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New Nevada law makes solar leasing possible

November 2, 2009


A new Nevada law, Assembly Bill 186, which went into effect on Oct. 1, makes it legal for a company to enter into a power purchase agreement without being considered as a utility. This allows third-party providers to install, own and operate a renewable energy system such as solar on a home or facility and lease the system to the property owner without being subject to the same regulations as a utility.
On the surface, the law is a “pretty simple piece of legislation” that’s more akin to a tweaking of the rules, said renewable energy lobbyist Tom Clark. But that simple tweak has potentially big implications and could especially provide a boost to Nevada’s solar industry.
“There are huge benefits from an economic perspective and a jobs perspective,” Clark said. “Nevada is in a footrace with other Western states in trying to invite renewable companies. This law, along with other laws that provide incentives for renewable energy, sends a message that Nevada is the place to be when it comes to doing things related to renewable energy.”
At the heart of AB 186 is a clarification about “third-party ownership” and the leasing of renewable energy systems.  Before AB 186, groups such as NV Energy contended that state law required companies that wanted to lease renewable systems such as solar panels to become public utilities.  The classification was a big barrier for businesses that simply wanted to provide the leases and clearly didn’t have the resources nor the desire to become utilities.  Utilities also are more tightly regulated than regular companies, so simply being classified as a utility meant rate changes by a third-party company would be subject to investigation by regulators. Meanwhile, legal staff at the Public Utilities Commission of Nevada pointed out that state law at the time made third-party ownership illegal.
“There were questions about the legality of third-party ownership,” said Rebecca Wagner, PUC commissioner. “So, the new law basically says that if you are a company that provides third-party ownership (for renewable energy systems), you are not classified as a utility and aren’t subject to the same type of regulation.”
The new law technically applies to all renewable energy systems. But given how third-partly leases typically are used, one green sector specifically stands to benefit from AB 186. The usual application is for solar,” Clark said. “I really haven’t seen the third-party system used for things like biothermal and biomass. Wind also is much less predictable than solar, and it would take a pretty good-sized wind turbine to generate the same kind of energy.”
The typical application for a third-party renewable system involves installing solar panels on top of buildings. This makes the program ideal for buildings with plenty of real estate on their roofs. Schools, for example, have eyed solar energy for quite some time. But the high up-front cost for installing solar panels have made them financially unfeasible for cash-strapped school districts.
In the third-party system, a company comes in and shoulders the cost for the installation instead of the school. The company then makes an agreement with the school to lease the solar system either though a low initial rate that slowly escalates over time or a higher flat rate set for a certain number of years.
The leasing system especially is attractive for public entities for several reasons.  One is indirect access to federal tax credits for renewables, said Jason Geddes, environmental services administrator for the city of Reno. Although public entities typically are not eligible for such credits, third-party companies are, and they can pass the savings from lower project costs to their clients.  Another is pricing stability. The city of Reno now is paying about 12 cents per kilowatt hour for its electricity through the utility company. Facilities that switch to a third-party lease, on the other hand, can get a fixed rate of 15 cents per kilowatt hour that can be locked for 20 years. Although a bit higher, the fixed system is more cost-effective in the long run and protects the client from spikes in energy costs.
Another advantage from the new law is that it allows for bigger renewable projects. The solar project at the downtown parking lot on First and Sierra streets, for example, was created with the help of energy rebates from NV Energy and stimulus dollars. But the rebate program is capped at 30 kilowatts of solar, limiting it to smaller projects, Geddes said.  The cap means the city can’t use the rebate program for something like the planned renewable energy project for its wastewater plant, which is rated at 1 megawatt of solar. But the city can still do that project through a third-party leasing program. In fact, the city’s next round of renewable projects are highly dependent on lease purchases, Geddes said.
Some third-party programs also have lease-to-own options, which gives cash-strapped public and private entities greater financial flexibility. By adding an option for early buyouts, for example, cities can pay for the whole system earlier in case the economy rebounds and they get a budget turnaround, Geddes said.  Application of lease programs isn’t limited to large projects either. The legislature also recently allowed municipalities to create loan programs via private financing or bonds, which citizens can then use to install solar and wind systems in their homes, he said. Cities also are allowed to attach program payments to the property tax, making it OK for residents to sell their homes and have the new owner continue payments.
NV Energy also applauded the increased focus on renewables, including the passage of AB 186. According to spokesperson Faye Andersen, having more customers taking advantage of green energy benefits the company because it has to purchase and produce less energy, and lessens the need to build new power generation stations.
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