Solar Panels

Solar Panels and the Church

Solar panels on church roofs are becoming more and more popular. For starters, the electricity bill at any given church can be astronomical, especially in the summer. Churches are often looking to cut cost in order to be good stewards of their property and finances. Saving money, and possibly profiting from solar panels may be a good alternative, but there are always risk involved.


Always of primary concern, one must consider the cost of taking advantage of a large roof area in order to obtain enough energy to justify the expense. However, as a nonprofit, churches are not eligible for State and Federal incentives, such as tax credits. Depending on the size of the system, the up-front cost can start at $40,000 and take a minimum of 10 years to recover in energy savings. So unless your church has the financial wherewithal, either in savings or via a church loan, this may not be a very viable option. In addition, you are responsible as owners to monitoring, maintaining, and repairing the system.


Similar to leasing other types of property, you don’t own the system. Under a lease arrangement, you agree to pay a fixed monthly payment. This payment is usually calculated using the estimated amount of electricity the system will produce, in exchange for the right to use the solar energy system. With a lease, the solar company will usually agree to monitor and maintain the system. At the end of the initial lease term, usually 20 years, you can either buy the system outright, have the leasing company remove it, or leave the system in place and renew the agreement.

Power-Purchase Agreement:

Similar to that of a Lease, the solar company installs and maintains the system. Only under this type of arrangement, the solar company then sells the electricity generated by the panels to the church. These agreements will typically run for a minimum of 20 years and start at a kilowatt per hour rate that is below that of the local utility provider. However, this rate will likely increase annually over the life of the Agreement. Think of it as creative financing.

In other words, it’s a gamble that the price you pay for electricity under the Power-Purchase Agreement will increase at a rate that is less than that of the local utility provider. As such, your annual savings for electric will likely increase year after year. After 20 years, the church could realize a net savings of $5,000 – $10,000 over a 20 year period.

Although this type of agreement is permitted in California, so too is Net Metering.

Net Metering:

A billing arrangement with the utility provider that ensures each kilowatt hour generated by your solar panels take a kilowatt hour off of your electric bill at the full retail rate whether you use it or send it to the electricity grid. This is of vital importance for the average church as it is reasonable that far more electricity will be generated during the week when there is little to no activity at the church to consume it.

So if the solar panels produces 20 kilowatt hours on Sunday and your churches uses that same amount, they cancel each other out. However, if 100 kilowatt hours are produced during the week and only 10 kilowatt are used, the remaining 80 kilowatt hours are sent to the grid for a net savings/credit. Provided of coarse that net-metering isn’t removed or modified by the legislators.

Without net-metering, the cost savings that solar panels provide may not be able to keep up with the wholesale cost of the utility providers. Especially is the Power-Purchase Agreement doesn’t provide for a reduction in the price you pay if the utility rates go down. Not to mention the fact that the unused energy your panels produce and sent to the grid would no longer benefit from the full retail rate experienced under net-metering.

Time-of-Use Billing:

In California, the Public Utilities Commission updated the Net Metering legislation in order to allow the utility provider the ability to covering some of the profits they were experiencing prior to the boom in solar panels. Here, the utility provider connects your system to the grid under an “Interconnection Agreement,” wherein you are charged a connection fee. In addition, time-of-use billing is applied so that the electricity consumed from the grid cost more during peak times of day, and less during nonpeak hours. This translates into a similar arrangement with the energy you send to the grid during those same hours. Your credit for the energy sent to the grid is then subtracted from that which you took from the grid.

The kicker comes at the end of the year when it’s time to settle up with the utility provider in what is known as a “true-up” invoice. Through the year, a small amount of each kilowatt hour you generate is sent to the grid. At the end of the year, each kilowatt hour you send to the grid is subtracted from the kilowatt hours you use. If you use more energy then you send to the grid, a balance is due. Otherwise, a few cents per kilowatt hour you produced in excess is credited towards your account.

Keep in mind however, that each utility provider has its know “Interconnection Agreement,” so the above is generally true, but the terms will differ.


  • Contractor’s: Be sure that you are working with a qualified contractor and sub-contractor to ensure that they are: 1) are license with the State Contractor’s Licensing Board; 2) provide a certificate of insurance naming the church as an additional insured on his general liability and workers’ compensation policy; and 3) providing a written contract that includes a schedule that demonstrates when specific construction activities will start and end, (with the projected payments tied to the contract price of these activities).
  • Damage: Who is responsible for the equipment in the event of a power surge. Is the church responsible to replace the panels? Many insurance policies won’t cover this.
  • Liability: If your church enters an agreement to sell excess power to a local power company, sometimes there may be a penalty if the solar array doesn’t generate enough energy.
  • Placement: Will solar panels be installed on the roof, on parking canopies, or on the ground? The higher the panels are located, the lower the risk of theft or vandalism.
  • Tax issues: A church that earns money from selling energy or providing excess power to a utility company may need to report proceeds as Unrelated Business Income.

Property Tax Liability:

Nonprofits that receive a Church, Religious, or Welfare Exemption may continue to qualify for the exemption, either entirely or partially, if they enter into an agreement with a for-profit entity to install and operate a solar energy system on their property if the solar energy system is used to produce electricity for the nonprofit’s own use.

One of the basic requirements for the Church, Religious, or Welfare Exemption is that the property must be used exclusively for a qualifying exempt purpose. The Supreme Court in Cedars of Lebanon Hospital v. Los Angeles County determined that the phrase used exclusively may not be given a literal interpretation so as to mean that the property exempted must be used solely for the purposes stated to the total exclusion of any other use. Instead, the Court held that used exclusively for exempt purposes includes any property which is used exclusively for any facility which is incidental to and reasonably necessary for the accomplishment of the exempt purpose.

Therefore, while a nonprofit organization may not own the solar-powered system and allows a solar installer to place the system on its property (to produce electricity for the nonprofit organization), that fact does not disqualify any portion of the property, including the portion specifically used for placement of the system, from exemption. The property is not being used inconsistently with the nonprofit’s exempt purpose.

Please see our other related articles

Why Use Bushore Real Estate
Church Officer and Director Liability
Preventing Mechanic Liens
Churches and Unrelated Business Income Tax

Disclaimer: Every situation is different and particular facts may vary thereby changing or altering a possible course of action or conclusion. The information contained herein is intended to be general in nature as laws vary between federal, state, counties, and municipalities and therefore may not apply to any given matter. This information is not intended to be legal advice or relied upon as a legal opinion, course of action, accounting, tax or other professional service. You should consult the proper legal or professional advisor knowledgeable in the area that pertains to your particular situation.


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