To lease or not lease: Regulatory requirements of rooftop solar projects

MARK MCKEE | Monday May 12, 2025 20:12

The upfront cost of solar rooftop systems can, however, be substantial for consumers and small businesses, making it a barrier for widespread adoption. However, the solar sector has come up with innovative solutions to make it more accessible to consumers. One such solution is offering solar systems on a lease or Power Purchase Agreement (PPA) basis. In a lease arrangement, consumers pay a monthly fee to use the solar system, whilst in a PPA, they agree to purchase the energy generated by the system at a predetermined rate. This allows consumers to access the benefits of solar energy without incurring the upfront cost, and provides a more affordable and accessible solution to the energy crisis in Southern Africa.

In this article, we will explore the regulations that govern the leasing of solar rooftop plants to consumers or small businesses.

Where a person generates and/or then sells electricity to a third party, a generation licence is required and possibly a significant infrastructure licenses in terms of S 41 of Botswana Energy Regulatory Authority Act (the Act). BERA does not set out what constitutes the selling of electricity for the purposes of the Act. From experience, however, BERA interprets the term “sell” widely to cover any supply of electricity by a generator in consideration of which the generator receives or is deemed to receive payment from a third party for the said supply.

Where a solar energy plant is leased to a third party and the consideration for such lease is a payment based on the energy generated by that plant, then there is a real risk that the said lease will be construed as a power supply agreement for the purpose of BERA, in which case the lessor will require a generation licence.

One could argue that a solar lease or PPA is similar to an operating lease for a vehicle, where the consumer pays a base rental fee and possibly additional charges based on usage—in this case, the energy generated or consumed, rather than kilometres travelled. Put differently, an operating lease for solar plant could possibly be argued not to be a supply or sale of electricity to a third party simply because it includes the charge based on the amount of electricity generated by the said unit. The argument in this respect would be that the charge based on electricity generated is not a sale of electricity but rather is a charge for wear and tear on the plant.

One concern, however, with the above argument is that generation of electricity on its own requires a generation licence under BERA unless it falls within the exemption set out in Section 35(2) (this requirement for a generation license applies irrespective of whether or the electricity generated is sold to a third party).

In terms of Section 35(2) of BERA as read with Section 3 of the Electricity Supply Act, a person shall not require a licence:

(a) “in respect of any installation not exceeding 100-kilowatt capacity which is situated entirely on the owner’s own property or property occupied by him or her and is used by the owner to operate plant used solely by him or her, and for lighting any house, office, or other building, and where no public supply of electricity is available; or

(b) to carry out such other activities specified by the authority as exempt from the requirement of a licence”

Whilst not expressly or clearly stated in Section 35(2), it is our understanding that in order for a generator to fall within the exception set out therein, it must:

(a) own the plant, and

(b) the plant must be located at premises owned or occupied by the generator, and

(c) electricity generated there from must be supplied to such premises for the use or consumption by the generator and/or his tenants.

(d) Such premises should not be receiving any public supply of electricity.

To fall within the above exemption, the generator will need to be able to show that the consumer of the power generated also owns the plant and is rightly not the recipient of public power.

In any event, the said exception will not apply unless there is no public supply of electricity to the premises. This means that should the premises to where electricity is intended to be supplied by the client/lessor is already serviced by BPC then the said exception will not be available.

If the exception is not available to the client/lessor/lessee as aforesaid, then the lessor/client will need to obtain a generation license under the BERA Act for the proposed facility. The BERA Act does not appear to provide for a wholesaler/umbrella licence in terms of which a generator obtains one licence for multiple facilities. This may be administratively problematic where the lessor is installing multiple facilities for clients because each facility would require a separate licence under the BERA Act. This would need to be interrogated with BERA.

An alternative to the exception set out above, is the Rooftop Solar Programme ('RTS') operated by BPC and which is exempted from licensing by BERA in terms of Section 35(2) of the Act.

To qualify for a licensing exemption under the RTS, a facility must have a generation capacity of less than 100kW, must be owned by the consumer at the location that they receive a bill for electricity supplied by BPC, must be intended primarily for self-use with any excess electricity generated being available for sale to BPC (placed onto the grid).

Where a facility qualifies under the RTS, a permit from BPC is required from BPC but no licence from BERA. The Permit consists of:

(a) an Interconnection Agreement entered into between the consumer and BPC (and approved by BERA);

(b) a certificate of completion issued by BPC.

As the lease is currently drafted, there is a risk that the lessee will not qualify for the RTS. This is because the lease as currently drafted may be construed as an operating lease meaning that legal title, economic ownership, and risk in the solar plant vests in the lessor. Consequently, BERA/BPC can argue that because the lessor is the owner of the solar plant (as opposed to the lessee), the exemption cannot apply. There does, however, seem to be a conflict between the provisions of the Rooftop Solar Programme Rules issued by BERA and those issued by BPC. More particularly, the definition of a “rooftop solar PV system” in the BERA rules seems to allow for participation in the RTS by a consumer notwithstanding that the facility is owned or operated by a third party (as opposed to the BPC Rules which clearly have ownership as a condition). Possibly this could allow for a situation where the facility is owned by a third-party operator but leased to the consumer under an operating lease. This is not, however, clear or explicit and would need to be interrogated with BERA/BPC. My view, however, is that this carves out of the “ownership requirement” under the BERA Rules is purely for the purpose of allowing a consumer to finance its acquisition of the facility, and consequently does not cover a supply of the facility via an operating lease.

If my analysis of the RTS is correct, then for the lease to qualify, it would need to be converted into a finance lease. The question then arises whether the client/lessor would require a “finance and leasing company” license under the Non-Bank Financial Institution Authority Act ('NBFIRA') in order to provide finance leases to consumers. Currently there is no sector legislation that applies to or regulates “finance and leasing companies” and furthermore the draft regulations issued by NBFIRA in this respect are not yet in force. Consequently, this means that NBFIRA is not issuing licenses to “finance and leasing companies” and currently simply requires that they apply for an “exemption” from the provisions of the Act.

The exemption is obtained by writing to NBFIRA notifying the authority that finance, and leasing operations will be conducted by the relevant entity. The process is simple and does not require the submission of extensive facts and documents.

Please note, however, that this will change when sector legislation for “finance and leasing companies” is passed or the NBFIRA regulations in this respect become operational, meaning that a licence will then be required.

*McKee is Partner, Corporate and Commercial Department, Akheel Jinabhai & Associates