The Legal Landscape of Commercial Solar PPAs in Illinois
The Legal Landscape of Commercial Solar PPAs in Illinois
Commercial solar power purchase agreements (PPAs) have become the dominant mechanism for commercial-scale solar deployment. By enabling third-party ownership of on-site solar systems, PPAs allow businesses to access solar energy with no upfront investment—the developer owns, installs, and maintains the system while the customer simply purchases the electricity at an agreed-upon rate.
For Illinois businesses, the legal and regulatory landscape is generally favorable. The state permits third-party electricity sales, has established net metering and interconnection procedures, and operates the Illinois Shines program providing valuable Solar Renewable Energy Credits (SRECs). But favorable doesn't mean simple—commercial solar PPAs are complex agreements with 15-25 year terms that create binding obligations on both parties.
Understanding the legal landscape before entering a PPA is essential. Contract terms that seem minor at signing can have significant implications over the agreement's life. Issues like environmental attribute ownership, termination provisions, performance guarantees, and property sale scenarios require careful attention.
This guide provides Illinois businesses with the legal framework and practical guidance needed to evaluate and negotiate commercial solar PPAs effectively.
Understanding PPA Structures: How Third-Party Solar Works in Illinois
The Basic PPA Model
A power purchase agreement creates a relationship between three parties:
Solar Developer
- Owns the solar installation
- Responsible for design, installation, and permitting
- Maintains and operates the system throughout the term
- Sells electricity to the customer
- May retain environmental attributes (SRECs, RECs)
Host Customer
- Provides site (roof or land) for installation
- Purchases electricity from the system
- Benefits from solar without ownership responsibility
- Cannot claim renewable energy unless attributes transferred
Utility
- Continues to provide service for remaining electricity needs
- Provides interconnection for solar system
- May provide net metering for excess generation
- Remains supplier of last resort
Physical vs. Virtual PPAs
Physical PPA (On-Site) The system is installed at the customer's facility:
- Electricity generated on-site, consumed directly
- Net metering may apply for excess generation
- Physical delivery of power
- Most common for commercial installations under 2 MW
Virtual PPA (Off-Site) The system is located elsewhere; financial arrangement provides economic benefit:
- No physical power delivery to customer
- Contract for differences based on market prices
- Environmental attributes transferred to customer
- Used for larger systems or portfolio approach
- More complex but enables larger scale
For Illinois commercial customers, physical PPAs at the facility location are most common for installations under 1-2 MW. Virtual PPAs are more relevant for large corporations seeking significant renewable commitments.
Illinois Regulatory Framework
Third-Party Sales Permitted Illinois does not regulate on-site third-party power sales as utility service:
- Developers can own and sell power from on-site systems
- No utility commission approval required for PPA arrangements
- Customer choice maintained
Net Metering For systems ≤25 kW:
- Excess generation credited at retail rate
- Credits roll forward monthly, annually reconciled
- Customer must be retail customer of utility
- Applicable to residential and small commercial
Illinois Shines (Adjustable Block Program) SREC program supporting solar development:
- 15-year SREC contracts at fixed prices
- Blocks sized to meet renewable portfolio standard requirements
- Program managed by Illinois Power Agency
- SRECs typically retained by developer in PPA structure
Interconnection ComEd and Ameren interconnection processes:
- Level 1: ≤25 kW, simplified process
- Level 2: >25 kW - 2 MW, engineering review
- Level 3: >2 MW, full study required
- Developer typically handles interconnection
For corporate PPA guidance, see our resource on corporate PPAs for Illinois load with PJM projects.
Key Contract Terms: What to Negotiate and Why
Pricing Structure
Base Rate The starting price per kWh:
- Compare to current and projected utility rates
- Include all utility charges in comparison (supply, delivery, demand)
- Ensure apples-to-apples comparison methodology
- Document comparison assumptions
Escalation Rate Annual price increase:
- Typical range: 1-3% annually
- Lower escalation = more conservative projection
- Compare escalation to projected utility rate increases
- Model scenarios over full term
Pricing Example Starting rate: $0.08/kWh, 2% annual escalator
- Year 1: $0.080/kWh
- Year 10: $0.095/kWh
- Year 20: $0.116/kWh
Compare to utility projection over same period to evaluate economics.
Term and Termination
Agreement Length Standard terms range from 15-25 years:
- Longer terms provide more stable pricing
- Shorter terms offer more flexibility
- Match to expected facility use horizon
- Consider property ownership plans
Early Termination Critical provisions to negotiate:
- Customer termination rights (with cause, without cause)
- Termination fee calculation methodology
- Fair market value vs. predetermined formula
- Circumstances triggering termination right
Common Termination Scenarios
- Property sale (assignment may be alternative)
- Business relocation
- Facility closure
- Change in operations eliminating solar benefit
- Developer default
Performance Guarantees
Production Guarantees Developer commitment to minimum generation:
- Annual production guarantee (kWh/year)
- Calculation methodology (weather adjustment?)
