commercial SOLAR 101

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As a commercial real estate asset manager, your primary goal is to  maximize ROI and increase property value. One potential way to achieve  these goals is by investing in a commercial solar project. Solar  projects offer many financial benefits, including reduced energy costs,  tax incentives, and increased net cash flow.   Here is some detailed info on these topics:

Incentives are constantly evolving and often over-subscribed or expired by the time you decide to pursue solar.  Solar CFO can help you track these incentives and keep you informed when a new opportunity is on the horizon.    See our 50 States of Solar for state by state details.   

If you own commercial property in these areas, you should be actively investigating solar for your building.  Here are a few incentives that you should know about:

• See our Tax  Incentives page for a list of Federal programs
• Rural properties with a population of less than 50,000:  There are loan guarantees by the USDA for up to 75% (similar to how an SBA loan works).

For more accurate and updated information on solar rebate programs in each state,  please visit the Database of State Incentives for  Renewables & Efficiency (DSIRE). Established in 1995 and funded by the U.S. Department of Energy, DSIRE  is an ongoing project of the N.C. Clean Energy Technology Center at N.C.  State University and provides the most current incentive data. 

Undercutting the utility with onsite electricity generation is the most important factor.  There is a term commercial property managers should know:  Levelized Cost of Electricity ("LCOE") over the life of your system.  Think of it as the amortized cost per kWh.  

Total cost of system (net of incentives) divided by total kWh produced over 25 years = LCOE.  The LCOE for commercial solar is about $0.06 to $0.10 per kWh.  As long as your utility rates are higher than the LCOE, then solar works.

Here is a link to current electricity prices per kWh by state from the U.S. Energy Information Admin. Below are a few examples of commercial and industrial kWh pricing:

• Hawaii solar market is one of the best because it has some of the highest in the country at over $0.30 per kWh.  
• California also has very high rates:  SDGE approx $0.30 per kWh, PGE approx $0.22 per kWh, and SCE approx $0.16 per kWh.  
• Texas has very cheap electricity around $0.07 to $0.10 per kWh.
• Many other states also have pending legislation which will increase the viability for solar projects in those states.

Solar 101:  You either sell electricity into the grid (front of the meter) or you provide energy to your building to offset your onsite consumption (behind the meter).  

Some states have different policies that can make or break your solar project.  These policies are largely driven by statewide goals to become 100% clean energy states.

Behind the Meter ("BTM"):  Some states offer favorable policies that allow you to "sell" electricity back to the grid in the form of a credit to your electric meter.  This is called Net Metering and is common for behind the meter projects.  The rules are constantly changing, but here is a great article that was recently updated with the net metering rules of each state.  BTM projects can offer the highest ROI because you are "selling" electricity at close the retail rate.

Feed in Tariffs refer to programs where your building produces energy and sells 100% of the electricity into the grid at a fixed rate.  For example, LADWP, a utility in Los Angeles, had a program where you sell electricity for $0.14 for a period of 20 years.  This is like a credit tenant signing a 20 year lease, which means you can get cheap bank financing to build your project.

At least a few times a month we are approached by a landowner who is interested in building a solar farm. Just because you build a solar farm, it doesn't mean you'll have a buyer of the power.  The solution…Community Solar.

What is community solar?

Community solar (also known as shared solar) is a solar energy installation that allows multiple people or organizations to share the benefits of a single solar energy system. Instead of installing solar panels on their own roofs or properties, members of the community (“subscribers”) can purchase or lease a portion of the solar energy produced by the shared solar installation. This allows people who may not have the ability to install solar panels on their own property, such as renters or those with shaded roofs, to still benefit from solar energy and reduce carbon emissions.

How can real estate owners make money?

Commercial real estate owners can opt to own the renewable energy system or lease available land/rooftops to a 3rd party who will develop and operate the project at their own cost.

Key considerations: 

• Do you have access to capital to fund all the upfront costs? Typically, a minimum system size of 2 Megawatts is preferred to achieve economies of scale, and ideally at least 5 Megawatts. In either scenario the investment will be several million dollars. 
• Can you take advantage of the 30% solar tax credit and 80% bonus depreciation (drops to 20% in 2026)
• Like any energy infrastructure, solar farms require regular maintenance and upkeep to ensure optimal performance. It's important to factor in ongoing maintenance costs when considering the overall investment.

Is community solar available in all US states? 

Similar to other solar incentives and programs, community solar opportunities vary by state, and many have a capacity limit. See our article on community solar for more details.  

What type of properties are a good fit for a community solar? 

This will vary from state to state, program to program, but generally speaking here are common requirements:

• Large / flat industrial rooftops over 200k SF
• Undeveloped land with a minimum of 7 acres
• Preferably located near a substation with available capacity