Leasing of Solar Energy Equipment

Tax Benefits

For federal income tax purposes, the owner and original user of solar equipment is entitled to an energy tax credit equal to 30% of the taxpayer's basis in the property in the year the property is placed in service under '48 and related sections of the code. Special rules limit the availability of the investment credit to non-corporate lessors. The investment tax credit is a direct reduction of tax liability but may not be used as a credit against alternative minimum taxes. A special rule provides that solar property may be sold and leased back within three months after it is placed in service and be eligible for the tax credit in the hands of the purchaser. The taxpayer's basis in the property for both the solar tax credit and depreciation is generally the purchase price, which may include hard and soft costs, such as installation costs, and in most transactions will be supported by an appraisal.

The 30% solar energy tax credit is available for: 1) equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat (but excluding property used to heat swimming pools) or 2) equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Certain types of property are not eligible for the solar credit, including property constituting 'public utility property,' property used predominantly outside of the United States, and property used by (including leases to) tax-exempt entities (unless the property is used in an unrelated trade or business). As a result of these special eligibility rules, solar projects involving public utilities or tax-exempt entities such as school districts or municipalities are structured using power purchase agreements rather than leases.

The tax credit is recaptured in whole or in part if the property is disposed of by the taxpayer, including by reason of a sale, condemnation, abandonment or casualty, or otherwise ceases to be qualified property prior to the fifth anniversary of the date the property is placed in service by the taxpayer. Each year the property is owned by the taxpayer, 20% of the credit is earned and not subject to recapture. For example, if the property is sold after it is owned three full years but prior to the fourth anniversary of being placed in service, 60% of the credit would be vested and 40% of the credit would be recaptured.

It should be noted that the solar energy credit at the current 30% rate, with some exceptions, may not be claimed for property placed in service after Dec. 31, 2008, but Congress is considering various proposals to extend this date. There are considerable lobbying efforts to provide for a long-term extension rather than year-to-year extensions that have occurred in the past in order to facilitate long-term investment decisions. There are also legislative proposals to make the credit available for 'public utility property' and to allow the solar tax credit to be used as a credit against alternative minimum taxes.

For depreciation purposes, solar equipment is eligible for five-year MACRS deductions. For property placed in service in 2008, the taxpayer is entitled to a 'bonus' depreciation deduction equal to 50% of the taxpayer's basis in the property (with the remaining 50% of basis recovered under the normal five-year MACRS rules), subject to certain transition rules. The tax basis of the property is reduced by 50% of the solar energy tax credit, so that depreciation is taken with respect to 85% of the taxpayer's basis in the property.

If the investor's purchase is leveraged with debt, the investor may also claim interest deductions. The impact of leverage on the structure must be carefully considered, including its impact on the overall profit or economics of the transaction, its possible inclusion in income in connection with a foreclosure, and its impact on the accounting treatment of the transaction. In addition, special rules relating to property financed by subsidized energy financing and industrial development bonds may limit the amount of the solar tax credit available to the owner.

As is apparent from the foregoing, the generous, accelerated tax benefits available with respect to qualified solar property provide a very dramatic incentive for investment. An investor in solar equipment quickly recovers its investment through tax savings, wholly apart from the numerous economic incentives provided by many state and local jurisdictions.

It should be noted that solar equipment is increasingly being used for residential property. However, an individual homeowner cannot take advantage of the same tax benefits associated with ownership of the solar equipment. The homeowner is limited to a tax credit of $2,000 and would not be entitled to claim any depreciation deductions. To avoid the loss of tax benefits, programs are being developed to have the residential solar equipment owned by institutional investors and leased to homeowners.

State and Local Incentives

There are numerous types of state and local tax and other economic incentives for solar investments. These include grants, utility mandated rebates, state and local tax credits, exemptions, and operating subsidies. As a general proposition, if such incentives are includible in the taxable income of the owner of the solar equipment, they should not affect the availability of the federal solar tax credit. However, any such incentives that do not constitute taxable income may reduce the owner's tax basis used to calculate the amount of the federal solar tax credit. A description of these incentives is beyond the scope of this article.

