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Note: Your Local Solar Panel Store: Developing State Laws To Encourage Third-Party Power Purchase Agreements and Distributed Generation

By Sam D. Bolstad. Full text here.

Solar panels’ high upfront capital costs are the primary hurdle to widespread installation by homeowners and towns. Solar panel companies are addressing this challenge through third-party power purchase agreements (PPAs), wherein a company pays for these costs when it installs the solar panels on-site at the customer’s location. The solar panel company then recoups the money by selling the electricity produced by the panels to the customer.

However, because the customer’s demand for electricity is met by the solar panel company, this takes business away from electric utilities, which in many states have exclusive jurisdiction over a given service territory. It is an explicit provision of the third-party PPA that the solar panel company sells electricity to the consumer, much like the electric utility does. In those states that have not legislated on third-party PPAs, solar panel companies face legal uncertainty as to whether they are operating as unlicensed electric utilities in violation of a state’s laws or regulations. These inconsistencies between states create market inefficiencies, because they discourage solar panel companies from expanding into states where they simply do not know whether they can operate. These inconsistencies also stunt the development of a better clean energy system and prevent the United States from maximizing its energy potential.

This Note proposes a model law to delineate how solar panel companies can sell electricity from panels installed on a customer’s property and argues that states should enact this law to realize their energy and economic potential. This change fits within the current model for regulating the energy industry, and much of the rest of the energy system can remain the same; for example, a regulated public utility providing traditional retail electric services will still be necessary. This Note also includes suggestions for how energy efficiency standards, renewable portfolio standards, net metering policies, and feed-in tariffs can all be employed to improve the appeal and effectiveness of the third-party PPA model. Finally, this Note addresses equitable provisions necessary to balance the reduced revenue that incumbent electric utilities will face in the wake of third-party PPAs. The proposed model law allows solar panel companies to operate in a way that fosters healthy competition between all methods of electricity generation and distribution.