Third Party Ownership

Third Party Ownership policies allow homeowners or businesses to get renewable energy from systems on their property that aren’t owned by either the business/homeowner or their electrical utility. This saves the “host” homeowner or business the upfront cost and hassle of buying and maintaining a renewable energy system, because a third party does it for them. The host then pays the third party for the energy the system produces.

In some states, specific policies are needed to allow third party ownership, also called “Third-Party Power Purchase Agreements (PPAs)” or “Clean Energy Choice” policies. This is because there can be regulations that make it difficult for anybody other than end users and established electrical utilities to buy or sell electricity.

More than 22 states have third-party ownership policies for renewable energy systems.[1] In Wisconsin, a clarification is needed in the law to allow renewable energy companies to easily offer residents and businesses this option.[2]

Key Points

  • Third-party ownership can cut down on the upfront costs and work of owning renewable energy systems, which can make on-site renewable energy more accessible to the businesses and people who want to produce their own electricity.
  • Wisconsin’s current law concerning third-party ownership is vague, which limits the willingness of businesses to invest in the option of third-party-owned systems.
  • Clarifying Wisconsin’s third-party ownership law would help farmers install digesters, which save money by turning waste into clean, renewable energy.
Clean Wisconsin's Work

Allowing third-party ownership is a small but important step to breaking down barriers to the clean, renewable energy and is a significant opportunity for Wisconsin’s residents, businesses and economy. Clean Wisconsin is working hard with a coalition of groups to pass legislation that would clear up the ambiguities in current law and enable our renewable energy industry to grow.

Questions and Answers

What is third-party ownership?
Third-party ownership allows individuals or businesses to contract with an outside company, which will install, operate and own the renewable energy system that provides electricity for those individuals or businesses. Third-party ownership provides the individuals or businesses with an option to benefit from on-site renewable energy generation, without the upfront costs and work involved with owning and operating a renewable energy system. The customer pays the outside company for owning and operating the renewable energy system, and in turn receives electricity generated from that source, often at a lower cost than from their utility and without any up-front costs or added responsibilities.

How does third-party ownership work?
A customer interested in third-party ownership contracts with an outside provider that installs a solar system, digester or other renewable energy system on the customer’s property. The third-party provider designs, permits, constructs and installs the system on the property. Throughout the system’s life, the customer simply pays the provider a set price for the functioning of the system, while the provider is responsible for the operation and maintenance. These agreements may also include things like an option to purchase the system after a few years, system performance guarantees, and end-of-contract options.[2][3]

How does third-party ownership benefit the parties involved?
Third-party ownership helps homeowners and businesses get past the hurdle of the large upfront costs associated with owning a renewable energy system, including system design, construction and installation. It also allows them to avoid the work of operating and maintaining the energy system over its life. This expands the number of energy users that can afford to host renewable energy at their home or business.
Third-party ownership can also be especially valuable to organizations such as schools, nonprofits or government institutions that are unable to make use of tax breaks that offset upfront costs. Third-party providers are able to take advantage of available incentives in order to fund the installation and other costs of the systems, as well as receiving fees from the system hosts for the service they are providing.
By enabling more on-site renewable energy, third-party ownership can also benefit the system host’s electrical utility by reducing peak demand, increasing total system load factors and reducing grid congestion. [2][4][5]

How would Wisconsin benefit from third-party ownership?
Wisconsin sends an average of over $13 billion out of state to import fossil fuels. By encouraging the increased use of renewable energy and expanding opportunities for renewable energy companies and their employees in Wisconsin, third-party ownership would keep more money in the state’s economy. Similarly, the decreasing costs of distributed renewable energy could lead to reduced pollution entering our air and water from the burning of dirty fossil fuels. [2][4]
Additionally, customer-sited renewable energy saves all ratepayers money over the long term by generating power on a small-scale where and when it’s needed. This avoids the need for large investments in traditional power plants and all the transmission lines to get power from them to customers.
Looking back over 10 years, Wisconsin’s electricity prices have jumped more than all but five other states by over 60%. This, for comparison, is 1.8 times the relative increase in Arizona, which has become the #2 residential solar market in the country, with over 90% of installations featuring third-party ownership.[6][7]

Why is third-party ownership not being used in Wisconsin?
Wisconsin’s laws are ambiguous; they don’t explicitly allow or explicitly prohibit third-party ownership. This lack of clarity creates uncertainty for the businesses that would provide renewable energy to potential customers using this model, which discourages them from working in the state.
In order to allow a third-party ownership option for Wisconsinites, it is necessary specify that Wisconsin law will let customers pay renewable energy organizations to provide energy directly from on-site systems, without subjecting the third party to regulation as a public utility.[2]

Where is third party ownership already being used?
As of 2012, 22 states plus Washington, D.C. and Puerto Rico explicitly allow third-party ownership.[1] Wisconsin-based Kohl’s Department Store boasts 100+ stores that are equipped with renewable energy systems through a third-party power purchase agreement with SunEdison.[2] In California, 70% of residential solar installations in 2011 had third-party ownership agreements.