Structuring the Lease

The tax owner/investor may acquire ownership of solar property through a direct purchase from a manufacturer or installer of the property or through a sale-leaseback transaction with the residential or commercial owner/user. Moreover, the nature of the solar project or system can have an impact on the structure. Projects can range from large commercial concentrating solar and photovoltaic installations that cost multiple millions of dollars to small residential solar systems costing $30,000-$40,000. To accommodate an economy of scale, particularly with respect to residential properties, transactions are being structured whereby the institutional tax investor will purchase multiple solar systems meeting pre-set criteria from a developer, builder, or installer for lease to various commercial and/or individual (consumer) users. Care must be given to ensure that each system is purchased before it is placed in service.

Regardless of the size of the individual project or program, certain tax criteria apply to the structuring of any lease transaction. To be eligible for tax benefits, the investor must acquire the burdens and benefits of ownership of the solar equipment and not dispose of such ownership pursuant to the terms of the lease. That is, if the lease constitutes a conditional sale for tax purposes, the nominal owner will not be entitled to claim any of the tax benefits of ownership.

The Internal Revenue Service (the 'Service') has issued Revenue Procedure 2001-28, which sets forth the criteria for issuing a ruling that a lease is a 'true lease' for income tax purposes (the 'leasing guidelines'). Although the revenue procedure sets forth ruling guidelines and not substantive law, many of the criteria are based on factors used by the courts in characterizing leases for income tax purposes and are reflected in the constraints discussed below.

The primary constraint imposed by most tax practitioners in structuring a lease is that the term of the lease may not extend beyond the lesser of: 1) 80% of the estimated useful life of the property or 2) the point in time that the estimated fair market value of the property (without taking into account any inflation or deflation) is less than 20% of the cost of the property (the 'residual value'). In the case of solar equipment, the limiting constraint on the lease term is usually the estimated residual value rather than useful life. In applying this test, renewal options for rents other than fair rental rates determined at the time are considered as part of the lease term.

While not permitted by the leasing guidelines, one or more fixed price purchase options are often found in leases. In institutional leveraged leases, market custom has limited such options to a single 'early buy-out option' at a fixed date prior to the end of the base lease term and/or a fixed price option at the end of the lease term. Fair market value purchase options are also commonly found at the end of the base lease term or any renewal term. Lessees commonly seek to maximize the number of purchase options and often prefer fixed price options. It is often tax rather than commercial considerations that limit the number of options granted in lease transactions. It should also be noted that in certain transactions involving power purchase agreements rather than leases, a fixed price purchase option raises concerns as to reclassification of the power purchase agreement as a lease rather than as a service contract. In the case of leases to individual residential owners, federal consumer protection laws do not permit fair market value purchase options; only fixed price options are permitted.

Another issue applicable to all leases is the concept of limited use property and the related issue of establishing the minimum 20% residual value referred to above. The leasing guidelines provide that the leased property may not be of a character that it is only useable by the lessee. Accordingly, it must be established that upon default or termination of the lease, the property can be used by the lessor or another lessee. The lessor must be able either: 1) to use the property in place, and have all of the legal rights to use it in place (as well as the ability to sell the output (in this case, electricity) to parties other than the lessee) or 2) to dismantle, move, re-install and use the property at a different location on an economic basis. The magnitude of the cost and which party bears it must also be factored into the true lease and residual value analysis. In the case of solar equipment, the nature of the particular solar system dictates which approach is most feasible. The well-reasoned opinion of a reputable appraiser is critical for an investor to get comfort on these issues. In transactions involving the aggregation of many individual solar systems, there may be an appraisal of a representative system that can be used to support each system being financed in the transaction.

In leases involving total rents of more than $250,000, the rent accrual rules of '467 of the code would apply. These rules govern the accrual of rental income and expense and provide certain safe harbors that must be satisfied to give the lessor and the lessee assurance that the rent accrual in the lease will be respected for federal income tax purposes. The application of these rules can be challenging in a solar lease transaction if the revenue stream produced by the solar equipment is very uneven, as in the case of upfront governmental or utility rebates which may be required to be passed through to the property owner in the form of rent.

It should also be noted in passing that a solar lease transaction, as well as any other transaction with significant tax benefits, is subject to scrutiny under the economic substance and related doctrines. The Service may challenge the tax treatment of a transaction if it finds that the taxpayer had no business purpose other than obtaining tax benefits and there is no reasonable possibility of a profit from the transaction. Application of this doctrine to any transaction is complex and evolving. In the context of solar transactions, due at least in part to the stated Congressional intent to encourage investment in solar property that may not be economic without tax incentives, most investors and practitioners have become comfortable with this issue.

