A Minnesota electric cooperative has devised a unique business model for solar power: install the panels on city-owned properties and, in return, the city government gets discount-priced electricity.

In the first deal of its kind, the Wright-Hennepin Electric Cooperative Association has agreed to give the city of Rockford a 7 percent discount on its electricity for 25 years. The city is giving the utility no-cost leases at two sites where 331 solar panels will be installed later this year.

“This is the first deal of its type that I’m aware of,” said Cliff Bolstad, Minnesota-based regional vice president for electric distribution at CoBank, a large cooperative lender that has financed many solar deals, including this one.

If the pilot project is successful in Rockford, a city of 4,300 people about 30 miles west of the Twin ­Cities, Wright-Hennepin says it intends to offer similar deals to cities, school districts and other interested large customers in its northwest metro ­service area.

Other co-ops around the country are watching. “Wright-Hennepin is the trendsetter,” Bolstad said. “ … Assuming this goes successfully, I wouldn’t be surprised if we see such more of it in the future.”

The deal with Rockford, signed in late June, will offset with solar 67 percent of the Rockford municipal government’s electricity use. The solar panels will be installed on the roof of a city-owned mall and land adjacent to a city water tower. Projected savings are relatively small — $5,200 per year on the city’s electric bills — but there are no upfront costs. The deal also contains an option to expand the solar arrays.

“We are trying to be ­forward thinking and proactive about green energy,” said Dan Madsen, Rockford city administrator and ­special counsel.

Innovations in solar

It is not the first solar innovation at Wright-Hennepin co-op. In 2013, the member-owned utility built the state’s first community solar garden. That project, adjacent to the utility’s Rockford headquarters, allows homeowners who don’t want or can’t install rooftop solar panels to subscribe to a share in the large centrally located solar array.

A key feature of the co-op’s solar business model is that panels are installed on ­otherwise useless property with no leasing cost for the space, eliminating an expense faced by many energy projects. Solar and wind farms in rural areas typically pay ­multiple times the land’s agricultural lease rate.

“The idea is that the city can get savings in return for providing the space for the panels,” said Steve Nisbet, vice president for external relations and power solutions at Wright-Hennepin.

Nisbet said the utility also saves money by using some of its heavy equipment for installation work. Although the price tag is not final, Nisbet said it will cost, at most, $700,000. Like other Wright-Hennepin solar projects, the panels are being manufactured by Bloomington-based TenKsolar.

The project also has an innovative financial structure that allows the nonprofit co-op to benefit from the 30 percent federal investment tax credit for solar.

CoBank, a Colorado-based cooperative lender, will finance the purchase of the solar panels, and its for-profit subsidiary, Farm Credit Leasing, will own them and take the tax credit. Wright-Hennepin’s for-profit unit WH Solar will lease and install the panels and own the overall project.

CoBank’s Bolstad said the tax benefits, including accelerated depreciation, allow the leasing unit to offer favorable leasing terms, with a negative interest rate. “The tax benefits are extremely valuable,” he added.

Executives of Wright-Hennepin co-op, the state’s fourth-largest retail power co-op with 48,000 customers, said nine of them, a mix of cities, schools and churches, already have expressed an interest in the concept, which the utility is calling “bantam solar” to distinguish it from community solar.

“It is basically a response to what customers are looking for,” said Sonja Bogart, chief operating officer of the utility’s holding company for solar and other ventures. “We surveyed our customers and found that there was just a growing interest in solar and renewables.”

Although Rockford’s deal gives it a 7 percent electricity price discount, Nisbet said Wright-Hennepin’s future bantam solar deals may offer different terms reflecting changing costs. After next year, for example, the federal tax credit drops to a less-lucrative 10 percent. Even so, Nisbet said, “I believe we are still going to be able to continue this [business] model.”

Among the other cities interested in this solar approach is Maple Grove. Its city administrator, Al Madsen, said there have been discussions with Wright-Hennepin and Xcel Energy because both utilities serve different parts of the city. So far, no city solar deal has happened, he said.

“We are very much interested,” added Madsen, who is no relation to Rockford’s city administrator.