By Rachael Mountain
Budget season is back, and that means juggling competing interests when putting together your 2022 budget proposals. If you’re a commercial property owner, one thing your budget always includes is an estimate for utility expenses. Like death and taxes, utility expenses are a given, right? But what if you could remove this expense and replace it with an asset?
Onsite solar energy for your commercial property offers that opportunity. Solar reduces OpEx, increases NOI, generates significant tax benefits, and allows businesses to differentiate themselves in this competitive market. Commercial solar on your property amounts to an attractive return on investment and increased building value and assets.
Assessing Capital Energy Improvements
Capital energy improvements, like solar, present an opportunity to improve the real and perceived market value of your property. Even owners of triple net (NNN) lease spaces can capture solar energy’s generous economic benefits. Known as “green leases,” pass-through clauses help investors recoup their investment while also offering energy savings to tenants. This solution provides financial motivation for both owners and tenants to carry out capital energy improvement projects that may have otherwise been overlooked. The City and County of Denver’s Smart Leasing Program and Green Lease Leaders provide resources and examples for pass-through structures.
Owners of solar capital improvements benefit from the current 26% Federal Investment Tax Credit and 100% bonus depreciation without needing to occupy the facility on which the solar asset is installed. These tax benefits amount to a minimum of 47% of the upfront investment, and they can pass through to individual LLC members. On top of that, 20-year Renewable Energy Credit (REC) payments from Xcel Energy’s Solar Rewards Program can be assigned to the system and building owner. Owners can expect to realize a double-digit IRR and single-digit break-even on a 3-decade asset for sizable commercial properties, not including the potential increase in property value.
Including Solar this Budget Season
This is your opportunity to earmark a project budget, or at a minimum feasibility funds, so your company is well-positioned to explore solar in 2022. Talk to a local solar expert to get started. They’ll be able to provide budgetary numbers within a few days based on the size of your roof, utility history, and project goals. Upon further design and consultation, a more formal proposal can be provided. Working with an experienced solar developer means your unique investment parameters are modeled into the project economics, ensuring that the cost and ROI estimates in the proposal are reliable numbers for your budget.
Waiting to pursue solar comes with a significant opportunity cost. The sooner you capture savings on operating expenses, the sooner you have increased cash flow for core business operations. A 2022 installation ensures access to the current 26% Federal Investment Tax Credit and bonus depreciation (before they step down in 2023).
Whether you ultimately choose a cash purchase or to finance the project, budgeting for solar helps to inform your goals and define desired outcomes for deploying clean, renewable energy on your property. If capital is reserved for your business’ core competencies, it may be prudent to explore C-PACE financing. This program allows up to 100% non-recourse financing with long-term, fixed interest rates. An experienced solar company can help you understand this opportunity and quantify how C-PACE can allow you to be cash flow positive for the life of the project after just one year.
Letting Budget Inform Priority
Start the conversation around your capital energy improvement dollars this budget season to inform next year’s priority projects. Corporate adopters that are procuring clean energy resources are not only capitalizing on the various tax benefits and incentives, they are also differentiating themselves from their competition. These businesses are well-positioned to control their energy costs, achieve ESG goals, and market their sustainability.
Don’t accept rising energy costs and utility expenses as a given. Contact a local solar expert today so you can access the benefits of solar in 2022.
Rachel Mountain is co-owner and commercial solar project developer – Namasté Solar. Namasté Solar’s purpose is to transform energy and transform business. The company’s experienced solar advisors will help you understand your project goals, timelines, and milestones. Look at their extensive commercial experience and see how they measure up.
