In our previous quarterly bulletin, we set out industrial and logistics -specific lease amendments to ensure that landlords have sufficient rights and protections to protect the building's structure in the installation of photovoltaic (PV) panels. The terms of supply in respect of the electricity generated by those panels, however, are typically dealt with in a separate Power Purchase Agreement (PPA).
Careful consideration is required when drafting a PPA, particularly the interplay between that and the lease itself.
A PPA sets out the terms on which the tenant buys electricity from the landlord's installation. With rooftop solar, there is a direct physical connection between the generator and the buyer. This allows electricity to be supplied on a 'behind the meter' basis, avoiding transmission and distribution charges. Approaches to pricing will vary, and commercial offers need careful consideration, but there are benefits to the generation of electricity in this way in terms of a reduced price and/or less exposure to market volatility. There are also benefits in decarbonising the electricity supply, as part of general greenhouse gas reporting.
Where the tenant is not able to take the benefit of all the generated electricity then the landlord will want to be able to export the balance. This will depend on the grid connection and technical advice is necessary as part of the application process for connecting generation or battery storage to the electricity system.
Landlords should also be careful not to guarantee the amount of generated electricity – that is dependent on a number of factors outside of its control, and there should be no liability for poor weather over the British summer! The tenant should therefore still retain its own grid connection and a supply agreement with a licenced electricity supplier for top-up electricity.
The generation, distribution and supply of electricity in the UK is a licensed activity, unless covered by an exemption. Specialist legal advice is required to determine whether a licence or exemption is required, and the activities which fall within the Class Exemptions.
