evaluate various financial and legal aspects. The current trend seems to favour leasing arrangements for retail consumers but many property owners including property funds, retailers etc have preferred to invest in their own systems.

In this article, we will discuss key considerations that one should keep in mind when entering into a leasing arrangement, including the reputation of the company, equipment quality, electricity production estimates, fees, consumer protection rights , installation, system performance, insurance, maintenance, termination, and dispute mechanisms (but many of these aspects are also important when purchasing a solar system.).

1. Reputation and Track Record

One of the first considerations before evaluating the lease agreement is the reputation and track record of the company providing the system (“provider”) . It is essential to ensure that the provider has a long-standing presence in the industry and a positive history of delivering reliable solar solutions.

To ensure a smooth experience, it is advisable to research the providers's reputation and service delivery history. Checking online reviews and seeking recommendations from other clients can provide valuable insights into the company's reliability and customer satisfaction.

Expertise is essential, some key questions to ask:

1. Do you have an engineer/engineers on your team. Are they electrical, civil, structural engineers? (Some buildings may also require a structural engineer to be sure the structure is suitable for solar panels and there may also be waterproofing concerns to address)
2. Are you a member of SAPVIA or do you participate in the SAPVIA Green Card Programme.
3. Would you be able to send us some contactable references in particular for the installation business?

2. Equipment Quality and Guarantees

The quality of the solar equipment is another important factor to consider. It is recommended to enquire about the type of equipment being used (panels, batteries and inverter) and whether it comes with substantial guarantees. It’s important to consider only solar systems from reputable manufacturers due to concerns about parts availability, although cost considerations should also be weighed.

3. Electricity Production Estimates

Before committing to an agreement, it is crucial to determine if the area where the solar panels will be installed can supply enough electricity to make a measurable difference. The provider should provide calculations indicating the estimated electricity production based on the supplied equipment. Additionally, it is important to assess whether there will be an excess of supply and if it would be financially viable to purchase the system for revenue generation.

5. Fee Structure

Understanding the fee structure associated with the solar agreement is crucial for making an informed decision. In addition to installation and monthly fees, there may be additional charges, such as de-installation fees and callout fees. Most importantly, where one is hiring a solar system (rather than buying it) the ownership of the system remains with the Provider while the clients are often asked to fully insure the system for the benefit of the Provider which is an additional cost to take into consideration. Some agreements emphasize the importance of metering, fee payments, credits, rebates, and net metering, all of which should be thoroughly understood to ensure a fair and transparent arrangement.

Evaluating whether the solar power system can offset the costs, especially the installation and monthly fees and annual escalations, is essential.

6. Escalation Fees

While an annual CPI escalation may seem minor at first glance, it is important to consider its implications relative to the depreciation of the equipment's value over time. As the solar system ages, its performance and efficiency may decrease, and its overall value may depreciate. In such cases, the incremental increase in fees due to annual escalation may not be justified by the actual performance or value of the system. If the system's performance does not meet expectations or fails to generate the anticipated savings, the escalating fees may outweigh the benefits, making the contract financially burdensome.

7. Termination provisions

Termination provisions in agreements, particularly those related to automatic rollovers and excessive cancellation fees, can be a matter of concern for customers in the lease agreements. It’s important to ensure that consumers are not subjected to unreasonable or disproportionate fees and penalties.

Contract terms that grant providers excessive rights, such as claiming the full outstanding contract fee for the remaining term in the event of termination for any reason, including material breach, may be deemed unfair and unenforceable in court but its best to negotiate a fair agreement to begin with.

Courts consider various factors when assessing the fairness of contract terms, such as the bargaining power between the parties, the clarity and prominence of the terms, and whether the terms create a significant imbalance in the parties' rights and obligations.

If you are concerned about termination provisions in a solar system agreement or any other contract, consulting with legal professionals can provide guidance on your rights and options for addressing unfair terms or excessive fees.

8. Maintenance

Request details of the ongoing maintenance and support for the system, these agreements run for years and there should be detail in the agreement.

9. Consumer Protection

The Consumer Protection Act may provide protection through cooling off periods and where one has bought the system, rights to return defective products etc.