What would be the rate impact of expanded third-party ownership in Wisconsin?
There’s no way to tell what the exact electrical rate impacts of more Wisconsin residents installing third-party-owned renewable energy systems would be. However, it is possible to look at the experiences of other states where significant amounts of third-party-owned systems have been installed.
In Arizona, the main use of third-party ownership is for solar panels. By the end of 2012, nearly 90% of new residential solar installations in Arizona had third-party ownership; enough to rank them #2 in the country for annual solar installations after California. In the last five years with available information (between 2007 and 2011), almost 20 times as much solar was installed in Arizona as in Wisconsin. Since 2007, Arizona’s average electricity prices have gone from being higher than Wisconsin’s (8.54 cents per kWh, to Wisconsin’s 8.48) to now being lower than Wisconsin’s (9.71 cents versus 10.21 cents). That’s less than a 14% increase in prices, while Wisconsin’s have gone up over 20%.[6][7]
Third-party ownership allows individuals or businesses to contract with an outside company, which will install, operate and own the renewable energy system that provides electricity for those individuals or businesses. Third-party ownership provides the individuals or businesses with an option to benefit from on-site renewable energy generation, without the upfront costs and work involved with owning and operating a renewable energy system. The customer pays the outside company for owning and operating the renewable energy system, and in turn receives electricity generated from that source, often at a lower cost than from their utility and without any up-front costs or added responsibilities.

Quick Facts
  • As of 2012, 22 states as well as Washington, D.C. and Puerto Rico explicitly allow third-party ownership options for residents and businesses.[1]
  • Because the system owner provides the required upfront capital, third-party ownership greatly expands the number of energy users who can afford to host wind, solar or biogas systems serving their homes or businesses.[4]
  • In the largest state markets for solar electricity (California, Arizona and Colorado), over 70% of residential solar electric installations involve third-party ownership.[8]
  • Getting energy directly from an onsite renewable energy system helps households and businesses reduce their electricity bills and can enable them to lock in predetermined prices with the system owners for 10 years or longer.[4]
  • There are an estimated 135 companies in Wisconsin participating in the solar market whose business and employees will benefit from expansion of market opportunities due to this policy.[4]
  • Third-party ownership helps nonprofit entities afford renewable energy systems by allowing them to team up with for-profit companies that can take full advantage of federal and state tax incentives, such as the 30% Investment Tax Credit and accelerated depreciation.[4]
Wisconsin Data, Trends, and Legislation

In Wisconsin, renewable energy systems are often partially funded through the statewide Focus on Energy program. Third-party ownership can provide an additional funding option for interested individuals or businesses at no extra cost to ratepayers or taxpayers.[2] As a result, it could allow a greater number of Wisconsin businesses and residents to benefit from recent growth in the renewable energy market in Wisconsin and the decreasing prices of renewable technologies.[2]

Current Law

Current Wisconsin law does not expressly prohibit or allow third-party ownership. Under current law, anyone that provides electricity to the public becomes a public utility and is subject to regulation by the Public Service Commission (PSC). Thus, a private company involved in third-party ownership of a renewable energy system may have aspects of their businesses regulated by the PSC.

Wisconsin Statute 196.01(5)(a) and (b) defines a public utility and outlines public utility exemptions. Wisconsin Statute 196.49(2) outlines the Public Services Commission’s oversight over construction, installation and operation of energy generating systems of public utilities.

Proposed Legislation

There is a Draft Bill that would allow third parties to own and operate renewable energy systems on a customer’s property, and to sell the energy generated by those systems to the customer. It would do this by exempting the third parties from definition of a public utility, allowing them to continue to function as a private companies. This exemption would apply as long as all the energy generated by the systems is sold to the customers on whose property the system is located, and the energy is generated from a renewable resource or specified use (as defined by the bill).

Comments

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Please cite this resource as: Clean Wisconsin, Inc. “Biogas and Anaerobic Digesters.” Clean Wisconsin Enviropedia. Retrieved from www.cleanwisconsin.org/enviropedia.