Commercial Rooftop Solar: Answering 5 Key Questions
October 15, 2024
Content
1. Does the building have to use all the energy?
2. What is the investment for commercial real estate owners to host a rooftop solar array?
3. Is the property owner responsible for maintenance of the solar array system?
4. Are rooftops the best sites for installing solar?
5. When is the best time to install solar?
Solar Landscape is trusted by the biggest names in real estate including Prologis, Principal, PGIM, and more. Connect with us today for an initial site assessment.
Key Takeaways
- Revenue Opportunities: Property owners can generate consistent income by leasing their rooftop space to solar developers.
- Prime Candidates: Buildings with 30,000 square feet or more of available roof space are ideal for solar installations.
- Act Now: Attractive solar programs are available with no upfront costs. Current policies offer significant financial incentives for real estate owners, but future mandates are likely to increase demand and lower lease rates. Now is the time to capitalize on this opportunity.
Introduction
With rental prices softening and stubbornly high vacancy rates, commercial real estate owners are thinking about a new tenant: the sun. A Q2 2024 report from CBRE highlights the ongoing challenges in the commercial real estate market, prompting many owners to turn to solar leases as a way to mitigate market volatility.
Leasing rooftop space on large commercial and industrial buildings for solar installations not only generates reliable revenue – whether a building is occupied or not – but also supports sustainability initiatives.
In this blog post, we’ll address key questions about the installation of rooftop solar projects, covering the how, where, and why. Our goal is to simplify the process and highlight the benefits, enabling commercial property owners to confidently explore and adopt solar energy solutions.
1. Does the building have to use all the energy?
No.
Years ago, commercial rooftop solar installations were designed primarily to power the building itself, which limited the size of the system and restricted its use to properties with high energy demands, such as data centers or refrigeration warehouses.
Today, with the front-of-meter model (FTM), buildings no longer need to directly consume all the solar energy generated by the rooftop panels. The energy is instead fed back into the grid, allowing property owners to receive revenue through an annual lease payment, regardless of the tenant’s energy needs or occupancy status.
2. What is the investment for commercial real estate owners to host a rooftop solar array?
Zero. Absolutely nothing.
It’s revenue without investment.
Today, hosting rooftop solar panels can be an immediate value-add to the revenue stream of an asset, just like adding a new tenant.
While it might sound too good to be true, third-party ownership is a well-established financing model. In this arrangement, the building owner leases the rooftop to a solar developer who finances, builds, owns and operates the system throughout its lifetime. The developer pays the owner a regular lease payment, increasing the property’s NOI and enhancing its long-term value—without any capital investment from the property owner.
3. What maintenance is involved in maintaining the system?
The sun is one of the lowest-maintenance tenants you can have—likely even less demanding than your current tenants.
In the rooftop lease model, the solar installation is owned and maintained by the solar developer, so the building owner has no responsibility for monitoring or maintaining the system. Solar Landscape provides 24/7 monitoring for all its projects and conducts regular inspections of both the solar panels and the rooftop to ensure optimal performance and protection.
4. Are rooftops the best sites for installing solar?
Commercial rooftops are among the best sites for generating solar energy and distributing it back to the grid.
Typically unused, rooftops offer a valuable opportunity to generate revenue by serving as hosts for solar installations. Additionally, commercial rooftops are often located closer to homes and buildings that will consume solar energy. That proximity reduces the demands on the electrical grid and alleviates construction delays.
By utilizing rooftops for solar, building owners can strengthen their connection to the community while preserving open land that might otherwise be used for large-scale solar projects.
“This program is a win – put rooftop solar on ALL the big-box buildings and warehouses. Like landfill, it’s an ideal place to create clean energy” – Elektrek
5. When is the best time to install solar?
The time to install rooftop solar is now.
With billions of dollars in clean energy investments available, the commercial rooftop solar market is primed for growth. FTM programs offer building owners the opportunity to start generating revenue immediately. Often, the mark of a good decision is that you wish you’d made it sooner – a sentiment we frequently hear from our commercial real estate partners. Delaying solar installations can come at a cost, as many states offer solar incentive programs that reward early adopters with higher payments on a first-come, first-served basis. Additionally, local electrical grids have limited capacity for solar energy, and once that capacity is reached, no further solar development can occur.
Moreover, a growing number of cities and states are enacting building performance standards (BPS) which mandate energy upgrades like solar and impose fines for non-compliance.
As these mandates drive demand, we can expect a surge of interest in rooftop solar installations, which could ultimately lower lease rates for FTM solar projects. That’s why industry leaders like PGIM and Heitman are partnering with Solar Landscape now – they recognize the current market’s profitability and are taking advantage of the opportunity while it’s still lucrative.
Commercial Rooftop Solar: A Win-Win for CRE Owners
Commercial rooftop solar is a win-win; it enhances both revenue and sustainability while providing a streamlined, maintenance-free energy solution.
Here are the highlights of commercial rooftop solar:
- Revenue Generation: Owners collect rooftop lease payments from solar developers, enhancing their NOI.
- Ideal Properties: Buildings with 30,000+ square feet of roof space are prime candidates for solar installations.
- The Time is Now: With commercial rooftop solar programs available today and lucrative policies in place, there’s no better time to take advantage of solar. Delaying could result in missed opportunities as upcoming mandates are expected to shift demand and drive lease rates down.
By embracing rooftop solar, commercial real estate owners not only position their properties for increased profitability but also demonstrate a commitment to sustainability. Join industry leaders like Prologis and Principal who are already reaping the rewards.
Find out if your rooftop can be generating revenue for you.
