Listing the many benefits of solar panels for business is easy, but quantifying the value of each can be more challenging. The impact on property value is a prime example. While it’s likely true that a building equipped with high-quality solar panels for commercial property is more valuable than a facility that relies on fossil fuel-generated energy, determining exactly how much more valuable can be complicated. If increased property value is an important factor to your organization in justifying the cost of commercial solar panels, this article will explain some of the factors that could make that happen.
Can solar add value to commercial property?
The short answer is yes, but not for everyone. Not all commercial solar projects are created equally—and that’s especially true when it comes to location. If you’re in an area that lacks sunlight for significant periods during the year (or if your building sits in the shadow of a nearby mountain or forest tree line during peak sun hours), it will be difficult to argue that your property value will increase enough to justify solar as the smartest renewable energy choice. Likewise, if local policy doesn’t allow net metering and/or you’re not eligible for other favorable financial incentives, commercial solar may not be the best option.
Individual projects are unique in non-geographical ways as well. However unlikely, even solar installations come with a set of potential risks, including construction issues, faulty materials and even a degree of business risk (as one would have with any significant commitment of company resources). These risks can impact how much actual value a proposed project brings to (or subtracts from) a specific property.
Let’s consider the following examples. If a solar rooftop system is improperly installed, resulting in property damage that exceeds any potential energy cost savings, it would be difficult to argue that it added any value. Or let’s say your solar installation comes in ahead of schedule and under budget—but you’ve installed low-quality equipment that’s likely to break down after a few years. What value have you really added? Finally, if your solar equipment is of good quality, but your provider goes bankrupt while your system is still under warranty, the purported value-add could be questionable.
You can avoid potential pitfalls by working with a reputable, properly-insured solar equipment provider with the experience and resources to offer a comprehensive solar panel warranty backing a high-quality product. Moreover, a qualified energy consultant can help identify other factors that can impact the overall value of a commercial solar installation.
How much potential property value is added?
Once you’ve determined commercial solar is indeed right for your organization, you may be wondering exactly how much property value will be added. This is where challenges in commercial property valuation come into play. While “it depends” may not be a very satisfying answer, it does offer the opportunity to delve deeper into the financial benefits of solar energy—particularly with regard to increased property value.
For those holding out for a simple, straightforward calculation of how much value solar can add, let’s take a quick look at non-commercial, residential solar installations. A study performed by the Lawrence Berkeley National Laboratories indicated a substantial increase in value for homes with solar.* While some reports indicate a similar correlation for business property valuations, not enough studies have been conducted to verify comparable findings for commercial sites. Still, the general takeaway is apparent: Adding solar power has the potential to increase a property’s selling price.
The specific impact of solar on commercial property value largely depends on the answer to each of the following questions:
- Does the organization installing solar power own the building/property for the project? As one might expect, the greatest potential value-add occurs when the organization adopting commercial solar power owns the site and the solar equipment being installed. Buying the commercial solar equipment outright gives owners access to any possible tax incentives, reduced energy expenses and potential for claiming “green energy credits” (as well as the ability to promote the green attributes of their solar system). Increased commercial property value is also part of that benefit list.
- How does a leased property deliver the benefits of commercial solar? Many organizations rent their commercial facilities, but that doesn’t mean they can’t benefit as well. Most of the costs of the property (e.g., insurance, property tax, utilities) are paid for by the lessee (or flow through to them in the form of higher rent). Installing commercial solar could reduce the energy costs the lessee would have to pay—and allow them to benefit from positive public perception by having solar on their site.
- What is the added value for property owners who provide solar energy for tenants? Here are some benefits that renters can bring up when trying to convince a landlord to install commercial solar:
- Tenants enjoying lower electricity bills may be more satisfied and willing to stay longer, reducing the time and expense of finding new renters.
- Properly-structured PPAs or solar lease deals can potentially be transferred to new tenants if the original lessee leaves, making the property more attractive to potential commercial renters.
- Properties with a solar installation could also benefit from the growing number of organizations taking corporate social responsibility more seriously.
- Are there any “softer” benefits of going solar that ultimately have an indirect impact on property value? Another less-obvious but noteworthy consideration is the fact that few things say “environmental awareness,” “social responsibility” and “progressive thinking” like visible commercial solar panels. In addition to improving public image, a commercial solar system offers all the benefits and cost savings of going green, while also updating a building’s physical appearance. In general, better-looking properties yield increased property values.
In summary, is increasing property value the best reason to add commercial solar power? Probably not, as there are likely more direct ways to achieve that goal. But when evaluating the advantages and disadvantages of commercial solar, it’s something that should be factored into the equation.
*Source: Hoen, B., Adomatis, S., Jackson, T., Graff-Zivin, J., Thayer, M., Klise, G., & Wiser, R. (2015). Selling Into the sun: Price Premium Analysis of a Multi-State Dataset of Solar Homes. Based on an analysis of homes with and without solar systems in 8 states (including CA, CT, FL, MA, MD, NC, NY and PA) from 1999 through 2013. Actual impact on home values will vary.