Why 2021 is the Best Time to Maximize Returns on Solar
By Rachel Mountain, Commercial Solar Project Developer at Namasté Solar
The opportunity to earn a compelling return on investment (ROI) by installing clean solar power on your commercial property has never been greater. Solar equipment prices are historically low, and many lucrative incentives will decline in the next two years. The Tax Cuts and Jobs Act of 2017 increased bonus depreciation to 100% in year one for qualified property acquired and placed in service before January 1, 2023. The Taxpayer Certainty and Disaster Tax Relief Act of 2020 extended the 26% Investment Tax Credit through 2022. Take advantage of these tax benefits now to recoup approximately 50% of the original investment after just one year.
Also, with reduced operating expenses and Xcel Solar Rewards payments over 20 years, the economics of a commercial solar system are impressive. Accounting for the increased property value from a higher net operating income (NOI) further sweetens the pot and makes solar a smart investment – even better, it’s a smart investment that helps combat climate change.
The reasons for going solar are as varied as the types of businesses that have already invested in on-site solar across Colorado’s Front Range. Industry or vertical aside, property owners with solar have these things in common:
- Improved their bottom line via tax benefits
- Reduced utilities (an otherwise sunk expense with no return)
- Increased income
- Increased property value
These same property owners also used solar to differentiate their building and brand, increase occupancy and base rates, meet corporate sustainability goals, comply with regulations, and attract and retain quality employees and tenants. These companies now know that there are few capital energy improvements that offer such holistic benefits. Aside from the motivation to go solar, the numbers speak for themselves. A 500-kW system (~65,000-square-foot rooftop) would:
- Add $27,000 to income in year one
- Reduce utilities $35,000 annually (recoupable from NNN tenants)
- Generate a tax credit of $215,000 in year one
- Reduce the tax burden by at least $175,000 through 100% bonus depreciation in the first year (passes through to LLC members)
The incentive income and utility reduction on a property with 65,000 square feet of Rentable Building Area (RBA) translate to a $1 million property value increase at a 6% cap-rate. Considering this comes from an investment under $1 million, commercial solar is no longer a “nice to have” asset but an investment you should not ignore.
The rapid adoption of corporate solar procurement is happening nationwide. More than 13% of all commercial office buildings across the largest U.S. markets are now green certified, and our hometown of Denver ranks in the top 10 for sustainable design-build projects, with 48.2% of the city’s office space green-certified. This growth is partially due to the value proposition of solar, which is earning the support of building owners, C-level decision-makers, and sustainability managers.
The Denver metro area is a growing and ever-more competitive market that is attracting many national and international firms. Commercial solar sets these businesses apart from the competition and provides real estate investors with access to a more sophisticated tenant class with internal sustainability committees or mandates. Publicly socially responsible companies prefer to do business with those that more closely align with their corporate brand and values, and the existence of a significant commercial solar system makes an impactful impression.
Cash Flow Positive Day One
Colorado’s Commercial Property Assessed Clean Energy (C-PACE) program allows businesses to implement solar with little to no money out of pocket (100% loan-to-cost), enabling projects to be cash-flow positive from year one after recouping the tax benefits. C-PACE also allows building owners to bundle the cost of a new roof, solar PV system, LEDs, and heating, ventilation, and air-conditioning upgrades into one long-term, fixed-interest loan (up to 25 years). The loan structure removes all risk for
property owners, as the non-recourse financing is tied to the property via a special tax assessment. As a result, C-PACE financing can transfer to the next owner if the property is sold and can be treated off the balance sheet in many cases.
To capture these benefits, commercial businesses and building owners need an experienced solar developer to design, engineer, install, and maintain a solar system that will deliver a customized solution that maximizes the return. Working with a local installer who handles every project detail will simplify the experience and provide a holistic turnkey energy solution. This will bring you higher returns, profit, NOI, and property value – potentially for $0 out of pocket.
To find out how solar could earn you an attractive ROI, reach out to one of Namaté Solar’s non-commissioned commercial solar experts.
Images courtesy of Namasté Solar