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Commercial Solar for Triple Net Lease and Full Service Gross Lease Tenants

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Commercial Solar for Triple Net Lease and Full Service Gross Lease Tenants

Property Owners & Tenants Saving Money Together

Rising Commercial & Industrial Electricity Rates - California vs US - 2011 Through 2020

Commercial real estate (CRE) property owners have an exciting opportunity to raise income with commercial solar on properties with either a Triple Net Lease or a Full Service Gross lease.

Property owners and managers are constantly looking for ways to increase income. Generating independent power with commercial solar and selling that back to tenants grows income and adds to the property’s value and marketability.

California Electricity costs continue to rise. The state’s Investor Owned Utilities (IOU’s) outpace the rest of the US in electricity price growth and shift time of use to increase profits and pay for outdated grid maintenance.

This graph shows just how drastically California’s rates have been outpacing the country average. In both Commercial and Industrial sectors, these rates are expected to continue this trend.

Commercial Real Estate with Different Leases

Triple Net Lease (NNN)

For Triple Net Lease tenants, building owners can either increase rent for customers that benefit from the free electricity or use net metering software to track each tenant’s usage and allocate a fee for the electricity they use that the system generates.

Traditional Full Service Gross Lease tenants pay a prearranged value each month in their rent that accounts for electricity usage. With commercial solar, the property owner’s electricity portion of rent is potentially zero dollars.

How Commercial Solar Works

Installing commercial solar is not the same as residential systems. CRE owners should be aware there is a big difference in quality and performance between residential and commercial grade solar equipment.

The owner or manager starts by hiring a licensed commercial solar contractor, project developer or EPC. Contractors like Revel Energy specialize in C&I properties, known for more complex energy profiles and usage than typical residential installs.

Contractors, like Revel, start by analyzing the business’ energy usage referencing 35,000 data points (Revel takes a unique approach analyzing energy usage every 15 minutes from the last 12 months) to create a custom-tailored system.

How Everyone Benefits

Property Owner

Generating electricity with commercial solar provides building owners an extra channel of income. There are several ways to divvy up and charge tenants. Each increases the building’s income.

CRE owners also gain more property value. Adding new sustainable technology increases a building’s value in several ways, most tangibly by increasing annual income which is then divided by the cap rate thus growing property value.

Property Manager

Sustainable green buildings are more attractive to prospective tenants. This adds a competitive advantage over competitors. For existing tenants (i.e. a tenant 4 years into a 10-year lease), solar provides an opportunity to extend leases. This increases the Net Present Value (NPV).

Renewable energies with energy storage will reduce tenant complaints primarily caused by electrical outages. Creating their own reliable electricity backup source is an option for further reducing reliance on public utilities’ outdated infrastructure.

Tennant

Over half of Fortune 500 companies have pledged to shrink their carbon footprint. These companies seek real estate in line with their green initiatives. The marketability of a commercial solar system translates well to consumers. Tenants have the option to externally market their “social responsibility” to consumers.

In some cases, building owners will sell electricity back to the tenant at a slightly lower rate than IOU’s. This lowers the tenants’ operating costs giving them more cash flow to grow their business.

California Commercial and Industrial Electricity Rate Growth

Electricity rate growth in California has exceeded expectations and continues to rise. Industrial rates (in red) apply most commonly to manufacturers, plastics industry, aerospace, and other similar industries. These businesses are some of the states highest electricity users and they pay a premium for it.

Commercial rates apply mostly to flex space, office building, retail and other similar industries. These are generally smaller businesses or multi-tenant spaces with moderate electricity usage. A lot of these businesses do not have the luxury of running earlier hours to avoid peak TOU pricing.

Historical California Commercial & Industrial Energy Rates - 1990 through 2020
Revel Energy's 2021 Notable Projects List

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