July 19, 2016
What are some key qualities of an ideal tenant? One who is reliable with payment, low maintenance, quiet, and signs a long-term lease, to name a few. A solar energy system on your property embodies all these qualities – with the added benefit of presenting your company as a proponent of clean energy!
Adding a solar PV system as a tenant is an excellent way to monetize your property. Thanks to a combination of electricity bill savings, state incentive programs like Solar Renewable Energy Certificates (SRECs) and tax exemptions, and the federal 30% Income Tax Credit (ITC), solar is an excellent way to turn your roof (or land, or parking lot even) into revenue. The best part? A solar tenant can take a number of different forms, able to adapt to the arrangement that best benefits your company.
A site lease is perhaps the most similar arrangement to a traditional tenant/landlord relationship. In a site lease agreement, you agree to lease your roof to a developer or an investor who uses the space to build a solar installation. You turn an unused space – your roof, an open plot of land, etc. – into a revenue stream. Even better, there is no installation or maintenance fees required of the property owner. All associated costs are the responsibility of the solar array owner. The property owner simply receives a monthly lease payment for the use of their space.
Before construction, the solar owner and the property owner enter into a lease agreement, where the solar owner agrees to pay a pre-negotiated lease amount to the property owner each year, in exchange for the property owner to provide the space for the array. These agreements typically last a period of 20 or more years. Under a site lease agreement, the host property does not receive any of the electricity generated from the array, and all power produced is fed back into the electric grid, and sold to either the municipality or other businesses in the area.
Solar site leases are an excellent way for an organization or a business to become involved with the solar industry without worrying about a capital investment, routine maintenance or incentive management, or the monitoring of a solar system. By participating in a solar site lease, you turn your roof or land into revenue, and help another member of your community receive the solar electricity they want.
Another “solar tenant” arrangement is a Power Purchase Agreement (PPA). Similar to a site lease, a PPA involves a solar array owned by a third party investor, and not by the property host. In a PPA however, the host building purchases the electricity generated by the array from the solar owner at a reduced rate. The solar energy generated will be credited to the building owner’s electric bill, and the array owner will send a separate bill for the energy offset, charging a significantly lower rate per kilowatt hour than the utility.
A power purchase agreement allows a company to take advantage of the operational cost savings benefits of a solar array, without the large capital investment required to build and own the array. In this scenario, the array owner also manages and maintains the system, allowing the solar host to simply benefit from reduced energy costs.
Owner Financed Array
The third option to open your property to a solar tenant is to purchase and own the array yourself. In this situation, you take on all responsibility for the array, but can also take advantage of all the financial benefits.
As an investment in infrastructure, solar is a capital expenditure and funds set aside for this purpose can be used to install a solar PV system. If a business does not have existing capital funds to purchase a solar PV system, they can finance a solar array with a capital loan from a bank or financial institution. Just like a car loan, the business will pay off the capital over time.
A solar system purchased with capital funds strays the farthest from the traditional tenant/landlord relationship. However, an owner-financed array is the most lucrative option, as you are able to take advantage of all energy savings, tax benefits, and SREC revenue generated by the array. A solar array does require some maintenance, though this is often limited to an annual preventative maintenance visit. Other than this annual maintenance, an owner-financed solar array acts as a lucrative, reliable, low-maintenance tenant.
When looking for new ways to monetize your property, give some thought to welcoming a solar tenant to your building. With flexible financing options and substantial rewards, it might be the best tenant you will ever have!