Commercial Issues

An important structural issue in any lease transaction is the creditworthiness of the lessee that stands behind the hell or high water obligation to pay the rent.

Investors in traditional large-ticket leveraged and single-investor leases rely on credit of the lessee as well as the collateral value of the equipment in evaluating a potential investment. Unlike many project finance structures, the obligations under the lease, including indemnities, are recourse obligations of the lessee, making the lessee's credit standing an important consideration. If the lessee is a special purpose entity with no guaranty from a creditworthy entity, credit issues will be presented similar to those in a project finance transaction. In some transactions, such as programs involving multiple lessees, such as pooled residential or commercial programs described above, the credit risk may be mitigated by spreading it over multiple lessees. As in most project financings, credit may be provided by the collateral assignment of an offtake agreement and lockbox arrangements with the purchaser of the electricity. In such circumstances, the terms of this agreement (the level of purchase commitment, pricing, the timing of cash flows, and the allocation of risks, including technology risk) are critical to the financeablity of the project.

If the use of the equipment beyond the end of the lease term is expected to be in place (i.e., the premises of the lessee), special commercial issues arise. This may be the case where it is not feasible to move the equipment, as in the case of some large projects, or the maximum value of the equipment can only be realized in place. In such circumstances, the owner/lessor must have the right of occupancy, at the outset of the lease, to use the equipment in place at the expiration or early termination of the lease, including by reason of default. Rights required by the lessor include rights of ingress and egress for persons, equipment, and utilities which may be achieved through easements or ground leases. Also the lessor will require an assignment of all relevant contracts and permits, including interconnect rights, power purchase arrangements, and maintenance and operating agreements, in addition to any manufacturers warranties that are assigned as a matter of course.

It should be noted that most solar leasing transactions may also entail numerous collateral documents which are in place during the lease, such as landlord consents and mortgagee waivers. In addition, most finance leases are triple-net, where the lessee assumes all costs associated with operation of the equipment, including maintenance, insurance, and taxes. In the case of residential leases, or commercial leases to end users not knowledgeable with respect to the solar equipment, there may be a particular need for a maintenance and operating arrangement with the manufacturer, installer, or some other party. Such arrangements can be structured through third-party contracts with the lessee, with the lease remaining triple-net, or through the lessor with the lessor undertaking such duties to the lessee and the cost being passed through. In either case, the investor lessor must be comfortable that such maintenance can be performed competently and at a price that the lessee can ultimately bear.

The issue of subleasing may also be important in a solar leasing transaction. Solar leases are generally site specific. Consequently, in the case of photovoltaic solar, the right of the lessee (which is usually the site user) to sublease the equipment is not usually a consideration. However, if the lessee decides to vacate the site (e.g., the residential lessee sells or leases his or her home or a commercial user sells, subleases, or vacates its site), then the lease needs to address all of these possibilities. A sublease of a site to a new user may imply a sublease of the solar equipment (with rights and obligations in respect of the solar lease, in effect, running with the site). This scenario raises the obvious issues of credit and security. Alternatively, the sale or vacating of the site may constitute a default or early termination of the solar lease, triggering a lessee obligation to pay for the cost of removal and damages if the panel solar equipment cannot be redeployed. In the case of larger-scale solar projects, the entire facility can be sublet, and terms and conditions thereof would typically fall in the range of sublet rights for any stationary power project.

Conclusion

Solar leasing offers environmentally beneficial and highly tax-advantaged investment opportunities for traditional institutional investors in plant, equipment, and power generation assets. Leasing offers a well-tested structure for investment. Asset valuation, credit analysis, accounting treatment, and other commercial concerns, however, present familiar issues for the investor's consideration.

For traditional institutional equity investors in leveraged and single-investor equipment lease transactions, solar equipment may offer an attractive investment opportunity. Leasing solar equipment may also provide an attractive investment structure for traditional investors in power projects looking to expand investments in renewable energy projects.

The most attractive features of a lease structure to many investors are acquiring sole ownership of the asset and a hell or high water obligation of the lessee to make fixed rental payments. This fixed income stream also facilitates leveraging ownership of the asset by pledging the lease stream to a lender in cases where the economics of the investment are enhanced through leverage.

