Community Solar Facilities Increase NOI without CapExp

CRE owners are always looking to increase a building’s net operating income (NOI) through value add endeavors. Usually this involves significant capital expenditure and risk. However, there’s a new player that’s changing the game: community solar leases. Hosting community solar facilities allow CRE firms to increase a building’s NOI without any capital expenditure.

But what is community solar and how does it work? Most importantly, how are solar developers able to pay for their leases? Here, we will go over the basics of community solar systems, and the revenue associated with them. For CRE firms looking for an easy, no cost option to increase NOI, hosting community solar facilities shows itself to be a no brainer.

What are Community Solar Facilities?

Community solar systems are installed “front of the meter,” meaning they are connected directly to the grid rather than to the building’s energy meter. Simply put, community solar is an arrangement whereby electricity consumers can purchase discounted power from a local solar system instead of through their utility. Community solar has become an increasingly popular option for individuals and businesses who want to take advantage of the energy savings associated with renewables without installing their own system. Community solar is a good option for those whose roofs are unsuitable for solar as well as renters. It is also a good option for those who don’t have the capital or time to install and manage their own system.

The 3 streams of value associated with community solar:

• Energy sales: The energy produced by the community solar systems is fed directly to the grid and sold to subscribers. Energy sales are akin to rent in CRE, whereby the subscribers to the system are like tenants.
• Renewable Energy Certificate (RECs): In addition to the energy sales, the owners also earn ongoing revenue from the RECs. They are environmental commodities generated by the system’s production. REC markets and their value vary from state to state.
• Tax Benefits: Finally, solar developers make use of federal tax benefits including tax credits and accelerated depreciation. Often they monetize these benefits via tax equity structures. Federal solar tax credits are similar to LIHTEC in multifamily developments and opportunity zones in CRE.

These revenue streams put the community solar system owners in a strong financial position, enabling them to pay leases on the land or rooftops where the systems are hosted.  New Columbia Solar specializes in developing and monetizing solar efficiently, passing the economic value generated to landlords via lease payments. This allows landlords to reap the financial benefits of solar without CapEx or the brain damage associated with doing it on their own.

How Solar Developers Work with CRE Firms to Increase NOI

Solar leases are like an ESG-friendly cell tower lease. A solar developer installs a community solar system on the roof of a building or open land and pays a lease to the owner for their space. The beauty of this arrangement is that the solar developer bears the cost of installation and maintenance of the solar system, not the CRE firm. All that is required from the property owner is to act as a landlord and watch the lease payments roll in.

So, how does hosting community solar compare to other value add endeavors?

• Defined, risk-free income stream: The lease payments from the solar developer are defined under the contract and guaranteed for the term of the lease, typically 20-25 years.  They can either be fixed or include an escalator usually of about 2%. This adds a significant boost to the building’s NOI. This differs from other value add items such as unit rehabs that don’t provide a defined benefit or ROI.
• Enhance the building’s value: By increasing the building’s NOI with the addition of the roof lease, the building becomes more valuable. Additionally, buildings with solar installations are seen as more sustainable and environmentally friendly, which can increase their market appeal and, consequently, their value.
• Subsidize roof work: Depending on the condition of the roof, the solar developer may choose to subsidize a recondition or even full replacement ahead of installation to ensure the viability of the solar asset. Either way, New Columbia always works with roof manufactures to keep existing warranties intact.
• Contribute to the community: Community solar systems allow residents to tap into clean energy, reducing their utility bills and carbon footprint.

Solar leases present a unique and compelling opportunity for CRE firms. Hosting community solar facilities allow CRE firms to increase a building’s NOI without any capital expenditure, while also contributing to a sustainable future. Especially in states with favorable community solar legislation such as DC, Maryland, New Jersey, and Illinois, community solar leases can be quite lucrative to building owners relative to the lack of capital outlay and effort. It’s not just a bright idea; it’s a brilliant investment.

Please reach out to learn more about the roof lease options available at your property. I can be reached by email at [email protected] or by phone at (484) 431-0697.