- Remedy for underperformance (rate credit, payment)
- Force majeure exclusions
Degradation Assumptions Solar panels lose efficiency over time:
- Industry standard: 0.5-0.7% annual degradation
- Guarantee should account for degradation
- Performance ratio expectations
- End-of-term performance commitment
Availability Guarantee System uptime commitment:
- 95-99% availability typical
- Definition of availability
- Measurement methodology
- Remedy for non-compliance
Environmental Attributes
SRECs (Solar Renewable Energy Credits) Illinois-specific renewable credits:
- Generated by solar systems in Illinois
- Currently valuable through Illinois Shines program
- 15-year SREC contracts available
- Typically retained by developer (monetized to reduce PPA price)
RECs (Renewable Energy Credits) General renewable attributes:
- Represent environmental benefit of renewable generation
- Required to claim "solar powered" or similar
- May be bundled or sold separately from SRECs
- Customer retention requires negotiation
Negotiation Considerations
- If sustainability claims are important, negotiate REC retention
- Understand impact on PPA pricing
- Document ownership clearly in contract
- Specify retirement and tracking requirements
For REC guidance, see our resource on renewable energy credits vs. carbon offsets for Illinois businesses.
Site Access and Use
Developer Access Rights Developer needs access for:
- Installation activities
- Ongoing maintenance
- Monitoring equipment
- Emergency response
- End-of-term removal (if applicable)
Customer Obligations Typical customer commitments:
- Maintain roof/site condition
- Avoid shading or interference
- Provide reasonable access
- Maintain electrical infrastructure
- Insurance requirements
Restrictions on Customer PPA may limit:
- Roof modifications
- Adjacent construction
- Tree planting
- Other installations
Assignment and Change of Control
Customer Assignment What happens if customer sells property or business:
- Assignment typically requires developer consent
- New party must meet credit requirements
- Existing customer may remain liable
- Negotiate assignment rights carefully
Developer Assignment Developer may assign to financing parties or new operators:
- Customer consent requirements
- Qualifying assignee criteria
- Performance guarantee continuation
- Notification requirements
Change of Control Business sale or merger scenarios:
- Whether assignment is triggered
- What approvals are required
- Credit reassessment provisions
- Continuation of terms
Default and Remedies
Customer Default Events Typical triggers:
- Non-payment (after cure period)
- Material breach of obligations
- Bankruptcy or insolvency
- Interference with system
Developer Default Events Typical triggers:
- Failure to install by deadline
- Material performance shortfall
- Failure to maintain system
- Bankruptcy or insolvency
Remedies Available remedies for default:
- Cure periods (typically 30-60 days)
- Termination rights
- Liquidated damages
- System purchase options
- Equipment removal
Risk Allocation: Understanding Who Bears What
Production Risk
Developer Responsibility In a PPA structure:
- Developer bears weather/irradiance risk
- Developer bears equipment performance risk
- Developer bears maintenance/repair costs
- Customer pays only for electricity produced
Customer Protection Ensure contract includes:
- Minimum performance guarantees
- Remedy for underperformance
- Clear measurement methodology
- Independent verification options
Technology and Equipment Risk
System Performance Developer selects and warrants equipment:
- Panel manufacturer warranties (typically 25 years)
- Inverter warranties (typically 10-15 years)
- Installation warranty
- Performance warranty
Obsolescence Over 20+ year terms, technology evolves:
- System should continue operating as contracted
- Replacement equipment provisions
- Performance standard maintenance
- No obligation to upgrade
Regulatory and Policy Risk
Changes in Law PPA terms for regulatory changes:
- Net metering changes
- Tax credit modifications
- Interconnection requirements
- Environmental regulations
Allocation of Risk Typical approaches:
- Developer bears most regulatory risk
- Price adjustment for material changes
- Termination right for fundamental changes
- Force majeure provisions
Property and Casualty Risk
Insurance Requirements Typical requirements:
- Developer: Equipment, liability, workers comp
- Customer: Property, liability
- Coordination of coverage
- Waiver of subrogation
Damage Scenarios What happens if system is damaged:
- Developer responsibility to repair/replace
- Business interruption considerations
- Force majeure provisions
- Termination rights if not restored
Property Sale and Exit Considerations
Impact on Property Transactions
Due Diligence Buyers should understand:
- PPA terms and obligations
- Remaining term and pricing
- Assignment requirements
- Buyout options and costs
Property Valuation Solar PPA can affect value positively or negatively:
- Positive: Locked-in energy costs, sustainability
- Negative: Long-term obligation, encumbrance
- Market perception varies by buyer type
- Disclose PPA in marketing
Assignment Process
Typical Requirements
- Notice to developer of intended sale
- Buyer credit review and approval
- Assumption agreement by buyer
- Release of original customer (if negotiated)
- Closing coordination
Best Practices
- Address PPA early in sale process
- Include PPA assignment as condition to closing
- Obtain developer consent before commitment
- Negotiate buyer assumption in purchase agreement
Buyout Options
Contractual Buyouts PPAs may include buyout provisions:
- Timing: Often available after year 6-7
- Pricing: Fair market value or formula
- Exercise process: Notice, appraisal, payment
- Equipment ownership transfer
Economic Analysis When buyout makes sense:
- High remaining payments relative to value
- Customer wants to own system
- Property sale without PPA encumbrance
- Tax benefit from ownership
For C-PACE financing as an alternative structure, see our resource on C-PACE financing for energy projects in Illinois.
