IOWA CITY, Iowa -- Solar energy companies can legally sell power directly to customers, the Iowa Supreme Court ruled Friday in a boost to the small but growing source of renewable energy.

The ruling will likely expedite the adoption of rooftop solar power generating systems — particularly by cities, schools and nonprofit groups — that can reduce users' energy costs and their impact on the environment. It also puts Iowa in line with about two dozen other states that allow so-called power purchase agreements, at a time when state leaders are hoping to expand solar energy production.

"This is an important milestone for solar energy in Iowa," said Rhone Resch, president of the Solar Energy Industries Association in Washington. "It undoubtedly will help to jump-start solar installations across the state."

At issue was whether Eagle Point Solar could enter into an agreement with Dubuque to install solar panels at a city building. Under the arrangement, the city would purchase power generated from its rooftop from Eagle Point, which would own and maintain the panels for a period of time before the city gained ownership.

Such agreements allow entities that don't pay taxes — including governments and nonprofits — to take advantage of generous federal tax breaks designed to promote solar energy. They allow users to avoid the expensive initial costs of installation, and let solar companies recoup their investments by bringing in revenue from energy sales. Dubuque-based Eagle Point and other companies plan to market similar agreements statewide after Friday's ruling.

Alliant Energy and other utilities had argued that the agreements were illegal. They claimed solar companies could not sell power to customers under Iowa law, which grants regulated utilities the exclusive right to customers in their service territories in exchange for providing affordable electricity to all. Allowing such agreements, the companies warned, could lead to higher rates for customers to make up for lost business.

The Iowa Utilities Board, which regulates utilities, agreed. The board had ruled that Eagle Point Solar would be acting as a "public utility" by selling power to Dubuque, which wasn't allowed, and could take away customers from Alliant. Eagle Point and other solar advocates appealed, and a judge overturned the board's decision last year.

In the Supreme Court's 4-2 decision, Justice Brent Appel wrote that agreements such as the one proposed for Dubuque do not have enough "public interest" to justify treating the solar company as a regulated utility. He said demand for electricity from utilities could drop if the solar movement "gets legs in Iowa," but there was no evidence offered about the potential impact. He noted that in states that allow purchase agreements, "there was no suggestion that the integrity of the grid or economic health of regulated providers has been adversely affected."

Appel noted the "countervailing positive impacts" of solar energy.

"Behind-the-meter solar facilities tend to generate electricity during peak hours when the grid is under the greatest pressure," he wrote, adding that Iowa law also requires utilities to promote renewable energy.

Dissenting Justice Edward Mansfield said the court was improperly acting "as experts on the delivery of electrical energy" and should have deferred to the Iowa Utilities Board decision.

A spokesman said the board would factor the ruling into its ongoing review of self-generation of solar and wind energy, which could lead to rule-making or recommendations to lawmakers. Mark Douglas, president of the Iowa Utility Association, said utilities were studying the "broad implications" the ruling could have on customers and service.

Iowa has the 16th most potential for solar energy production, according to an Iowa Environmental Council report. Gov. Terry Branstad signed a law earlier this year expanding state tax credits for solar energy projects.