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In Focus: Funding Solar Projects for Commercial Facilities

Q4 2015
Solar energy is quickly proving to be one of the future’s most attractive forms of renewable energy. It’s plentiful, reliable, and becoming more accessible — especially among large commercial businesses, as solar energy systems have long been a part of well-known brands’ corporate social responsibility programs. From Amazon and Apple to Costco and IKEA, companies across America are going solar, and it’s not just because it’s trendy and good for the environment — there is real economic value in solar.

Companies are able to reap hundreds of thousands in savings over the course of the system’s lifetime, reducing operating expenses, decreasing exposure to volatile energy costs, and adding to any commercial real estate owner’s bottom line. In 2014 alone, commercial buildings added over 1,000 megawatts of solar, according to the U.S. Solar Market Insight report.

Some of the country’s most respected and well-known companies have gone solar in order to reduce costs. For example, Granite Construction Company commissioned one of the nation’s first solar-powered construction materials facilities, covering 75 percent of the electricity use at their asphalt concrete facility in Indio, Calif. Companies like Granite are at the cutting-edge with commercial solar installations expected to increase 40 percent in 2015. This doesn’t mean that making the decision to go solar is easy, however. There are a number of factors that must be considered before a company should bank on solar.

Funding Solar Projects
The biggest factor that must be considered is finances — the upfront costs of solar panels can be daunting, and generally those in charge of commercial facilities look to third-party capital solutions in the form of an investment. Options include project loans, leasing solar panels, or establishing a power purchase agreement (PPA). For large-scale commercial facilities backed by companies with strong public credit ratings, this can be easy. For everyone else…not so much.

The biggest factor that must be considered is finances — the upfront costs of solar panels can be daunting, and generally those in charge of commercial facilities look to third-party capital solutions in the form of an investment. For projects that lack a public credit rating — which is needed for risk assessment to secure investor interest or other means of capital — finding solutions to fund solar projects can be next to impossible. Due to new companies with creative financing solutions, however, this is changing. These companies deploy other means to ensure investors that the commercial site is a sound investment with longevity. In place of a public credit rating, facility owners can offer other forms of documentation, typically in the form of audited financial statements and tax returns, to demonstrate viability. When needed, a personal guarantor can be added to seal the deal.

Beyond documentation, the type of facility needs to be considered. Is it an apartment building or retail space? If so, such facilities tend to have a high turnover rate, which can be interpreted as a red flag for investors. Facilities such as manufacturing spaces, distribution centers, wineries or homeowner associations will generally be able to secure investor interest with less of a barrier. These types of businesses yield long-term, steady potential, and even with changing markets their use types will remain unchanged, ultimately mitigating risk.

Available Real Estate
Additionally, one must consider the real estate available for solar, be it rooftop, parking lot, or open field. The primary question to answer is if there is enough square footage to offset a significant portion of the site’s electricity use. Important factors include shading and orientation, as well as other equipment (think HVAC) and age of the roof or parking lot. If the space available for solar needs to be refurbished in the short term, a company should wait and perform the solar installation and refurbishment at the same time.

For power-purchase agreements, where the site is simply purchasing the power created by the solar array, it is also essential to have title and full legal rights for site development. This ensures that the solar developer feels comfortable placing its equipment on your property. These factors should guide a commercial business in its decision on where to place a solar array and will impact installation costs as well as solar production, and ultimately savings and returns.

Solar has been making quick gains in real estate, both across residential and commercial markets, and its rise is only going to continue as businesses look to reduce costs and increase facility efficiency, while also matching society’s call to action for renewable energy investment. It’s both economical and ethical, and the time to go solar is now.
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