Conclusion: Informed Negotiations for Better Outcomes
Commercial solar PPAs offer Illinois businesses access to solar energy without capital investment—but the long-term nature of these agreements demands careful attention to contract terms. The legal landscape in Illinois is favorable, but that makes understanding and negotiating the specifics even more important.
Key takeaways for Illinois businesses considering solar PPAs:
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Engage legal counsel early: PPA contracts are complex; experienced counsel pays for itself in better terms and avoided problems.
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Model the full term: 20-year economics look different from year-1 economics. Understand escalators, degradation, and utility rate projections.
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Clarify environmental attributes: If sustainability claims matter, ensure you receive and retire the RECs. Understand the distinction between SRECs and RECs.
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Plan for property changes: Assignment and buyout provisions matter—negotiate them before you need them.
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Ensure performance protection: Guarantees, remedies, and measurement methodology should be clear and enforceable.
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Understand termination: Know what it takes to exit the agreement and what it costs.
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Document everything: Clear contract language prevents disputes. Ambiguity benefits no one.
The right solar PPA can deliver decades of clean energy and cost savings. The wrong one—or the right one with poor terms—can create long-term headaches. Due diligence and negotiation today protect your interests for the life of the agreement.
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Frequently Asked Questions
QAre third-party solar PPAs legal in Illinois?
Yes, third-party solar PPAs are legal in Illinois. Illinois does not restrict third-party ownership or sale of electricity from on-site generation. Key legal considerations: 1) Third-party developers can own solar systems on customer property, 2) Electricity sales from on-site systems are not regulated as utility service, 3) Net metering available for systems ≤25 kW (customer must be retail customer of utility), 4) Larger systems may participate in community solar or wholesale markets, 5) Lease arrangements also permitted as alternative to PPAs. Illinois is considered a PPA-friendly state, with an active market of solar developers serving commercial customers through various ownership structures.
QWhat are the key contract terms to negotiate in a commercial solar PPA?
Critical PPA terms requiring attention: 1) Price and escalation—starting rate, annual escalator (typically 1-3%), and how price compares to utility alternative, 2) Term length—15-25 years typical; understand termination provisions, 3) Performance guarantees—minimum production commitment, degradation assumptions, calculation methodology, 4) System maintenance—developer responsibility, response time requirements, insurance coverage, 5) Site access—developer access rights, limitations on customer site use, 6) Buyout options—timing, pricing formula, conditions, 7) Assignment—ability to transfer agreement, approval requirements, 8) Default and remedies—cure periods, termination rights, equipment disposition, 9) Environmental attributes—who owns SRECs and RECs, renewable energy claims. Engage experienced legal counsel for PPA negotiation.
QWho owns the environmental attributes (SRECs, RECs) under a solar PPA?
Environmental attribute ownership is negotiable and critical for sustainability claims: 1) Standard practice—many PPAs retain SRECs with developer (they monetize to reduce PPA price), 2) Customer retention—customers can negotiate to receive environmental attributes (typically at higher PPA price), 3) Hybrid approaches—customer receives RECs while developer sells SRECs separately, 4) Illinois SREC program—Illinois Shines program provides 15-year SREC contracts, typically contracted by developer, 5) Renewable claims—to claim 'solar powered' or similar, customer needs to own and retire the RECs. Understand your sustainability goals and ensure PPA terms align. If environmental attributes matter, negotiate their ownership explicitly.
QWhat happens to a solar PPA if the property is sold?
Property sale triggers PPA provisions requiring careful attention: 1) Assignment clauses—PPAs typically require developer consent for assignment to new owner, 2) Buyer assumption—new owner must assume PPA obligations (may affect property marketability), 3) Credit requirements—new owner may need to meet creditworthiness standards, 4) Buyout option—seller may exercise buyout if available and economically sensible, 5) System removal—rarely economical; most PPAs continue with new owner, 6) Due diligence—buyers should review PPA terms carefully before property purchase. Best practice: address PPA assignment in property sale agreement, ensure buyer understands obligations, obtain developer consent before closing. Some property buyers view solar PPAs positively (locked-in energy costs); others see them as encumbrances.
QHow do commercial solar leases differ from PPAs in Illinois?
Leases and PPAs are alternative structures for third-party solar: 1) PPA—customer pays per kWh generated; developer owns system and sells electricity to customer, 2) Lease—customer pays fixed monthly fee; customer 'uses' system output, 3) Economic difference—PPA payments vary with production; lease payments are fixed, 4) Tax treatment—PPA payments are operating expense; lease may be operating or capital lease depending on structure, 5) Risk allocation—PPA puts production risk on developer; lease puts production risk on customer, 6) Regulatory—both are legal in Illinois with similar treatment, 7) Incentive capture—both allow developer to capture federal ITC. Choice depends on: preference for fixed vs. variable payments, accounting treatment goals, and production risk tolerance. Most commercial installations use PPAs, but leases have valid use cases.