Solar: Reducing OpEx and Increasing NOI During Uncertain Economic Times
By John Shaw, commercial solar project developer at Namasté Solar.
Namasté Solar is one of the longest-running solar companies in Colorado, with over 8,000 local homeowners, businesses, and commercial property owners as our customers. We recognize that our community is facing uncertainty and stress as a result of the coronavirus crisis. It’s a strange time not only to do business but to live our day-to-day lives. While the crisis continues to challenge every sector of our economy and personal lives, we believe it is more important than ever to reinforce our commitment to our community and support our local economy. We’re all in this together. Going solar has been a smart business decision for years, but installing on-site solar now provides greater positive impact on our community than ever before.
Advocates of solar energy tout its environmental attributes, affordability, reliability, and benefits towards grid resiliency, but solar energy also delivers business resiliency and an attractive ROI. In the case of commercial solar, powering your business with the sun means more control of the bottom line.
Commercial solar offers you the opportunity to turn an expense into an asset, reducing utility costs, increasing income, and generating significant pass-through tax benefits. Beyond an attractive ROI, solar helps you hedge against rising electricity rates by locking in your energy costs with a 3-decade asset.
Tax benefits that accrue in the first year of operation currently amount to over 47 percent of the original investment. The Federal Investment Tax Credit (ITC) is currently 26 percent of the topline price (dropping to 22% in 2021, then a permanent 10% from 2022 on). This tax credit is used to directly offset your tax liability dollar for dollar, and can pass through to LLC member-partners. Additionally, 100 percent Bonus Depreciation allows you to depreciate the asset fully in year one, amounting to another 21 percent for corporations, or more for LLCs with high-net-worth members. These tax benefits come whether or not you are financing the system, which means that for many of our customers financing half of the system you are already in the black by year two.
How does Solar boost NOI? In addition to utility savings (which owners can capture even in NNN leases), Xcel Energy’s Solar*Rewards Program offers 20-year contracts to purchase renewable energy credits (REC) for 3.75 cents per kWh produced. For a 500 kW system (approximately 70,000 square foot rooftop) this amounts to annual payments of over $27,000.
Given the current disruption to our economy, you may understandably be focused on preserving capital. Enter the Colorado Commercial Property Assessed Clean Energy (C-PACE) program, which has been a game-changer for solar thanks to fixed interest rate financing for up to 100% loan-to-cost with terms up to 25-years. This non-recourse and non-accelerating financing is tied to the building via a special assessment (on property taxes) and therefore is transferable upon sale. In fact, some CPAs/CFOs consider it off-balance sheet financing. For new construction projects, C-PACE can be used to replace more expensive mezzanine debt, achieving capital efficiencies that make improvements like solar even more attainable.
While other forms of low-interest financing are available, C-PACE is an especially attractive option for NNN leases. Because C-PACE repayment comes via a special assessment on property taxes, which the tenant typically pays in a NNN lease, the landlord can easily pass through the cost of the improvement to the tenant. When structured appropriately, the tenant benefits from the transaction, receiving utility bill savings that more than offset the additional cost of the C-PACE assessment. At the same time, the owner enjoys the tax benefits and utility incentive income (Xcel REC payments), a true win-win.
Beyond the compelling economics, market demand and local building codes like Denver’s Green Building Ordinance are driving the push towards greener, healthier, and lower OpEx commercial buildings. For tenants, offices are extensions of their corporate image, and there is market research to support that green buildings yield higher productivity and aid in talent recruitment. For landlords, green improvements have been shown to attract premium tenants with longer leases. The architects, developers, and brokers that incorporate solar are differentiating their projects and leveraging their competitive advantage.
We remain confident that our Colorado community will emerge from this health and economic crisis stronger and more resilient. We are equally confident that solar energy will continue to play a critical role in improving the health and vitality of our communities. In this time of crisis, Namasté Solar remains committed to helping our commercial customers improve cash flows, enchance property value, and attract and retain quality tenants by constructing solar assets safely, on time, and on budget – enabling them to bounce back from this challenge stronger than ever before.
To find out if solar is right for your property, contact one of our non-commissioned solar advisors. We love connecting with members of our community, even if it’s over video for now.
Contact John Shaw, commercial solar project developer at John.firstname.lastname@example.org