INSIGHTS | May 21, 2021
Rooftop Solar: Risk vs Reward
Over the past 15 years, local, state and federal solar incentives have provided financial fuel for businesses to initiate and expand their renewable portfolios. These incentives come in the form of tax credits, rebates, renewable energy credits, and the ability to accelerate the depreciation of these assets.
These incentives coupled with a consumer thirst for clean energy initiatives, the late 2000s and 2010s saw high-profile, big-box retailers install rooftop solar array after array on their facilities across the country.
Were these roofs the best candidates for solar?
The reality was that these rooftop solar arrays were being installed on buildings where the lease term outlasted the roof itself by five years or more.
As these companies engaged in long-term lease or PPA contracts, sometimes up to 20 years, these contracts most often contained clauses with big penalties for early termination and even for the temporary removal of these systems. Many found themselves in a financial bind, faced with not only the exorbitant cost of replacing a roof but with additional fees from the leaseholder.
So, what should a company consider when installing rooftop solar?
First, there’s the issue of deciding is how to pay for or finance it. Three common options include:
Ownership – Pay for all equipment and labor, then own, operate and maintain the asset. The cost is high, but you’ll realize the financial incentives yourself and usually experience a payback period of well less than 10 years.
Lease – Engage a third-party solar developer or financial institution and lease the asset. In this scenario, you would usually have no out of pocket expenses, but the leaseholder realizes the financial incentives.
Power Purchase Agreement (PPA) – This option generally includes a third-party solar developer who pays for, then owns, operates and maintains the asset. In this case, the building owner, again, has no out of pocket expenses, but simply agrees to a PPA contract, and purchases the energy produced at a fixed cost for 15-20 years. The developer again enjoys the available financial incentives.
Next, it’s important to consider your roof assets themselves and how they fit into the big picture:
- What’s the feasibility of the roof including the age, condition, and life expectancy?
- What are the contractual terms including penalties and fees?
- How do you plan to balance your sustainability and economic goals?
- What’s the best timing for the project?
- What’s the best way to protect the roof during a construction project?
But what if it’s already too late?
One Mantis client was looking at anywhere between $350,000 and $800,000 in cost to remove and replace their arrays to perform roof replacements per facility across 250 facilities for a total of at least $88M to remove these arrays to extend their remaining service life.
But did all these roofs really need replacing?
Could some of these roofs that could be sustained without requiring the removal and put-back of the array?
And could the company engage in an ongoing maintenance plan that would ensure the roofs’ remaining service life would meet or exceed the accompanying solar contract?
Mantis’ predictive data analytics, historical roof system knowledge, and expert roof consultants found that the answers to these last two questions were a resounding “yes!” The net savings per facility was in the neighborhood of $300,000. And while not every roof could be saved, the savings could more than offset costs on the failing roof systems.
Mantis continues to implement this strategic view of the clients’ assets to date and the program has expanded to include assessing 500 additional locations.
How do I ensure future success for my solar portfolio?
Whether Mantis or another qualified, unbiased consultant, start by getting an independent assessment from a firm that can review the roof, the solar array, and the solar contract. They should be able to help you identify all of your options and the financial implications of each.
In the meantime, do the little things. Maintain the roof as best you can–or with the help of a professional roofing consultant–including cleaning up debris, patching when necessary, and so forth. This will ensure you’re extending your roof’s life as much as possible until a more substantial solution can be planned and implemented.