BY Randy Kendrick | Market Trends
July 10, 2019

Spurred in large part by the Solar Investment Tax Credit (ITC) in 2006, solar energy in the U.S. has seen tremendous growth over the last decade-plus. According to the Solar Energy Industries Association, solar has grown by over 8,600% in that time.

And while much of the growth in the industry (especially early on) was in residential real estate and large-scale utilities, solar represents a compelling value proposition for many industrial real estate owners as well, due to factors we will discuss below such as energy rate and availability control and increased attractiveness to tenants.

Xebec believes in embracing clean energy initiatives like solar as part of our company ethos of environmental and social responsibility. But solar is not just an environmental initiative — it also can make sound economic sense. In the words of Drew Torbin, co-founder of solar firm Black Bear Energy and former VP of Renewables at Prologis, “The solar industry would not be growing like it is if there wasn’t a black-and-white economic benefit.”

Benefits to Building Owners

Along with the federal tax credit that put solar energy at the forefront of alternative energy development, the decreasing cost of photovoltaic (PV) cells as the technology has progressed has also helped fuel the solar boom. In the 1970s, PV cells cost approximately $70/watt. That number has since decreased to less than $.70/watt.

This price decrease is a substantial factor in solar energy becoming economically viable for more property owners, a development that is still somewhat recent. For instance, solar systems for commercial real estate in California finally reached what is known as “grid parity” in 2012, meaning that the cost to produce solar energy dropped below the price to purchase energy from the grid.

Solar energy now provides a number of benefits to industrial building owners, even beyond the obvious on-site power generation. For one thing, the ability to generate your own solar energy provides a hedge against energy rate fluctuations, as well as built-in insurance against unexpected power outages.

Additionally, as of 2019, over two-thirds of the states in the U.S. run net metering programs, whereby excess electricity generated on-site by solar and other alternative means can be sold back to the power grid at the same rate that the building owner pays for electricity. Net metering policies give building owners the confidence that solar power is an initiative that will continue providing returns, motivating more owners to make the leap to solar.

Benefits to Tenants and Investors

Solar power has also increasingly made commercial real estate, including industrial and logistics properties, more attractive to prospective tenants. As more and more companies publicly commit to lowering their carbon footprint, leasing a property that utilizes alternative energy becomes a strategic asset. As early as 2017, over half of Fortune 500 companies had already either pledged to lower their carbon footprint or even set specific targets for reductions.

And there is data to support the assertion by solar proponents that solar energy makes commercial properties more attractive to potential tenants. According to a U.S. Department of Energy survey, LEED-certified buildings with solar and efficiency attributes tend to produce higher rents and/or lower vacancy.

Warehouses Can Make Ideal Sites for Solar Power

The large, exterior flat roof space of most industrial and logistics properties makes them an ideal platform for solar installation, particularly in areas that receive lots of sunlight and that also have net metering policies. Solar, in fact, represents an ideal use of this otherwise idle asset.

Government subsidy policies also tend to favor solar installations that are close to an electrical load (for instance, a solar system that is installed on a warehouse), as opposed to large solar farms where the energy must be transported further before being consumed, putting a strain on distribution systems.

Net metering policies also vary from state to state, as do building codes and other regulations that can affect design and installation costs, which naturally are weighed by a building owner when deciding whether to install solar.

Sun Valley Solar Installation

In February of this year, Xebec flipped the switch on a 2.6 megawatt rooftop solar array installed on a two-building, 352,500 square foot infill/last-mile industrial property in LA’s Sun Valley. The install is one of LA County’s largest solar interconnections and will produce enough energy to make approximately 1,000 local homes carbon free. You can read more about the Sun Valley project here.

As of the second quarter of 2019, Xebec is looking to bring two more properties into the LA Department of Water and Power’s (LADWP) net metering program. These plans are part of Xebec’s ongoing commitment to finding initiatives that make a positive impact on the environment and the larger community while simultaneously providing added value to our investors.


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