Like other assets producing energy from renewable fuel sources, solar equipment receives favorable tax treatment under the federal income tax code and many state and local tax regimes. There are also myriad state and local economic incentives including rebates and other benefits mandated by law. However, the federal tax code favors solar investment by providing that a passive corporate investor (otherwise engaged in the active conduct of a trade or business) in solar equipment may be eligible for the federal tax benefits without itself being actively engaged in producing electricity. This is to be contrasted with investments in assets producing power from wind and other renewable resources where eligibility for the primary federal income tax benefit, the production tax credit, is dependent on the taxpayer actually producing the electricity and selling it to an unrelated person. To satisfy the active production requirement for non-solar assets, a partnership (or other jointly owned entity treated as a partnership for income tax purposes) with a developer is often formed as an investment vehicle to own and operate the power production assets.

Tax Benefits

For federal income tax purposes, the owner and original user of solar equipment is entitled to an energy tax credit equal to 30% of the taxpayer's basis in the property in the year the property is placed in service under '48 and related sections of the code. Special rules limit the availability of the investment credit to non-corporate lessors. The investment tax credit is a direct reduction of tax liability but may not be used as a credit against alternative minimum taxes. A special rule provides that solar property may be sold and leased back within three months after it is placed in service and be eligible for the tax credit in the hands of the purchaser. The taxpayer's basis in the property for both the solar tax credit and depreciation is generally the purchase price, which may include hard and soft costs, such as installation costs, and in most transactions will be supported by an appraisal.

The 30% solar energy tax credit is available for: 1) equipment which uses solar energy to generate electricity, to heat or cool (or provide hot water for use in) a structure, or to provide solar process heat (but excluding property used to heat swimming pools) or 2) equipment which uses solar energy to illuminate the inside of a structure using fiber-optic distributed sunlight. Certain types of property are not eligible for the solar credit, including property constituting 'public utility property,' property used predominantly outside of the United States, and property used by (including leases to) tax-exempt entities (unless the property is used in an unrelated trade or business). As a result of these special eligibility rules, solar projects involving public utilities or tax-exempt entities such as school districts or municipalities are structured using power purchase agreements rather than leases.

The tax credit is recaptured in whole or in part if the property is disposed of by the taxpayer, including by reason of a sale, condemnation, abandonment or casualty, or otherwise ceases to be qualified property prior to the fifth anniversary of the date the property is placed in service by the taxpayer. Each year the property is owned by the taxpayer, 20% of the credit is earned and not subject to recapture. For example, if the property is sold after it is owned three full years but prior to the fourth anniversary of being placed in service, 60% of the credit would be vested and 40% of the credit would be recaptured.

It should be noted that the solar energy credit at the current 30% rate, with some exceptions, may not be claimed for property placed in service after Dec. 31, 2008, but Congress is considering various proposals to extend this date. There are considerable lobbying efforts to provide for a long-term extension rather than year-to-year extensions that have occurred in the past in order to facilitate long-term investment decisions. There are also legislative proposals to make the credit available for 'public utility property' and to allow the solar tax credit to be used as a credit against alternative minimum taxes.

For depreciation purposes, solar equipment is eligible for five-year MACRS deductions. For property placed in service in 2008, the taxpayer is entitled to a 'bonus' depreciation deduction equal to 50% of the taxpayer's basis in the property (with the remaining 50% of basis recovered under the normal five-year MACRS rules), subject to certain transition rules. The tax basis of the property is reduced by 50% of the solar energy tax credit, so that depreciation is taken with respect to 85% of the taxpayer's basis in the property.

If the investor's purchase is leveraged with debt, the investor may also claim interest deductions. The impact of leverage on the structure must be carefully considered, including its impact on the overall profit or economics of the transaction, its possible inclusion in income in connection with a foreclosure, and its impact on the accounting treatment of the transaction. In addition, special rules relating to property financed by subsidized energy financing and industrial development bonds may limit the amount of the solar tax credit available to the owner.

As is apparent from the foregoing, the generous, accelerated tax benefits available with respect to qualified solar property provide a very dramatic incentive for investment. An investor in solar equipment quickly recovers its investment through tax savings, wholly apart from the numerous economic incentives provided by many state and local jurisdictions.

It should be noted that solar equipment is increasingly being used for residential property. However, an individual homeowner cannot take advantage of the same tax benefits associated with ownership of the solar equipment. The homeowner is limited to a tax credit of $2,000 and would not be entitled to claim any depreciation deductions. To avoid the loss of tax benefits, programs are being developed to have the residential solar equipment owned by institutional investors and leased to homeowners.

