UK Commercial Tenant Green Leases and Solar PPAs: A Guide

Key Takeaways

• Green leases integrate environmental performance clauses into commercial property agreements, encouraging sustainability collaboration between landlords and tenants.
• Generating or supplying electricity in the UK generally requires a licence, but specific exemptions exist for small-scale generation and on-site supply.
• Power Purchase Agreements (PPAs) for rooftop solar allow tenants to buy electricity directly from an on-site generator, often the landlord, at a pre-agreed rate.
• Compliance with UK electricity regulations, including licensing exemptions, metering standards, and Guarantees of Origin, is crucial to avoid legal and financial penalties.

Understanding Green Leases and Solar PPAs in the UK

In the UK, commercial tenants and landlords are increasingly looking to integrate sustainability into their operations, with rooftop solar and associated Power Purchase Agreements (PPAs) offering a clear path to achieving this. A green lease is a commercial property lease that includes specific clauses designed to improve the environmental performance of the building and foster collaboration between the landlord and tenant on sustainability initiatives.

The Model Commercial Lease (MCL) provides template commercial agreements for lease, leases, and associated documents, which can be customised for different commercial buildings. Similarly, the Better Buildings Partnership (BBP) Green Lease Toolkit offers practical tools and model clauses to support sustainability ambitions in commercial property leases. These resources help owners and occupiers align on environmental goals, including the adoption of on-site renewable energy like rooftop solar.

A Solar PPA, in this context, is an arrangement where a tenant agrees to purchase electricity generated by a solar array installed on the property, typically owned and operated by the landlord or a third party. This allows the tenant to benefit from renewable energy, often at a predictable price, without the upfront capital investment of installing the solar system themselves.

The Legal Framework for On-site Generation and Supply

Operating a rooftop solar array and supplying electricity to a commercial tenant in the UK involves navigating specific legal requirements. The primary legislation governing electricity in the UK is the Electricity Act 1989. This Act states that a person who generates electricity for the purpose of giving a supply to any premises or supplies electricity to any premises shall be guilty of an offence unless they are authorised to do so by a licence.

However, not all electricity generation and supply activities require a full licence. The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001 provides several exemptions. These exemptions are critical for enabling on-site generation and private wire arrangements, such as those found in commercial rooftop solar PPAs, without the burden of a full licence.

Beyond licensing, other regulations govern the accuracy of electricity measurement and the tracking of renewable energy. The Measuring Instruments Regulations 2016 cover the conformity assessment, marking, and use for trade of various measuring instruments, including active electrical energy meters. Additionally, The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003 establish the framework for Guarantees of Origin (GOs), which are electronic documents proving electricity was produced from a renewable source.

Navigating Electricity Licence Exemptions

For commercial landlords or third parties generating electricity from rooftop solar and supplying it to tenants, understanding and complying with the licence exemptions is crucial. There are several relevant classes of exemption under The Electricity (Class Exemptions from the Requirement for a Licence) Order 2001:

Generation Licence Exemption (Class A: Small generators)

This exemption applies to persons who do not at any time provide more electrical power from any one generating station than 10 megawatts. For generating stations with a declared net capacity of less than 100 megawatts, this limit increases to 50 megawatts. This exemption is vital for most rooftop solar installations, which typically fall well within these power limits.

Supply Licence Exemption (Class C: On-site supply)

This exemption is relevant for those supplying electricity generated themselves, or electricity generated themselves together with electricity supplied by a licensed supplier, to specific on-site or private wire consumers. This class is particularly applicable to private wire PPAs where the landlord generates solar power and supplies it directly to a tenant within the same premises or a defined private network.

Supply Licence Exemption (Class B: Resale)

This exemption applies to persons who resell electricity supplied by a licensed supplier or a Class C supplier. There are conditions on the volume of electricity supplied, including limits on Class C electricity supplied (10% of total Class C electricity to premises in previous year, 250 MWh to domestic consumers). This exemption might be relevant if the landlord is reselling grid electricity in addition to their own generated solar power.

The table below summarises the key conditions for these exemptions:

Metering and Guarantees of Origin Requirements

Accurate metering and the ability to track renewable energy are essential components of commercial solar PPAs and green leases.

Approved Meters

For billing purposes, any meter used for ascertaining the quantity of electricity supplied by an authorised supplier to a customer must meet specific criteria. The Electricity Act 1989 states that the meter must be of an approved pattern or construction, installed in an approved manner, and certified. Certification can be performed by a meter examiner or an authorised person, ensuring the meter conforms to approved patterns and prescribed standards. The Measuring Instruments Regulations 2016 further detail the conformity assessment and marking requirements for active electrical energy meters.

Customers are responsible for keeping any meter provided by them in proper order for correctly registering the quantity of electricity supplied to them. Failure to do so can lead to the supplier discontinuing the supply of electricity through that meter.

Guarantees of Origin (GOs)

Guarantees of Origin (GOs) are electronic documents that prove 1 MWh of electricity was produced from a renewable energy source. These are important for demonstrating the renewable credentials of the electricity supplied under a PPA. Requests for GOs must be made to the Authority and include all information and evidence specified in Schedule 1 of The Electricity (Guarantees of Origin of Electricity Produced from Renewable Energy Sources) Regulations 2003. A request for GOs cannot be made for a period of less than one month. If access to a plant is unreasonably refused for verification purposes, the Authority may refuse to issue Guarantees of Origin.

What Can Go Wrong: Risks of Non-Compliance

Failure to comply with the legal framework surrounding electricity generation and supply in the UK can lead to significant legal and financial consequences. It is crucial for both landlords and tenants involved in rooftop solar PPAs and green leases to understand these risks.

Disclaimer: This information is for general guidance only and does not constitute legal or tax advice. Commercial tenants and landlords should seek independent legal counsel for specific advice regarding green leases, solar PPAs, and compliance with UK electricity regulations.

What the published sources do not tell you

While the legal frameworks and template documents provide a solid foundation, several practical aspects of UK commercial tenant green leases and solar PPAs are not explicitly detailed in the sources we checked:

• Financial Mechanisms and Typical PPA Terms: Specific details on the financial mechanisms and typical terms of rooftop solar private-wire PPAs, such as pricing structures, escalation rates, and contract durations, are not covered by the legal and toolkit documents.
• Detailed Engineering Standards: The provided legal documents or green lease toolkits do not include detailed engineering standards for rooftop solar installations, which are crucial for the design, safety, and performance of the system.
• Specific Licensing/Exemption Process: The exact process for obtaining an Ofgem licence or exemption, beyond the general statements in the Electricity Act and related Statutory Instruments, is not fully detailed.
• Negotiation Guidance: Practical guidance on negotiating specific green lease clauses or PPA terms between commercial landlords and tenants, including common sticking points and best practices, is not explicitly covered.
• Market Rates and Compliance Costs: Information on current market rates for electricity under a PPA or the costs associated with compliance with regulations (e.g., meter certification, legal fees) is not available.
• Dispute Resolution: The process for resolving disputes related to green lease clauses or PPA agreements is not explicitly outlined.

These gaps highlight the need for commercial parties to engage with legal, financial, and technical experts when structuring and implementing green leases and solar PPAs.