The Operations Term commences when the Solar Company beings producing electricity. The Operations Term generates the greatest compensation and income for the landlord/property owner. The Operations term is the lengthiest term of the Solar Contract, typically ranging from twenty to forty years and which may also include additional options to extend the lease.
The Solar Operation Term is the financial heart of the Solar Lease. Operation terms must be aggressively negotiated. The landlord/property owner must negotiate to reduce the length of the Operations Term and reduce company-favoring options which allow the Solar Company to extend the Operations phase. By negotiating a shorter Operations Term with separate Operation Triggers, the landlord/property owner can negotiate for higher compensation as the Operations Phase continues over the life of the Lease.
Unlike Oil and Gas Leases, Solar Leases do not generally pay royalties for electricity produced. Solar Leases typically provide for an annual per-acre rental fee during the Operations Term. For example, if a Solar Company paid $1,000 per acre for the Solar Project, and the landlord/property owner had fifty acres within the project area, the solar company would tender $50,000 per year as the Operations Term rentals. This same $50,000 annual payment would be made annually throughout the Operations Term, subject to any Escalators that have been negotiated into the Solar Lease. As Solar Leases may extend for many decades, landlord/property owners must negotiate Escalator clauses into the Solar Lease to maximize future payments and offset the impact of inflation over time. The landlord/property owner should negotiate an Escalation Clause that commences as early as possible in the Operations Term. For example, a landlord/property owner may negotiate a 2% Escalator that will increase the Operations Term payment made to the landlord/property owner by 2% annually throughout the Operations term of the Lease. The higher the Escalator, the more valuable the Solar Lease will be to the landlord/property owner over time. Negotiating Escalator Clauses is an extremely important part of any Solar Lease Agreement and will have a substantial impact on the value of the lease over its lifetime.
The compensation paid by a Solar Company during the Operations Term may vary wildly depending on negotiations, property location, company options, project size, and numerous other factors. Solar negotiation experience is critical in negotiating annual payments and the negotiator must be aware of the Solar Markets in their region and what compensation may be available in the Solar Lease.
Again, negotiating the compensation and length of Solar Leases’ Operation Terms is a foundational part of any Solar Lease and the landlord/property owner should be represented by an attorney experienced in solar lease negotiations.