10. Installation Considerations

The installation of a solar system should be carefully assessed. Ensure that the premises are suitable for installation and that the seller has thoroughly evaluated the site. Some of the key questions to consider: quality and duration of sunlight, can solar panels remain installed in adverse weather conditions , structure of building, safety and security (very expensive equipment which may require sufficient protection against theft and insurance), waterproofing etc.

If there any concerns arise regarding the suitability of the installation, it is crucial not to proceed until the issues are resolved and engaging an independent engineer for electrical, structural and/or waterproofing issues, is recommended.

11. Solar System Performance

The solar agreement may include clauses that absolve the provider of responsibility for reduced performance of the solar system. Factors such as shade cast over the solar panels, weather conditions, damage or degradation of the panels, and non-compliance with operating guidelines may affect system performance. Timely notification to the provider of damage or potential degradation is thus important.

12. Battery Output

If the solar agreement includes battery storage, it is important to inquire about the battery's expected lifespan and whether the provider provides any guarantees from their supplier. Understanding the frequency of battery replacements and associated costs can help determine the long-term financial viability of the system.

13. Guarantees, Warranties and Indemnities

Review the solar agreement carefully to determine the guarantees and warranties provided by the provider and any indemnification provisions and limitations of liability in favour of the supplier. Force majeure events and their consequences should be considered.

While variations in solar system performance are expected, the agreement should address significant deviations from the estimated performance.

It is disappointing to note that certain provider’s agreements do not offer any performance guarantees for their solar system, and it may be advisable to explore alternative options. Look to see whether equipment warranties have been included or the customer receives guaranteed coverage for various system components.

14. Insurance Considerations

Both the customer and the provider should maintain the necessary insurance coverage. In the leasing scenario the customer will probably also be expected to obtain and keep paying insurance for the system over the lifetime of the agreement (an additional monthly cost to note).

The agreements generally highlight the customer's responsibilities for maintaining and protecting the premises, while the provider has obligations related to system maintenance, operations, and shutdowns. Adequate insurance coverage for both the premises and the solar system is thus crucial to mitigate potential risks and damages. The customer should be aware of their obligations, including securing the solar system and adhering to maintenance requirements to prevent theft or damage.

Conclusion

In conclusion, before entering into a solar agreement, it is crucial to carefully consider a whole host of technical, financial and legal aspects to ensure a smooth and beneficial arrangement. Evaluating the reputation and track record of the provider is essential, as it reflects their reliability and experience in the industry. Additionally, examining the equipment and guarantees provided by the provider is important, with considerations such as parts availability and costs. Calculating the potential electricity output in the designated area and assessing its profitability is crucial, as it determines the worthiness of investing in the system for revenue generation.

Understanding the various fees associated with installation, monthly charges, insurance costs and potential additional costs is essential, as these can significantly impact the overall financial viability of the solar power system. It is crucial to thoroughly evaluate and understand the potential impact of annual escalation provisions in relation to the system's performance and value. Assessing whether the system's performance is sufficient to cover the increasing annual fees becomes essential. If the system's performance does not meet expectations or fails to generate the anticipated savings, the escalating fees may outweigh the benefits, making the contract financially burdensome. The availability of sufficient remedies under the Consumer Protection Act, including the cooling-off period, should also be taken into account.

Termination clauses, ownership rights, and the option to purchase the system should be carefully reviewed to understand the flexibility and potential costs associated with ending the agreement. The seller's right to suspend performance and disconnect the solar system in case of non-payment is concerning, and it is important to seek clarity on notice periods and payment terms.

Factors such as space, storage, and installation should be carefully considered, particularly in regions prone to theft. Ensuring that the solar system meets the specifications outlined in the agreement and accurately reflects the customer's electricity consumption is vital. The integration and commissioning of the system, along with compliance with tariff and meter requirements, should be closely monitored to avoid any potential issues.

When entering into a solar system agreement or any long-term contract for that matter, it is recommended to carefully review the terms and consider seeking professional advice, such as consulting with legal professionals . They can help you understand the implications of provisions, assess the fairness and reasonableness of the contract terms, and determine if they align with your specific circumstances and expectations and the actual performance of the system.