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Principal, Financial Markets & Real Estate, PwC US
On-site solar can be an increasingly economically viable option for real estate owners, operators and investors
The US solar market is growing, with industrial real estate facilities making commitments to a renewable or carbon-neutral future. Available Inflation Reduction Act (IRA) tax incentives may provide unique funding opportunities for eligible solar projects over the next decade — potentially resulting in a return of 30% to 60% of the solar project costs based on estimates.
Commercial solar installations have rebounded from past supply-chain disruptions. The cost of manufacturing solar photovoltaic (PV) cells — the technology that converts sunlight into electricity — continues to decline. However, although time frames to access additional funding have been extended, the clock is ticking to begin planning your solar projects and take advantage of available tax credits and incentives.
On-site solar helps cut costs and carbon emissions for all of the following:
- commercial and industrial facilities
- multifamily residential
- hospitality
- retail
- life science and medical buildings
Why should real estate owners, operators and investors consider solar?
On-site solar can help provide electricity cost reduction, utility budget stability and carbon emissions reduction, with multiple advantages for commercial, industrial, multi-family residential and others.
Here are three key considerations:
1. Improve results: enhance energy efficiency and lower costs.
Investment in on-site solar arrays can help improve energy and cost efficiency for a wide variety of real estate owners, operators or investors. The potential for significant cost savings and environmental benefits from on-site solar — whether you run a hotel, hospital, manufacturing plant or office building — is real.
On-site solar can benefit your business by driving:
- Emissions reduction
- Property net operating income (NOI)
- Tenant retention
- Real asset/property value
- Eligibility for federal, state and local tax credits and incentives
- Reduced electricity costs and increased energy efficiency
A significant energy shift is already underway, with more change on the horizon. Nearly half (46%) of commercial and industrial leaders expect an increase in on-site energy generation or battery storage over the next two years, according to PwC’s 2023 US Large Energy User Survey.
Emerging technologies, like machine learning and artificial intelligence (AI), may help you gain better insight into how solar investments can help reduce energy costs and carbon emissions. This includes accessing large volumes of public data — like available incentives, local utility programs or usable roof space — for comparison with your building-specific needs. Geospatial modeling may also help to bring real-world operating scenarios to your on-site solar strategies.
Employing unconventional thinking and tools may be one of the keys to help achieve cost and carbon reduction that meets sustainability goals and increases ROI.
2. Watch dates and new rules: Project timing may impact what incentives are available.
How much do you know about tax, solar and when incentives decline or expire? Incentives are a crucial aspect of renewable projects — a deep understanding of tax can significantly impact a project's financial viability and when you need to begin and complete the project.
The Inflation Reduction Act extended and expanded federal tax incentives for solar and other renewable energy/storage technologies, providing taxpayers with direct pay and transferability, or opportunities to monetize energy-related tax credits. This means that even companies without taxable income can benefit.
It’s important to consider not only the federal incentives, but also state and local incentives available in those areas — and the time frames that complement your business needs and sustainability goals — whether that’s a one-year or five-year investment for capital improvement.
What if you have a large mixed-use real estate portfolio that extends across states or even countries? By implementing an on-site solar energy system, mixed-use real estate portfolios can take advantage of rooftop solar opportunities while complying with federal and state policies, like the New York State Energy Research and Development Authority (NYSERDA).
Some states — including New York, Illinois, Colorado and California — have progressive plans to help cut emissions. Because of the evolving nature of sustainability efforts, like US manufacturing requirements for PV, it can be challenging for businesses to stay within the rules. That means businesses that operate in a state with strict guidelines are going to be impacted. Real estate operators may need to do retrofits over the next decade in order to stay in compliance.
Available through IRA for rooftop solar investment can cover up to 60% of initial investment, if certain requirements are met, creating a two-tiered system with:
- base rates for adopting certain technologies
- bonus rates that depend on wages paid, geographical location of your project and where components are sourced
3. Shed light on assessment: Solar analysis from an independent source can help.
How much can you offset the cost of your on-site solar? In our survey, 93% of commercial and industrial leaders said they need help identifying the financial impacts of investments in on-site generation like solar or other improvements.
To make optimal financial decisions on infrastructure and scale, start with an independent analysis of your building’s physical and operational characteristics, such as available rooftop space, lease type or tenant energy needs. And a deep knowledge of current tax incentives — and their viability with your organizational structure — can be crucial to this process.
This analysis should consider all variables, like electricity prices where your properties are located and weigh plans that work for your company and its future energy needs. It could also mean accessing net metering programs to sell excess energy back to the grid, using solar-powered water heaters or considering other investments to help achieve energy independence.
An objective analysis — one that’s focused on carbon emissions reduction strategies and optimal financial outcomes bespoke to your business — is the place to begin.
Getting there: implementation of an on-site solar plan. Reduced energy costs and increased property value can help go a long way in impacting your bottom line. Whether you’re a real estate owner, operator or investor, you can improve your brand reputation as a trusted, sustainable business.
- Create a roadmap that works for your business. Make sure the implementation strategies for your solar energy transformation are tailored to your business needs. Work with advanced modeling tools focused on your goals.
- Know your tax-specific advantages or pitfalls. A critical part of a successful on-site solar transformation can be the ongoing evaluation of the system itself and qualifying tax incentives. Make sure you're constantly apprised of incentives that work for your specific circumstances.
- Stay above the hype. With the buzz around solar, it’s important to have a granular analysis focused on your specific business needs and what complements your organization’s interest. Having access to a laser-focused request for proposal preparation can help eliminate potential conflicts and select the right installers.
- Keep an eye on change. The solar space is constantly evolving, so you’ll need to know when potentially beneficial new services and infrastructure become available.
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