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Increase Your Asset's NOI with Solar Rooftop Tenants

Profit from an otherwise unused portion of your building with solar rooftop leasing or ownership.

The world is changing. The climate, economy, and technology are all changing. Ten years ago, the idea of a commercial real estate owner using their roof as a solar tenant space seemed complicated and expensive. But as we’ve already stated, things change.

Why is Rooftop Solar a Better Investment Now than in the Past/?

The adoption of solar photovoltaic (PV) technology at a massive scale over the past decades has drastically reduced costs associated with PV equipment, installation, and maintenance. The reduced hard costs along with a more favorable regulatory environment has magnified the potential income that can be made from rooftop solar.

There are a few different ways to financially structure your commercial rooftop solar array. The simplest and most traditional way has been for the property owner/manager to own the array, pay for the installation, and use the energy generated by the system to offset utility costs (net metering), thus lowering operating expenditures and increasing revenue. This scenario, however, requires a significant upfront investment because the owner is essentially paying for the next 25 years of electricity in advance. Depending on the cost of electricity and the available incentives in your market, the return on investment (ROI) can be as low as three to five years. Although owning the system can sometimes take longer to see financial gains, once they do come, they tend to be larger and last longer.

Another way to take advantage of rooftop solar is through a solar site lease model. In this arrangement, the owner of the property will lease the roof space to a third-party investor (usually an experienced solar developer), who will finance and own the solar array. The owner of the property makes money in the form of rooftop lease payments for 20+ years from an otherwise unused portion of their building. On the other hand, the owner of the PV system makes money by selling the electricity to a third party, usually a utility. The rent paid by the solar array owner can be structured as fixed and all-inclusive (with or without an annual escalator), it can be based on the output of the system, or it can be a percentage of the array owner’s revenue.

A similar option to the solar site lease model is through a Power Purchase Agreement (PPA), except the property owner signs a contract to purchase the electricity generated by the array at rates below the utility retail rate. In exchange the developer pays for the system and uses the roof space at no cost. The primary benefit of the PPA model for the property owner is the reduced utility costs. These PPA deals last on average for about 20 years, which is less than the expected lifetime of the array (25-30 years).

The PPA and solar site lease models require no money down from the site owner and no equipment or maintenance obligations. These are great options for property owners who want to take advantage of solar without the responsibilities that come from owning and maintaining the array.

Beyond just the revenue that can be directly generated by the array, there are other ways that solar increases the value of a property. According to the Department of Energy, buildings with “Green” certifications (solar and other energy efficiency attributes) charge higher rents and have lower vacancies. In addition, some localities have passed laws which will penalize buildings that have not taken steps to reduce their carbon emissions (ex. NY Climate Mobilization Act).

From a public relations perspective, an investment in rooftop solar demonstrates to property stakeholders, tenants, and the public that the future of the building and the planet is a top priority. As the movement to vote with your wallet progresses, a reputation of corporate social responsibility is increasingly critical.

How Do I Know if My Roof is a Good Candidate for Solar?

The ideal building for a rooftop PV system will have a large flat roof that is not overly crowded with HVAC equipment, air vents, or other obstructions. It will also not be heavily shaded by adjacent buildings or nearby tall trees. A very old roof may not have the structural integrity to support the weight of a solar array. Any building that meets these criteria, from industrial/manufacturing facilities, warehouses, big-box retail stores, and malls to multifamily properties, offices, schools, and municipal buildings can benefit from investing in rooftop solar.

In addition to the building itself, the cost of electricity and the regulatory environment in the market where the building is located are major factors that contribute to the revenue that can ultimately be collected from the system. The higher the cost of electricity and the stronger the available incentives for solar in your area, the better the investment in solar. Below are a few examples of regulatory programs that make solar a particularly good investment.

Examples of companies which have taken advantage of rooftop solar at an organizational level are: Apple, Facebook, Walmart, Safeway, IKEA, Volkswagen, Kohl’s, and Macy’s. Although this article is focused primarily on rooftop solar systems, large parking lots/carports and open plots of land are also good candidates for solar installations for many of the same reasons.

Common Concerns and Debunking of Myths

Is every roof a perfect fit for rooftop solar? No, but probably not for the reasons you think. There are a lot of negative misconceptions around rooftop solar which, in reality, turn out to be false. Below are a few myths about rooftop solar along with some other frequently asked questions.

Just like with many technologies after decades of slowly increasing adoption, the costs of rooftop solar have dropped, the issues have been worked out, the regulatory environment is favorable, and from an investment standpoint the value has never been higher.

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