In concept, solar energy might provide all of the electrical energy the world wants endlessly — or till the solar turns right into a crimson dwarf, whichever comes first. The the explanation why it doesn’t in the present day are many and sophisticated. They embody difficulties connecting photo voltaic farms to the grid and pushback from native communities which might be completely blissful to see photo voltaic farms constructed simply as long as they don’t have to take a look at them. Rooftop photo voltaic might resolve a lot of these points.

In a brand new report, RMI says that actual property funding trusts, in any other case referred to as REITs, in America management 38.5 billion sq. ft of rooftops on industrial buildings, parking tons, and garages which might be appropriate for photo voltaic panels. If absolutely utilized, they might generate 25 p.c of all of the electrical energy utilized in industrial buildings in america and about 10 p.c of all electrical energy generated in America.

Not solely would becoming all these rooftops with photo voltaic panels assist the nation transfer towards zero-emissions electrical energy, however it will additionally generate vital incremental worth for the REIT trade, in accordance with a current examine by Morgan Stanley.

The RMI report lists 5 the explanation why including photo voltaic panels to industrial rooftops is a good suggestion:

1. Current infrastructure: Utilizing current rooftops or parking tons on already developed lands means the photo voltaic installations not solely create worth out of unproductive belongings, but additionally keep away from a few of the regulatory limitations and allowing challenges confronted by tasks proposed on undeveloped land and don’t compete with different land makes use of.
2. Optimum technology circumstances: Many industrial buildings usually have giant, low, flat roofs and are normally freed from tree cowl, permitting panels to be simply put in for optimum technology.
3. Constructing electrification prepared: As an increasing number of jurisdictions go constructing efficiency requirements and/or part out the usage of pure fuel, photo voltaic may help REITs to each electrify their buildings and decrease their working prices.
4. EV charging offsets: Photo voltaic technology can offset elevated energy demand for EV charging for each tenant-owned fleets in addition to for private automobile charging.
5. Quicker implementation: Offsetting buildings’ operational power necessities gives a supply of captive demand, lessening the influence of interconnection delays and permitting tasks to be put in place sooner.

The mix of all these benefits could make these tasks terribly worthwhile for REITs. Morgan Stanley estimates that on-site photo voltaic could be “within the cash” or cheaper than shopping for electrical energy from the grid for 90 p.c of the highest 50 REITs by 2025 and would lead to income accretion of three p.c.

Challenges To Industrial Rooftop Photo voltaic

Whereas putting photo voltaic panels on the roofs of industrial buildings might look like a no brainer, there are challenges, a few of that are associated to the IRS code. It may be difficult for REITs to take direct benefit of federal power tax credit for putting in photo voltaic. Whereas the Inflation Discount Act included a provision making it simpler for REITs to learn from the sale of tax credit, there stay vital limitations stopping REITs from deploying photo voltaic at scale. At a minimal, the sale of tax credit by REITs remains to be sophisticated as a consequence of IRS recapture guidelines.

The typical industrial lease is just three to 5 years, which suggests that there’s the potential for the constructing to “go darkish” as a consequence of emptiness throughout tenant turnover. The trade considers growing photo voltaic on industrial rooftops solely to serve the on-site load as dangerous as a consequence of a mixture of emptiness and utilization danger.

Neighborhood Photo voltaic Is The Answer

RMI says neighborhood photo voltaic might present an answer to those challenges. Fairly than structuring the mission as “amenity photo voltaic” that solely serves the tenants of the constructing, industrial tasks could be a supply of unpolluted and renewable power for the broader neighborhood wherein the constructing is positioned.

As well as, by structuring a rooftop photo voltaic set up as a neighborhood photo voltaic mission and promoting the ability at a reduced price to low- and moderate-income residents and companies, the mission can profit from an extra investor’s tax credit score bonus of 10 to twenty p.c, which might tremendously improve the profitability of the photo voltaic mission. Recognizing that almost all REITs should not within the enterprise of buying and managing hundreds of residential photo voltaic subscribers, that is finest achieved by partnering with an current neighborhood photo voltaic developer, RMI suggests.

These days, the one states which have enacted legal guidelines that allow neighborhood photo voltaic on industrial buildings are New York, New Jersey, Illinois, Massachusetts, Maryland, California, Minnesota, Connecticut, and Virginia.

Making Industrial Rooftop Photo voltaic Occur

Step one in contemplating whether or not a photo voltaic system is a good suggestion for a selected roof is to find out whether or not it’s in a viable location, the age of the prevailing roof, whether or not tenants, lenders, and companions consent, and ensuring the property isn’t a redevelopment candidate. RMI recommends hiring an skilled and trusted photo voltaic technical advisor. From there, the duty is to establish potential builders and run a aggressive procurement course of to search out one of the best economics and companions to work with.

For constructing homeowners, it’s about extra than simply the underside line. The constructed setting in America is a serious contributor to greenhouse fuel emissions. In accordance with knowledge from the EIA, industrial and residential buildings had been accountable for 35% of complete energy-related carbon dioxide emissions in 2019 — and 70% of these emissions had been attributable to the electrical energy wanted to function the buildings.

RMI estimates that rooftop photo voltaic on REIT-owned buildings has the potential to cut back emissions from bought electrical energy by 45%, assuming the supply of electrical energy is from thermal technology. The chance is most important for industrial and self-storage buildings, which RMI says have the potential to generate extra electrical energy from rooftop photo voltaic than they eat.

Morgan Stanley says that to align with a net-zero pathway, “non-residential and residential buildings should scale back emissions from bought electrical energy by 75% and 65%, respectively, in accordance with our evaluation of knowledge from the IEA’s net-zero trajectory for buildings. Rooftop photo voltaic installations might meaningfully advance progress towards net-zero targets.”

It provides that new installations of distributed photo voltaic sources — photo voltaic techniques which might be put in on the buyer website and owned by the shopper versus the native utility — grew at a ten%+ CAGR over the previous 5 years, twice the expansion seen in complete new installations within the US over the identical interval.

These installations are pushed by three key dynamics that it expects will persist for an prolonged time frame:

• an enhancing “financial wedge” between distributed power technology and utility charges
• enhancing economics of battery storage
• a big deal with decarbonization by firms and governments.

The Takeaway

Rooftop photo voltaic for industrial buildings owned by REITs received’t be straightforward, nevertheless it affords vital financial and social advantages for constructing homeowners, notably in states that encourage neighborhood photo voltaic. A few of the estimates could also be optimistic, however there isn’t any doubt there’s a vital alternative right here, notably since there needs to be no NIMBY objections.

ESG concerns will fluctuate by state, however for corporations that want to burnish their sustainability credentials, putting in rooftop photo voltaic on the buildings they personal may very well be good for his or her backside line and good for the neighborhood.

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