State and Local Incentives

There are numerous types of state and local tax and other economic incentives for solar investments. These include grants, utility mandated rebates, state and local tax credits, exemptions, and operating subsidies. As a general proposition, if such incentives are includible in the taxable income of the owner of the solar equipment, they should not affect the availability of the federal solar tax credit. However, any such incentives that do not constitute taxable income may reduce the owner's tax basis used to calculate the amount of the federal solar tax credit. A description of these incentives is beyond the scope of this article.

Structuring the Lease

The tax owner/investor may acquire ownership of solar property through a direct purchase from a manufacturer or installer of the property or through a sale-leaseback transaction with the residential or commercial owner/user. Moreover, the nature of the solar project or system can have an impact on the structure. Projects can range from large commercial concentrating solar and photovoltaic installations that cost multiple millions of dollars to small residential solar systems costing $30,000-$40,000. To accommodate an economy of scale, particularly with respect to residential properties, transactions are being structured whereby the institutional tax investor will purchase multiple solar systems meeting pre-set criteria from a developer, builder, or installer for lease to various commercial and/or individual (consumer) users. Care must be given to ensure that each system is purchased before it is placed in service.

Regardless of the size of the individual project or program, certain tax criteria apply to the structuring of any lease transaction. To be eligible for tax benefits, the investor must acquire the burdens and benefits of ownership of the solar equipment and not dispose of such ownership pursuant to the terms of the lease. That is, if the lease constitutes a conditional sale for tax purposes, the nominal owner will not be entitled to claim any of the tax benefits of ownership.

The Internal Revenue Service (the 'Service') has issued Revenue Procedure 2001-28, which sets forth the criteria for issuing a ruling that a lease is a 'true lease' for income tax purposes (the 'leasing guidelines'). Although the revenue procedure sets forth ruling guidelines and not substantive law, many of the criteria are based on factors used by the courts in characterizing leases for income tax purposes and are reflected in the constraints discussed below.

The primary constraint imposed by most tax practitioners in structuring a lease is that the term of the lease may not extend beyond the lesser of: 1) 80% of the estimated useful life of the property or 2) the point in time that the estimated fair market value of the property (without taking into account any inflation or deflation) is less than 20% of the cost of the property (the 'residual value'). In the case of solar equipment, the limiting constraint on the lease term is usually the estimated residual value rather than useful life. In applying this test, renewal options for rents other than fair rental rates determined at the time are considered as part of the lease term.

While not permitted by the leasing guidelines, one or more fixed price purchase options are often found in leases. In institutional leveraged leases, market custom has limited such options to a single 'early buy-out option' at a fixed date prior to the end of the base lease term and/or a fixed price option at the end of the lease term. Fair market value purchase options are also commonly found at the end of the base lease term or any renewal term. Lessees commonly seek to maximize the number of purchase options and often prefer fixed price options. It is often tax rather than commercial considerations that limit the number of options granted in lease transactions. It should also be noted that in certain transactions involving power purchase agreements rather than leases, a fixed price purchase option raises concerns as to reclassification of the power purchase agreement as a lease rather than as a service contract. In the case of leases to individual residential owners, federal consumer protection laws do not permit fair market value purchase options; only fixed price options are permitted.

Another issue applicable to all leases is the concept of limited use property and the related issue of establishing the minimum 20% residual value referred to above. The leasing guidelines provide that the leased property may not be of a character that it is only useable by the lessee. Accordingly, it must be established that upon default or termination of the lease, the property can be used by the lessor or another lessee. The lessor must be able either: 1) to use the property in place, and have all of the legal rights to use it in place (as well as the ability to sell the output (in this case, electricity) to parties other than the lessee) or 2) to dismantle, move, re-install and use the property at a different location on an economic basis. The magnitude of the cost and which party bears it must also be factored into the true lease and residual value analysis. In the case of solar equipment, the nature of the particular solar system dictates which approach is most feasible. The well-reasoned opinion of a reputable appraiser is critical for an investor to get comfort on these issues. In transactions involving the aggregation of many individual solar systems, there may be an appraisal of a representative system that can be used to support each system being financed in the transaction.

In leases involving total rents of more than $250,000, the rent accrual rules of '467 of the code would apply. These rules govern the accrual of rental income and expense and provide certain safe harbors that must be satisfied to give the lessor and the lessee assurance that the rent accrual in the lease will be respected for federal income tax purposes. The application of these rules can be challenging in a solar lease transaction if the revenue stream produced by the solar equipment is very uneven, as in the case of upfront governmental or utility rebates which may be required to be passed through to the property owner in the form of rent.

