Publish Date: October 30th, 2019
Blog Updated: September 2023
Budget season is back, and that means juggling competing interests when putting together your 2024 budget proposals. If you’re a commercial property owner, one thing your budget always includes is an estimate for utility expenses. Like death and taxes, utility expenses are a given, right? But what if you could remove this expense and replace it with an asset?
Onsite solar energy for your commercial property offers that opportunity. Solar offers significant benefits including reduced OpEx, increased NOI, added tax benefits, and allows businesses to differentiate themselves in this competitive market. Commercial solar on your property amounts to an attractive return on investment and increased building value and assets.
Assessing Capital Energy Improvements
Capital energy improvements like solar present an opportunity to improve the real and perceived market value of your property. Owners of solar PV systems benefit from the current 30% Federal Investment Tax Credit and 60% bonus depreciation without needing to occupy the facility on which the solar asset is installed. These tax benefits amount to a minimum 51% of the upfront investment, and they can passthrough to individual LLC members. Owners can expect to realize a double-digit IRR and single-digit break-even on a 3-decade asset for sizable commercial properties, not including the potential increase in property value.
Even owners of triple net (NNN) lease spaces can capture solar energy’s generous economic benefits. Known as “green leases,” pass-through clauses help investors recoup their investment while also offering energy savings to tenants. This solution provides financial motivation for both owners and tenants to carry out capital energy improvement projects that may have otherwise been overlooked. The City and County of Denver’s Smart Leasing Program and Green Lease Leaders provide resources and examples for pass-through structures.
Including Solar this Budget Season
This is your opportunity to earmark a project budget, or at a minimum feasibility funds, so your company is well positioned to explore solar in 2024. Talk to a local solar expert to get started. They’ll be able to provide budgetary numbers within a few days based on the size of your roof, utility history, and project goals. Upon further technical evaluation, a more formal design, estimate, and proposal can be provided. Working with an experienced solar developer means your unique investment parameters are modelled into the project economics, ensuring that the cost and ROI estimates in the proposal are reliable numbers for your budget.
Whether you choose a cash purchase or to finance the project, budgeting for solar helps to inform your goals and define desired outcomes for deploying clean, renewable energy on your property. If capital is reserved for your business’ core competencies, it may be prudent to explore financing through the Colorado Clean Energy Fund or C-PACE. These programs allow up to 100% financing with longer-term, fixed interest rates. Often, leveraging 50% of the project cost can allow you to be cash flow positive for the life of the project after just one year when you monetize most of the tax benefits.
Meeting Municipal Requirements
Budgeting for solar is even more important as property owners strive to meet new building performance policies, like Energize Denver, which is designed to improve energy efficiency, encourage electrification, create jobs, and curb climate change. This program sets requirements for existing commercial buildings within Denver city limits to decrease their energy use intensity (EUI), a measure of a building’s energy use per square foot. Energize Denver requires commercial buildings 25,000 square-feet and larger to meet a series of reduction benchmarks in 2024 and 2027, leading up to a final EUI target in 2030. You can check the status of your building’s compliance or dig into energy performance metrics by visiting energizedenver.org. More and more surrounding municipalities are implementing similar requirements, so now is the time to explore ways to decrease your electricity usage and avoid costly penalties.
Letting Budget Inform Priority
Start the conversation around your capital energy improvement dollars this budget season to inform next year’s priority projects. Corporate adopters that are procuring clean energy resources are not only capitalizing on the various tax benefits and incentives, they are also differentiating themselves from their competition. These businesses are well positioned to control their energy costs, achieve ESG goals, and market their sustainability.
Don’t accept rising energy costs and utility expenses as a given. Reach out for a no-pressure consultation with one of our solar experts so you can access the benefits of solar in the coming year.
Not quite ready for a consultation? Check out our free guide to commercial solar to learn more about how to make a smart investment with solar.
