In Part One of our series on examining solar rooftop leasing in an interview with Brent O’ Connor, IR/PR Director, and Tom Casagrande, Director of Business Development for Atlantic Wind & Solar Inc., we touched on the initial planning and consulting stages. In Part Two, we explored the different options available and talk to AWS a bit more about planning out your rooftop solar project. Here, we explore the issues surrounding timing, negotiating the right deal and finding the right solar partner to suite your needs.
MC: What have typical stalling points been on deals, and how can landlords protect themselves ?
AWS: Some of the most common stalling points today that landlords can help protect themselves against may be attributed to solar developers capability to proceed with the development of the rooftop solar power system without delay. Landlords should not sign any agreements which would allow the developer a “prolonged” amount of time before the project is required to move forward. Delayed construction will mean delayed payments to landlords, and if the developer is given too much lead time, the project may be put on the back burner. In some cases, developers may not have any intention to ever bring the project into fruition, but rather have the intention of selling the contract to another developer, while it is in its pre or post construction stage.
Landlords can protect themselves from many adverse scenarios, by making sure there are deadlines mandated in the initial agreement. A reputable developer will protect the landlord from similar scenarios as much as they protect themselves.
For example, some landlords in Ontario who have already signed contracts to lease their rooftops are now finding out that their developers are not moving forward due to lack of financing and/or other bankability issues. Because some have locked themselves in for as long as two or three years, before being able to move forward with another “more capable” developer, they may have prevented themselves from ever participating in the program. Many of these landlords and developers have been coming to us, looking for solutions.
It’s all about being fair and moving forward quickly, after all, none of us know how long the OPA will be offering this program. A one year commitment between the landlord and developer should be enough time.
Any solar development company out there is only as reliable as their partners. As emphasized, we’ve taken a lot of time to choose our partners wisely; insurance companies, structural engineers, financiers, and other top professionals in the field, ensuring for a reliable, on schedule, turnkey solution with minimal risk to all parties. It is our intention of being involved in the project throughout the full twenty year term, therefore we believe this model is critical.
Some developers should really be representing themselves as a sales channel – owning contracts only in the beginning and getting out of them before or soon after construction is completed. If this is the case, landlords will not know who they will end up being partnered with, which could leave even more room for error. They should be referred to as builders or integrators as opposed to tenants, partners or long term developers. Determine if the solar company’s model is based upon a construction model or a long term financial platform. Determine what the developers long term objectives are. Are they in this business to build and sell projects or to build projects with the intentions of selling power over the next 20+ years ? Decide what type of partner would likely protect your best interests for the long haul.
Landlords also need to remember, installing systems of this magnitude will never be easy and will always succumb to other contingencies unless the entire project is managed properly from the start. It all starts with the foundation and doing things right. It is definitely not always the fast way, but has proven to be the sure way.
This is a new industry, therefore until recently there has been a lack of information available to landlords who want to educate themselves. The market is starting to understand as local projects advance and as more information becomes readily available. Do your homework. We seek educated landlords who recognize the importance of having the right long term partner.
Also keep in mind, there is a back log in the Ontario Power Authority offices which reportedly can also cause unexpected delays. Although the system may seem slow, they are doing one hell of a job in this new sector.
MC: What are the cost outlays and benefits to the landlord?
This is another way of leveraging their property to its maximum potential.
Some systems may cost more than others, but this is about maximizing IRR’s (Internal Rate of Return).
For straight leases, we pay the same rate no matter where in the province the real estate is located, even where the real estate market is not hot.
Cost and Return
Surprisingly, developers who plan on selling the projects are not generally interested in spending more on higher quality materials (which minimize risk) even if it means the project will generate significantly higher returns over the long term, because they believe it will not add any additional value to the immediate sale of the project. Compare the scenario to a builder who builds a home for resale, as opposed to one he builds for his own family to reside in for the next 20 years.
It’s hard to justify additional costs when they don’t plan on owning it. To date, this new market does not distinguish between the varying classes of projects, but we believe this thinking will change as projects begin to age, and as fund managers who purchase these projects realize that their level of risk can be significantly reduced. We also believe that as landlords educate themselves, they will demand our model.
Logically, the cost of the system solar developers choose to install and the steps they take to minimize risk may be an indication of their true long terms plans. However, financing significantly more expensive systems may become another hurdle many developers may not be able to overcome.
In joint venture scenarios, costs to landlords are contingent on what percentage of ownership they hold in the JV, and will also be effected by the overall quality of the system . But as previously outlined, the amount of funding landlords are personally responsible to contribute can be significantly offset if an upfront lease payment can be reinvested. Or, if it remains a lease agreement, a fixed rate of revenues up front or over next twenty years is paid.
The rooftop program focuses on a model called distributed generation. This entails generating the power closest to areas where it is consumed. When ground mount solar farms go above a certain size there is often an issue with transmission, especially in rural areas. A significant amount of electricity is unnecessarily lost during transmission over long distances… distributed generation minimizes that lost energy while simultaneously minimizing other grid connection and transmission issues.
Throughout this article we talked about planning, and how important it is to make sure that you pick the right company to let on your commercial rooftops to for the purposes of generating power. The greatest advantage of leasing your rooftop is, in the end, a healthy addition to the bottom line either all in one shot, or throughout the span of the project. All options may be attractive to any landlord, from a new building owner looking for a long-term partner, to a building owner who is considering selling his building but wants to add value to it before doing so.
Let’s not forget that in the end, solar power doesn’t just help our bottom lines, but the environment as well. After all, this is one of the main reasons the government program was put into effect. The more we can install in the way of renewable energy, the more planet will be left for the next generation to enjoy.