It should also be noted in passing that a solar lease transaction, as well as any other transaction with significant tax benefits, is subject to scrutiny under the economic substance and related doctrines. The Service may challenge the tax treatment of a transaction if it finds that the taxpayer had no business purpose other than obtaining tax benefits and there is no reasonable possibility of a profit from the transaction. Application of this doctrine to any transaction is complex and evolving. In the context of solar transactions, due at least in part to the stated Congressional intent to encourage investment in solar property that may not be economic without tax incentives, most investors and practitioners have become comfortable with this issue.

Commercial Issues

An important structural issue in any lease transaction is the creditworthiness of the lessee that stands behind the hell or high water obligation to pay the rent.

Investors in traditional large-ticket leveraged and single-investor leases rely on credit of the lessee as well as the collateral value of the equipment in evaluating a potential investment. Unlike many project finance structures, the obligations under the lease, including indemnities, are recourse obligations of the lessee, making the lessee's credit standing an important consideration. If the lessee is a special purpose entity with no guaranty from a creditworthy entity, credit issues will be presented similar to those in a project finance transaction. In some transactions, such as programs involving multiple lessees, such as pooled residential or commercial programs described above, the credit risk may be mitigated by spreading it over multiple lessees. As in most project financings, credit may be provided by the collateral assignment of an offtake agreement and lockbox arrangements with the purchaser of the electricity. In such circumstances, the terms of this agreement (the level of purchase commitment, pricing, the timing of cash flows, and the allocation of risks, including technology risk) are critical to the financeablity of the project.

If the use of the equipment beyond the end of the lease term is expected to be in place (i.e., the premises of the lessee), special commercial issues arise. This may be the case where it is not feasible to move the equipment, as in the case of some large projects, or the maximum value of the equipment can only be realized in place. In such circumstances, the owner/lessor must have the right of occupancy, at the outset of the lease, to use the equipment in place at the expiration or early termination of the lease, including by reason of default. Rights required by the lessor include rights of ingress and egress for persons, equipment, and utilities which may be achieved through easements or ground leases. Also the lessor will require an assignment of all relevant contracts and permits, including interconnect rights, power purchase arrangements, and maintenance and operating agreements, in addition to any manufacturers warranties that are assigned as a matter of course.

It should be noted that most solar leasing transactions may also entail numerous collateral documents which are in place during the lease, such as landlord consents and mortgagee waivers. In addition, most finance leases are triple-net, where the lessee assumes all costs associated with operation of the equipment, including maintenance, insurance, and taxes. In the case of residential leases, or commercial leases to end users not knowledgeable with respect to the solar equipment, there may be a particular need for a maintenance and operating arrangement with the manufacturer, installer, or some other party. Such arrangements can be structured through third-party contracts with the lessee, with the lease remaining triple-net, or through the lessor with the lessor undertaking such duties to the lessee and the cost being passed through. In either case, the investor lessor must be comfortable that such maintenance can be performed competently and at a price that the lessee can ultimately bear.

The issue of subleasing may also be important in a solar leasing transaction. Solar leases are generally site specific. Consequently, in the case of photovoltaic solar, the right of the lessee (which is usually the site user) to sublease the equipment is not usually a consideration. However, if the lessee decides to vacate the site (e.g., the residential lessee sells or leases his or her home or a commercial user sells, subleases, or vacates its site), then the lease needs to address all of these possibilities. A sublease of a site to a new user may imply a sublease of the solar equipment (with rights and obligations in respect of the solar lease, in effect, running with the site). This scenario raises the obvious issues of credit and security. Alternatively, the sale or vacating of the site may constitute a default or early termination of the solar lease, triggering a lessee obligation to pay for the cost of removal and damages if the panel solar equipment cannot be redeployed. In the case of larger-scale solar projects, the entire facility can be sublet, and terms and conditions thereof would typically fall in the range of sublet rights for any stationary power project.

Conclusion

Solar leasing offers environmentally beneficial and highly tax-advantaged investment opportunities for traditional institutional investors in plant, equipment, and power generation assets. Leasing offers a well-tested structure for investment. Asset valuation, credit analysis, accounting treatment, and other commercial concerns, however, present familiar issues for the investor's consideration.