Commercial Property Owners Leasing Space to Community Solar

Commercial rooftops are usually out of public view, but from airplanes and elevated trains, one thing is clear: The solar revolution has not arrived yet in this country.

Only about 4 percent of commercial rooftops in the U.S. have solar panels. The other 96 percent represent a missed opportunity — not just to power 28 million homes, but to boost rent revenue for building owners.

It’s frustrating to people in the solar industry, but at least they know why most building owners are not capturing the sun’s free energy. Spoiler alert: It’s not because of Trump.

For years, states only allowed the captured energy to be sold to occupants of the same building. One problem with that is that solar projects are typically financed over 20 years, and warehouse owners don’t like to saddle future tenants with an obligation they might not want.

“That’s been a huge deterrent,” said Shaun Keegan, CEO of New Jersey-based Solar Landscape. “You’ve got to get the tenant to buy in.”

There was a second problem: Warehouses have ample roof space, but those without climate control used little power, so installing a large solar array was pointless. “The juice wasn’t worth the squeeze,” Keegan said.

But over the past decade a better way has emerged, and firms like Keegan’s have used it to grow exponentially. The companies simply lease rooftops, feed the power into the grid and sell it to consumers — a model called community solar. In some states, utility companies buy the electricity directly.

“The contract is much simpler,” said Keegan. “You’re just accepting a rent payment, which [commercial real estate owners] are quite used to.”

Solar Landscape last year raised $847 million for project financing and added 100 employees, roughly doubling its size for the fourth straight year. It has deals with industrial giants such as Prologis (for 30 million square feet) and with individual property owners.

Generally, commercial rooftop solar leases range from 25 cents to 85 cents per square foot per year for 20 years, based on geography, roof size and roof type.

Keegan and COO Corey Gross founded the Asbury Park company in 2012 — they worked on roofs themselves in those days — but it only took off about five years ago as more states began allowing community solar.

In that model, the solar company recruits customers by guaranteeing a discount from what their utility company charges. The customers buy roughly the same amount of electricity that the company’s solar array elsewhere is feeding to the grid.

“It’s relatively easy to get customers on board,” Keegan said. “I signed my grandmother up. Nobody’s getting burned.”

Getting commercial property owners is harder, but a lot less hard when they’re getting paid instead of paying, and their building’s electrical system is left untouched.

“These days, we have a pretty high hit rate,” said Keegan, who targets buildings with at least 30,000 square feet of rooftop. “The math usually works.”

Still, 96 percent of commercial rooftops in the U.S. lack solar panels. Owners sometimes wait to do solar projects until they need a new roof, or decline because they plan to redevelop, which would mean paying to break the lease.

Community solar debuted in 2006 and its annual growth rate has been 80 percent for the past 10 years, according to a CBRE report. Installed capacity is expected to double by 2028.

Some states need to update their regulations for solar on commercial roofs to pencil out, but more often the change needed is in property owners’ way of thinking.

“It’s an education process, honestly,” Keegan said in a statement. “We’re introducing a whole new kind of tenant class, and it takes people time to warm up to that.”

New York industrial property owners are increasingly doing that, according to data from NYSERDA, a state authority. The total capacity of completed distributed solar projects in New York has grown for 12 consecutive years, from 58 megawatts in 2012 to 1,240 last year, as shown in the second chart below (the first chart shows the cumulative total):

Downstate, the big producers are Suffolk and Nassau counties, with more than 55,000 and 35,000 projects, respectively. Among New York City’s boroughs, Queens leads with more than 27,000. Manhattan, where roofs tend to be narrow, has just 491.

The motherlode is New Jersey, which dominates the region’s industrial real estate market and has more solar installations per square mile than any state. Joe Fiordaliso, the late president of the state’s Board of Public Utilities, liked to call it “the Saudi Arabia of rooftops.”

New Jersey is also the top market for Solar Landscape, but the company has projects across the country, including in New York, Massachusetts, Maryland and the Chicago area. Some are traditional “behind the meter” installations for end-users, including schools and cold-storage facilities.

But “the general trend is less plug into the building, more plug into the grid,” Keegan said. “There’s a ton of potential.”