The clean energy sector is booming from all directions: homeowners, utilities, and businesses are installing solar at breakneck speeds, companies are divesting from fossil fuels and focusing on ESG goals, governments are passing multi-billion dollar incentive packages for clean energy, and state regulatory environments have never been more supportive.
Despite this progress, we have a long way to go, as commercial and industrial (C&I) buildings still account for roughly 25-40% of global GHG emissions and only 3.5% of all commercial buildings have solar. Approximately 70% of the remaining commercial buildings are potential targets for solar, representing over 600,000 sites and 145 gigawatts of solar capacity (about 5x our current generation capacity of all non-utility-scale solar PV).
If you are a C&I building owner (e.g. malls, car dealerships, apartment complexes, municipality buildings, etc.), read on to discover the top 5 reasons to install clean energy on your property in 2022.
💰 Reason #1: Reduce your energy costs with a solar project
The cost of solar energy deployment has decreased by over 70% in the past decade, making it the cheapest form of electricity in history.
By installing solar and offsetting electricity costs from the central grid, C&I property owners can reduce electricity costs by 75% on average. For an average C&I building owner with a $2,000 monthly electric bill, this equates to a new bill of roughly $500. If you size your solar system for an 100% offset, you can eliminate 100% of your electricity costs (though you’ll still have to pay for basic utility costs, such as the fixed customer charges, assuming you opt for a grid-tied system).
There are several factors that can increase or decrease these savings: the cost of your current electricity and the way you buy solar. The former is a simple relationship: the higher the cost of your current electricity, the more solar will save you, since each kWh of solar production displaces a kWh of grid electricity. The latter is a bit more complicated as there are 3 main ways to buy solar: a cash purchase, a lease, or a power purchase agreement (PPA). A lease and PPA are ways to buy solar with no money down (which usually realizes savings in year 1) whereas a cash purchase is simply a direct purchase of solar that pays back over time (typically within 5-15 years).
🔌 Reason #2: Achieve grid independence
Solar grid independence has two flavors: independence from electricity rates, and independence from the grid entirely.
In the former, your solar system is still tied to the grid to ensure that excess production is net-metered, but if the grid experiences a brownout or blackout, your system will similarly be disrupted. Roughly 95% of existing systems are grid-tied in order to retain the benefits of net-metering and grid electricity as a backup in case their solar system underproduces (not to mention, an off-grid system is simply more costly to setup and maintain). The remaining 5% are independent from the grid entirely as off-grid systems. These systems require battery backup and act as their own power plant: power is produced on-site and excess is stored in the battery backup system. Crucially, when the central utility grid experiences a blackout, an off-grid system is unaffected since it has no physical connections to the grid. While off-grid systems ensure complete resilience to grid disruptions, their key drawback is that all energy must be produced on-site and their only backup power source is the battery (and any other auxiliary energy sources, such as diesel generators).
Regardless of which flavor of grid independence you choose, both share a crucial benefit: independence from grid electricity rates. Your electricity rate increases every year to help the grid pay for its increasing costs of upkeep. In fact, the average retail electricity rate has increased from 6.5 cents/kWh to 10.6 cents/kWh from 1990 to 2020 (a 63% increase), and PG&E’s electricity rates are expected to be 40% higher by 2030 than if they had simply followed inflation. This has no signs of slowing down, as the average annual utility escalation rate is 3% across the US. By installing solar, you will decouple from the central grid’s electricity rates (or from the grid entirely, if you opt for an off-grid system), produce energy directly on-site, and literally take power back in your hands.
🧑⚖️ Reason #3: Take advantage of generous solar project policies and incentives
Top 25 and bottom 25 solar states based on the availability of state-level solar policies. Rankings are based on the “2020 State Solar Power Rankings Report“
Unlike much of the Western world including Europe, the US’s renewable energy policies are governed by the states, with the federal government simply issuing biannual “national energy plans” that are non-binding and more of a roadmap.
As such, states have drastically different policies depending on their political bend — from very solar-friendly states like CA, TX, MA and NJ to not-so-solar-friendly states like MS, AL, OK and KY. There are dozens of renewable energy policies, but here are some of the most consequential:
- Go solar at no cost: Third-party financing via PPAs or leases enables solar customers to purchase solar electricity with no upfront cost. Third-party financing is permitted in 15 states today and is a huge game-changer, as solar customers can simply pay for solar electricity (which is almost always cheaper than the grid’s electricity) while the developer handles the financing, procurement, and installation.
