Solar energy is one of the simplest and most cost-effective investments commercial real estate (CRE) developers can make. Investing in solar was once considered expensive and cumbersome by property owners and managers, who believed the effort was not worth the financial return, but that is no longer true. Installing a solar photovoltaic (PV) array is one of the most cost-effective strategies to reduce utility expenses, increase rents, and reduce common area maintenance (CAM) reimbursements.
Many businesses have agreed to get all of their energy from renewable sources. Starbucks, Kohl’s, Apple, the National Hockey League, and Intel are among the companies that have purchased enough sustainable energy to counterbalance or run their whole operations. However, real estate developers who sell or lease their properties, on the other hand, have been more hesitant to include rooftop solar in their projects as there hasn’t been much incentive because their renters usually pay the power bills.
Solar energy could previously only be used in communal power spaces on multi-tenant properties. This isn’t the case anymore. Individual renters can now profit from commercial solar systems, thanks to the recent implementation of “virtual net metering.” As a consequence, higher rents can be offered, and a tenant’s lease can be extended with assured energy savings baked in. It provides for fast ownership of the solar asset without a substantial financial outflow, and the lessor is frequently freed of equipment upkeep.
A power purchase agreement (PPA) is another common alternative in which a third-party developer, such as Sunpin Solar, owns, manages, and maintains the solar system while charging a fixed amount for power.
Even if a building is not suitable for solar installation, it can benefit from wholesale solar energy sales from other large-scale solar installations. The cost of wholesale solar has decreased considerably, and the CRE sector is beginning.
For CRE developers who are not willing to bear the costs of owning and managing installed solar, an Operating Lease is a popular option to take advantage of this through local community solar projects, municipal purchasing, and off-site solar procurement, where it was previously an unknown alternative.
In today’s time, PV systems are seen by some entrepreneurial developers as a means to achieve green construction standards while also lowering vacancy rates and increasing lease rates. Most significantly, many people who are prepared to make this investment have figured out how to recoup their installation and administration expenses – they’ve figured out how to profit from PV.
While net-zero energy buildings or buildings that generate all of their energy are a popular goal in the green building industry, there is also a space for buildings that use PV systems to satisfy only a portion of their energy demands.
In certain circumstances, developers may be able to use financial incentives to produce a small level of potential cash flow. Solar is a building enhancement that will increase income while significantly cutting running costs. Owners of certainly huge warehouses or similar buildings with an unobstructed rooftop may gain from leasing the space to absolutely such Solar firms that will install solar panels and create PV electricity.
Attract a new tier of clientele. Tenants and residents who want to use renewable energy sources have plenty of options. Real estate developers may appeal to an untapped audience of clients who are prepared to pay extra for sustainable energy if their development can improve solar energy infrastructure. At the same time, by hedging against fluctuating energy prices, developers can safeguard renters and residents.
Solar energy systems are being used by real estate developers to keep renters, boost rents, and even save money for companies and individuals. In either case, adding solar energy into the infrastructure is a valuable asset developers can add to their list of perks that renters will appreciate.
Financial incentives and tax credits. Tax credits and other incentive schemes are available to help fund clean energy projects as the government attempts to assist the nascent solar industry. However, these initiatives may not continue much longer, so if developers want to optimize the return on their solar investment, now is the correct time. They may be able to use their financial incentives to achieve positive cash flow in some circumstances.
Minimal opportunity costs for solar land development. One of the advantages of solar adoption is the low opportunity costs for real estate developers because solar panels are typically installed on disused vacant land or in uninhabited locations such as roofs. They don’t have much to lose and a lot to gain by using a solar system to utilize their spare space.
Return on investment. Solar energy systems, unlike traditional energy systems, are designed to provide a complete return on investment. If a developer goes with a traditional energy system, it’s considered a cost of doing business, and he won’t get a direct return on his investment. On the other hand, with a solar energy solution, the developer may anticipate his investment to pay for itself and perhaps make money in the long term.
The most effective strategies to recoup expenditures
Developers should employ five basic ways to manage the cost of incorporating solar into their structures:
1. Use a full-service lease, a modified gross lease, or a gross lease: The benefit of decreased pricing can be leveraged to boost the margins made on leasing arrangements in models where the landlord pays all of the utility bills. They can set leasing rates at market value, but they will profit more from the connection than competitors.
2. Institute a green surcharge or green lease: This would result in a “value” for the solar installation.
3. Sell PV-generated electricity directly to tenants: This technique is illegal in certain places, and it may need a specific license.
4. Take advantage of PACE (Property Assessed Clean Energy) bonds: This form of the lease allows the landlord to pass on running costs, such as property taxes, to the tenants directly.
5. Lease or loan the roof to a third-party solar company: Some developers may opt to lease their rooftops to another firm for solar growth. In this concept, a third party “owns” the power plant for a specific length of time and pays the building owner rent for the use of the area. In reality, Prologis, a massive real estate investment trust, has been involved in a number of these transactions.
Gautam Solar has an R&D Center and four factories in Haridwar for manufacturing solar components in the entire value chain of distributed solar.
The views and opinions expressed in this article are the author’s own, and do not necessarily reflect those held by pv magazine.
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