Industrial N Illinois

Industrial owners: Monetize that rooftop with community solar

Industrial owners: Monetize that rooftop with community solar,ph1
The 500KW solar panel system atop Vernig Manufacturing’s facility in Rice, Minnesota.

Most owners of industrial assets have vast, rentable spaces that they aren’t taking advantage of: the roof. Warehouses and fulfillment centers—which are being developed at a record pace in Illinois—are uniquely positioned to take advantage of solar power generation like never before.

In the past, one deterrent to installing solar panels on any structure is the capital outlay. Despite falling prices, solar panels are still an expensive proposition for which some property owners and developers aren’t willing to wait out the return on investment. “Community solar,” however, does away with that cost argument. In fact, owners can be paid upfront for installing solar panels on their building.

Community solar taps into the pool of people and organizations that want to install solar panels, but can’t or don’t want to host them on their own property because of land availability, cost, zoning or other issues. These users instead subscribe to panels that are installed off-site. ComEd or other utilities track the solar farm’s production and then assign bill credits to subscribers proportionate to their share in the program.

These solar farms are often ground-based installations, but industrial building rooftops are a viable location for panels as well. So far, however, this is an opportunity that hasn’t been tapped to its potential.

“The solar industry within Illinois is set to see somewhere around a 30-fold increase over the next five years,” said Eric Pasi, chief development officer at IPS Solar. “Commercial rooftops will certainly play a significant role in that.”

Based in the Twin Cities, IPS Solar is a solar contractor and developer that has completed more than 70 megawatts of solar projects and has another 50 megawatts in the pipeline. They have worked largely in Minnesota, but because of the benefits contained within the Future Energy Jobs Act (FEJA), they are looking to expand in Illinois.

Signed into law in 2016 but just now getting a full roll-out, FEJA calls for, among other things, 3 GW of solar power generation within the state by 2030. The Illinois Power Agency will issue renewable energy credits through an adjustable block program to incentivize the creation of new solar farms.

IPS Solar has been acquiring land in Illinois and construction projects are underway that will go into 2019, 2020 and beyond. They are also engaging with developers and property owners to explore rooftop installations as well.

While they have much more experience in Minnesota, Illinois in particular is poised for more rooftop installation. Industrial building sizes are much larger in Illinois as they can run up above 1 million square feet while Minnesota warehouses typically top out at 200,000 square feet.

“And in Illinois, you’re allowed to put a lot more solar on the rooftop than you are in Minnesota,” said Steve Oman, solar sales executive at IPS Solar. “So whereas really big buildings in Minnesota don’t fully benefit, in Illinois, you can go up to three-quarters of a million square feet and basically slather that rooftop with solar panels as part of two co-located community solar gardens.”

The typical paybacks in Minnesota for large-scale solar, using incentives within Xcel Energy’s territory, are in the five- to six-year time frame. But according to Pasi, the payback turnaround in Illinois is more like three to five years, depending on which utility and incentive program the user works with.

“If you look at direct pricing, especially in these initial, adjustable blocks, it is very financially attractive,” Pasi said. “It allows us to make offers for leasing rooftops that, for a lot of these industrial property owners, are revenue opportunities that they’ve not seen before.”

In the first quarter of 2018, the I-80 Corridor saw a number of new industrial deliveries, including five buildings whose combined square footage surpassed 5 million square feet. Those five buildings alone could represent incredible revenue generation.

“If you assumed that all of those properties were developed to their fullest extent and they all were in the initial adjustable blocks, that would create up to $8 million in revenue for just those five buildings for the property owners,” Oman said.

The number of qualifying projects that have already applied in the state exceeded the funding amount, forcing the Illinois Power Agency to move to a lottery. The application window for the initial adjustable block is now closed, though there will be two more open blocks in 2019 and a third in 2020.

“People usually vote with their time, effort and energy,” said Oman. “The fact that there are so many applications in there is a reinforcement of how attractive the initial program truly is.”

Industrial facilities and solar farms have some commonalities that make for an ideal partnership. New, Class A fulfilment centers and ground-based solar are both likely to be constructed in exurban submarkets. So why not put one atop the other? The added benefit here is that the heights of modern warehouses, combined with the land use on neighboring properties, lead to very little chance of a structure obscuring the panels from the sun.

On the back of e-commerce, many distribution facilities are also targeting last-mile capabilities in urban centers. Installing a solar array on these buildings makes sense as well, as it puts the clean power generation closer to the end user, increasing distribution efficiency while also deepening the potential pool of nearby subscribers.

Roof-mounted solar would require enhanced engineering to support the added weight. This extra cost, however, falls within standard ROIs. What’s more, a developer who builds a warehouse with this added infrastructure has future-proofed the property, as industrial REITs are becoming savvier about the revenue potential of solar rooftops.

“The reality of building a building now and not making it solar-ready is that you’re basically locking yourself out of the opportunity, potentially, to do it later,” Oman said. “I’ve had an opportunity to talk to many industrial REITs. This isn’t news to them, especially as they look at properties in other markets. Most of them have prior experience with solar and they’re getting a lot more comfortable with it and the idea of buying a building that has a solar garden on it.”

With falling prices and new state incentives, the climate for new solar power in Illinois has never been better. And for owners and developers of new industrial buildings, the revenue potential atop the vast and empty rooftops is getting harder and harder to ignore.