Who owns the plant in a third-party or ESCO solar model?
By Vvon Engineering Team | Published | Updated
In a third party arrangement the roof is yours and the plant is not. Where the title sits at each stage, what happens when the term ends, and the points to settle before the agreement is signed.
In a third-party ownership arrangement, the developer or financier may own the plant while the occupier buys energy or pays a lease charge. The actual allocation of title, operating risk and insurance depends on the signed documents. Confirm it at each stage rather than assuming that the roof owner owns the equipment.
This guide addresses plant ownership and the allocation of investment and operating responsibilities. A leased-roof project also needs the roof-access and owner-consent questions in the linked guide. Related reading: Can a rented factory roof in Bangladesh have solar?.
Where the title sits, stage by stage
During construction. Equipment is normally the property of the developer or its financier until commissioning, and is insured by them. The building owner is granting site access, not taking delivery. If any payment is made in advance, say explicitly whether title passes on payment or on commissioning, because that single sentence decides who bears the loss if a container of modules is damaged in transit.
At commissioning. The plant becomes an operating asset owned by the developer, sitting on premises owned by somebody else. This is the position that needs a written right to occupy the roof: a licence or lease for the term, with defined access rights for operation and maintenance.
Through the term. The developer owns and maintains the plant. The building owner buys the energy it produces under the tariff mechanism in the agreement, or pays a fixed periodic charge under a lease. The plant should appear on the developer's asset register and its insurance, and should be clearly identified as not belonging to the building.
At the end of the term. Title either transfers to the building owner, usually at a nominal or pre agreed value, or the developer removes the plant and reinstates the roof, or the parties extend. All three are legitimate. What is not legitimate is an agreement that does not say which one applies.
The net metering agreement stays in your name
Check the utility's approved arrangement for the named consumer, project owner and any third-party operator. Equipment ownership and the electricity-account name are different questions. The application and contracts must identify who is responsible for each obligation.
The roof owner is not necessarily the electricity-account holder, particularly in a leased factory. Confirm the applicant and signatory with the utility, then allocate application preparation, metering disputes, operating compliance and developer default in the commercial agreement.
What happens when the term ends
A plant handed over at the end of a long term is not a new plant. It has been generating for most of its warranted life, the inverters have very likely been replaced at least once, and the monitoring platform may be a subscription that stops when the developer stops paying for it.
So specify the handover condition rather than only the handover date. A defined test at transfer, comparing measured output against irradiance, tells you what you are receiving. Ask also for the as built drawings, the operation and maintenance history, remaining warranty documents assigned in your name, spare parts, and the monitoring system in a form that keeps working after the transfer. And agree who removes the plant and repairs the roof if you decline to take it, because that cost is real and it belongs to whoever the contract says it belongs to.
Settle these before signing
Roof rights, in a registered form. The right to occupy the roof for the full term, surviving a sale of the building, with access hours and notice periods defined.
What happens if the building is sold or mortgaged. The buyer inherits a roof with somebody else's asset on it. Say how the agreement passes across.
Insurance and insurable interest. The developer insures the plant, the owner insures the building, and both policies need to know about the other. A property policy that has not been told about a rooftop plant is a problem waiting for a claim.
Roof repairs. Roofs need maintenance and waterproofing over a long term. Who pays to lift and reinstate the array, and how much notice is given.
Performance commitment. A guaranteed output or availability figure, how it is measured, and what the remedy is if it is missed. Without a measurement method a guarantee is decorative.
Termination and buyout. A schedule of buyout values by year, so that an early exit is a calculation rather than a negotiation.
Environmental attributes. If the building owner intends to claim the generation towards a certification or a buyer's reporting requirement, the agreement has to assign those attributes. They do not follow the roof automatically.
End of life. Who removes and disposes of the modules, and at whose cost.