Commercial Real Estate Owners Should Know These Four Facts About Solar Energy
The commercial real estate industry, like most industries currently, are experiencing a remarkable amount of uncertainties as the globe attempts to deal with the realities of COVID-19.
However, CRE property owners and managers can rest assured that there are still some guarantees moving forward: assets are generally secured by leases which provide a regular income stream; investments historically provide remarkable appreciation in value that meet and exceed other investment types; and solar energy can provide substantial benefits to any property.
Solar energy provides owners and managers alike an exceptional opportunity to boost cash flow by reducing utility expenditures and increasing common areas maintenance (CAM) reimbursements. Installing a solar photovoltaic (PV) array also fosters closer connections with tenants and their client bases, facilitates lease extensions, and enables a sustainable footprint.
To understand these benefits in greater detail, here are four facts CRE owners and managers should understand about solar energy.
Federal & State Incentives
The main federal incentive is the Investment Tax Credit (ITC), a credit for 26% of the total system cost. A tax credit is a dollar-for-dollar reduction in the income taxes that a person or company claiming the credit would otherwise pay the federal government. The ITC is based on the amount of investment in solar property. Both the residential and commercial ITC are equal to 26 percent this year - 2020 and drops down to 22 percent in 2021. After 2023, the residential credit will drop to zero while the commercial and utility credit will drop to a permanent 10 percent.
The owner is also allowed to depreciate the system under the 5-year Modified Accelerated Cost Recovery System (MACRS), subject to certain conditions. Many states also have different incentives, including rebates, renewable energy credits (RECs), and financing programs. When added up, these incentives can be used to cover 45%-80% of the overall cost.
Improve Property NOI & NCF
Building improvements such as solar can improve property performance through two avenues: lower operating expenses and raise top-line revenues
· Energy accounts for nearly 20% of average office building expenses. By switching to solar, the building can lower their electricity bill by 20-40%.
· Buildings with solar and efficiency attributes produce higher rents and/or lower vacancy, according to the Department of Energy.
Cost Competitive with Utility Power
Solar energy costs have dropped an extraordinary 88% since 2009. Meanwhile, coal and nuclear costs have only decreased by 9%. Even without accounting for current subsidies, renewable energy costs can be considerably lower than the marginal cost of conventional energy technologies.
There are many financing options available for solar, many of which are flexible and can be matched to the building owner’s specific situation.
· Power Purchase Agreement (PPA): We finance your project for no money out of your pocket
· Self-Finance: Your company owns; your company creates a tax shield with the Investment Tax Credit (ITC), capitalize on depreciation, and gain the sustainability benefits!