- Bank your surplus energy: Alluded to in the previous section, net metering is a policy that enables excess solar to be “banked” and used at a later time (for instance, excess solar in the afternoon can be used at nighttimes when solar production is lower). This is a critical policy, as solar production usually peaks in the afternoon, leading to large surpluses of production. Currently, 45 states offer net metering, though they differ in the technologies that are eligible to net-meter, the credit amount for net-metering (retail or wholesale energy rate), and their treatment of rollover net-metering credits.
- Reduce your tax bill: The federal solar ITC is one of the most important economic incentives, as it enables the owner of the solar system to deduct 26% of the total cost of the solar system from its annual federal tax liability. For instance, if a commercial building installed a solar system that costed $50,000, it can deduct $50,000 x 26% = $13,000 from its annual tax bill. Under the current policy the ITC will step down to 22% in 2023 unless an extension is included in Biden’s Build Back Better Act that is currently being negotiated in congress.
- Earn extra income from your solar system: Eight states (OH, PA, DE, IL, MA, NJ, DC, MD) have active Solar Renewable Energy Certificate (SREC) markets. SRECs are monetary credits given to the owner of a solar system for each megawatt-hour of electricity produced ($/MWh). The value of these credits range from $30-500/MWh, depending on the state. Regions like DC have very high SREC prices, on the order of $400/MWh, while states like Maryland have SREC prices closer to $80/MWh. State utilities will buy SRECs to comply with their Renewable Portfolio Standards (RPS), which mandate a certain proportion of state electricity to derive from renewable sources. So if a state utility purchases 100 SRECs, it can claim that 100 MWh of its electricity derived from renewable sources. If you own your solar system (i.e., you are the financier/developer or you purchased the system via a direct cash purchase), then you can monetize your SRECs to state utilities to make extra income. For instance, a 1MW system that generates 1,300 MWh of electricity per year in DC will receive SRECs worth roughly $520,000 every year (1,300 MWh x $400/MWh).
All of these policies and more not mentioned (e.g., state solar rebates, property tax exemptions, sales tax exemptions) make solar a no-brainer in many parts of the US.
🌎 Reason #4: Boost your company’s ESG progress
Environmental, Social, and corporate Governance (ESG) goals are a way for companies to translate their values into action. As the world faces ever-growing issues of climate change, social, and income inequality, private-sector action is imperative to tackle global issues.
Solving such global issues are merely ambitions while ESG reporting is the data measuring that ambition — 90% of S&P 500 companies conduct regular ESG reporting and ESG investing has reached record highs year-after-year. From Jan-Nov 2021, ESG-focused funds captured a record $649 billion worldwide, up from $542 billion and $285 billion in 2020 and 2019, respectively.
Such inflows are not coincidental, as ESG values cultivate real business value by attracting top talent, fostering brand goodwill, and establishing customer trust. A PWC survey of thousands of employees and consumers concludes that 86% of employees prefer to work for companies that care about ESG issues and 91% of business leaders believe that their companies have a responsibility to act on ESG issues.
The bottom line is that ESG goals are clearly a net positive, and clean energy is a way to improve your company’s ESG score while saving money.
📈 Reason #5: Increase your property value with onsite solar
There are two main ways to think about value for a commercial property: the value when sold or the value at present. Solar benefits both cases, as it boosts the resale value of a property and decreases the overhead costs for the current owner.
The latter is very simple explanation: any amount of electricity that your solar system produces is electricity you don’t have to pay for. The former is a little bit more nuanced, as the increased resale value of your property depends on what state you’re in and whether or not you are the owner of the commercial property. If you are the owner of the property, then solar becomes a part of your property and the resale value will likely increase.
Even if you are the tenant of a commercial building (and not the owner), solar can still benefit you, as the only difference is that you won’t recoup the tax credits or RECs. Tenants still enjoy the benefits of reduced electricity bills and may be willing to stay longer due to those reduced bills. Moreover, properly structured PPAs or solar leases can be transferred to a new tenant if the original one leaves, making the property more attractive to new tenants.
For real estate owners, solar can improve net operating income (NOI) and net cash flow (NCF), as it reduces operating expenses (i.e., reduced electricity bills) and improves top-line revenues (properties with solar tend to warrant higher rents). Since tenants have lower bills, solar can also increase the net present value (NPV) of properties, as those tenants may be willing to extend their leases. Even if a property owner has multiple tenants (such as an apartment complex), some states offer “virtual net metering” whereby multiple tenants can benefit from solar even if they are not directly integrated into the solar system.
🏃 Ready? Get started here!
One of the key difficulties of going solar is finding the right provider. Station A helps commercial buildings go solar the easy way by analyzing your property for solar potential, crafting a digital RFP, and collecting bids from our network of 2,000+ trusted providers. Our technology quickly analyzes your property for solar potential based on geospatial characteristics so you don’t have to hire a big sustainability team. Best of all, there is no cost to working with Station A, so start your journey today!