By Peter Rumsey
In California, solar panels can supply electricity to a building at a rate equal to or below, sometimes significantly below, what the utility charges for electricity. But why would a developer invest in putting photovoltaic (PV) on a building when it’s the tenants who pay for the energy? This “split incentive” arrangement installing solar panels helps reduce the tenant’s operating costs but gives no benefit to the owner has hindered the development of solar buildings, net-zero and near-net-zero office buildings.
A few exceptional developers have discovered creative ways of recovering the costs of installing solar. Real estate developer Jim Gaither realized potential tenants within the Stanford Research Park in Palo Alto value a green building, and he made a strategic decision early on to pursue solar on the development of a 90,000-square-foot office he began in 2013. He looked at a variety of creative options for financing solar and decided that rather than purchase PV, he would lease it from a solar provider. He then arranged for his tenant to pay for electricity at a set rate as part of the lease agreement. This is a success story for solar—the developer made a small profit, and the tenants got renewable energy at the same cost as utility energy.
There are many additional options for recovering the cost of PV. The PV-generated energy can be included in the rent as part of a full-service lease. We have also seen developers charge a fixed monthly per-square-foot energy cost that is slightly lower than typical tenant monthly energy bills. These arrangements are not without their legal complexities. But tenants are eager to use renewable generated energy that is priced close to what they would have otherwise paid.
For an upcoming panel session at GreenerBuilder on June 16 in San Leandro, I’ve invited developer Jim Gaither and real estate and construction attorney Michael Polentz of Manatt to join me in a discussion about strategies for developers around costs and the legal ramifications of solar. Bring your questions about how to add solar to your projects and recover your costs or make a profit.
This post first appeared on the USGBC-Northern California Blog