How to charge tenants for solar energy on multifamily or commercial properties

Is it legal?

See our other blog postings for details:

Who pays the electric bill today?

If tenants currently pay for utilities, you need to check your lease agreement. Is there a clause in the lease to allow charging tenants for electricity? If not, you will need to either amend the lease, or create a separate power agreement for selling solar power to your tenants. For more information on how to negotiate a power agreement with tenants for solar, see our recent blog post:

How to amend the lease to charge tenants for solar power

Once an agreement has been reached with the tenants, several options are available to split up solar production, each with pros and cons:

Do you have a master-metered building?

Mastered-metered buildings are one of the least complex ways of distributing renewable energy to tenants. In this use case, the building has a single meter, and the solar energy production reduces the bill by offsetting the master meter.

Since tenants already pay their share of the electricity bill to the property owner, the master-metered approach provides property owners with a return on their clean energy investment, without the need to amend the lease.

Ratio Utility Billing System (RUBS)

Typically, the existing lease gives the property owner the right to bill tenants for electricity using the ratio utility billing system (RUBS). Ratio utility billing system utilizes a mathematical formula for calculating the portion of the electric bill for a tenant and typically is based on square footage, occupancy, number of bedrooms, or some other specific method agreed to by the building owner and the tenant.

Common area meter

Common area meters share the same characteristics as the master metered building scenario (see above). As with master-metered buildings, the property owner already has the right to bill tenants for common area power usage using RUBS methodology. Solar, along with energy billing, can therefore provide new income for property owners with no changes to lease terms or negotiation with the tenants.

Is the tenant paying the electric bill?

In order to have the tenant pay fair market value for the solar credits being added to their local utility bill, Energy311 can recreate a bill for just the solar contribution. The tenant continues to receive a bill from the local utility company, and receives a 2nd energy bill for the solar production from the property owner monthly.

Are you (the owner) paying the electric bill?

Taking ownership of the tenant’s meter has the following advantages:

Delayed payment for owner. Property owner pays the ongoing local utility bill yearly. Tenant pays the E3 bill monthly, thus giving additional cash flow to the property owner until the “true up” date. The tenant continues to pay for electricity consumed just as before the solar system was installed.
Tenant pays one bill monthly, instead of 2 bills (see Is the tenant paying the electric bill? above).

Disadvantages:

Property owner is responsible for the electricity bill. If a tenant doesn’t pay their electricity, then the property owner is responsible for collections and/or disconnecting the power due to lack of payment.
Since the property owner is billing for power, a separate power purchase agreement, or amendment to the current lease may be required.

Fair Market Value

What is fair market value for a solar? We calculate the value of a solar credit by taking the total bill that the local utility company would have charged for electricity if no solar was installed, and subtracting the ongoing electricity bill, e.g.:

Solar Bill = (Total Bill — Ongoing Bill) x Discount

Power Purchase Agreements (PPAs) are a bad idea

Traditionally, selling power to tenants used a legal approached called a Power Purchase Agreement (PPA). PPAs tend to be drafted up by lawyers, are heavy legal documents, and leave money on the table. We prefer using a lighter software approach to bill tenants which charges tenants at Fair Market Value. Please read this article for details:

Why charging tenants for solar using a PPA is a bad idea.

How to distribute solar power to tenants

In order to sell power to tenants, you will also need to route solar electricity to electrical panels in your multi-tenant property. Your solar developer will architect a solution for your building type, but it is prudent for an owner to understand the pros and cons of the various approaches.

How to route solar energy to tenants in a multi-tenant building

Interested in learning more? Check out Energy311’s Blog!