Solar Power on investment properties

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Has anyone looked into installing solar power into investment properties? Is it possible to sell excess power to utility company and generate additional income?

@Brian Ortins I'm sure that's something that's governed by local policies, etc. It would seem you would need a tremendous number of solar panels to generate enough power to have excess to sell, but you never know! In So Cal, Southern California Edison has information on their site regarding such things, maybe your local power company does too.

Keep us posted, everyone on BP is always interested in finding new ways to maximize profits on investments!

@Karen Margrave , I have just begun my research, but have not found any systems that generated extra energy to sell. I have heard of this in newspaper articles, but do not know of anyone successfully accomplishing this. I will keep everyone posted as I find out more.

I'm looking into this myself as I have a property that I'm renting to students with utilities included. I also have another property in Las Vegas which would seem ideal for solar power. The main problem I'm seeing is that rental properties are not eligible for the 30% tax credit from the federal government. I'm talking with a sales guy at SolarCity about whether or not this matters. SolarCity offers a power purchase agreement where you don't necessarily own the systems but rather you purchase the power produced at a reduced rate which is locked in over a 20 year period. However, I suspect that if you have to purchase the system, their financing and financial analysis will include the 30% credit. Without the subsidy the competitiveness of solar power may not make sense. I'll post what I hear back from SolarCity.

One last thing, I believe most states have net metering requirements where the local public utility must purchase back (or at least offer power credits) any excess power produced by private solar panel installations. Most of the time you will consume more than you produce but if the house is empty I suspect you could generate a pretty nice credit. I don't know if the utility is required to cut you a check at some point if you consistently have a growing negative balance.

FYI, I contacted a company which works in Nevada on solar installations called Solar Universe. I was told that Nevada doesn't allow power purchase agreements (yet?) of the sort Solar City does. I asked about the tax credit issue (since all of their online estimates are based on getting this) and am not encouraged because after she spoke with her boss he told her that rental properties were eligible for the 30% tax credit. I'm not an expert but this contradicts everything I've read anywhere (including the IRS) about this credit. She said that they have financing options where they take the credit instead of me and then offer me a discounted price. I have a meeting scheduled for Wednesday to discuss this with one of their contractors/installers. More to come on that. If you talk with them, try and have 1 year of power usage data so they can get a rough idea of the size of the system. Nevada Energy has this data on their website if you are registered.

I also spoke with Solar City about if/when they are going to be operating in Las Vegas. I was told "soon" and have a call back to the original sales guy I am working with on my Phoenix property to find out what that means. Perhaps they are working to get the power purchase agreement rules changed in Nevada. We'll see.

Installing a solar power system is a great way of capturing the sun's energy to generate electricity at home. It is a low-risk, high-return investment. Also a low carbon house is an increasingly attractive proposition to potential home buyers.

Have you thought about leases? There are companies that lease roof space so the energy produced can be sold back to the local utility. You don't have to get in the middle, just rent the roof.

They are doing this now in Connecticut. Just had a neighbor do this very thing.

We have yet to install any photovoltaic systems - mostly because the reverse metering/buyback policy of the local power company makes it financially unfeasible.

We do have solar-thermal hotwater at one of our properties ... and while the utility savings is appreciated by the tenants, it has not allowed us to command additional rent. This was a trial project for us and we are still undecided if we would do it again {an air-to-air heat pump water heater is more cost effective to purchase and operate}.

I met with the SolarUniverse guy yesterday and he emailed me some quotes for both a purchase and lease option. My rental is a 4/2 approximately 2060 sq ft house. Using my tenants usage for the past year (they are pretty conservative and pay $175 a month on level-pay) they came up with a ~7.5kW system which would effectively zero out the electric bill on average throughout the year. We would still have to pay some fixed charges (facility, meter, etc.) which would come out to about $12 a month. Here are the numbers which I rounded off a little.

Purchase

$39.2k - ~$11.7k (federal tax credit) - $9k (NV rebate) = ~$18.3k

Being that it's a rental property, I'm not eligible for the federal tax credit so this kind of seems like a non-starter to me. For commercial installations (not sure if 2-4 duplexes count as commercial) you would be able to get the credit and also take depreciation.

Lease

$29.7k (they take the fed tax credit) - $9k (NV rebate) = ~$20.6k

This is a ten-year pre-paid lease option and they assured me that after the lease the FMV for the panels would be effectively zero so we would then own them. They also said that they have signed agreements which said that if there was a residual value they would pay it but that may create some complications. No one has any experience with this and they are hard to value.

Here's the kicker on both of these agreements. The Nevada rebate is a lottery system and is based on NV Energy putting up money to fund the rebates which varies year-to-year. This year for both residential and small business combined, NV Energy is only rebating up to 1539 kW's of installations this year. Based on my math, that would mean only ~205 people will get rebates based on our size system for all of southern Nevada. The sales guy said he estimated I had a 70% chance but I think that's a wildly optimistic assumption. They did however include a clause in their contract that if I didn't get the rebate I could cancel the deal.

So, in my situation, here's what I believe would be the numbers.

My tenants pay $175 a month now. Subtract out the $12 a month fixed charges and that would mean $163 a month for electricity assuming the system zero's out the utility charges for electricity generation.

$163 * 12 = $1956 / $20653 (cash/lease) = 9.4% return

The sales guy said they have a bank who will do a 12-year amortization of the lease payments with zero down at 2.99%. That cuts into the return and doesn't count for any vacancy. At the end of the day it's pretty close to break even but I'm not sure I want to take on the additional debt. I think I'm going to wait until SolarCity makes it to Nevada and do a power purchase agreement instead. I haven't got enough usage details on our Phoenix property yet to get a quote. We'll see in a few months.

PS. If you are interested in this for 2013 you need to hurry. The deadline for Nevada rebates is May 17th and it takes a few days to process the paperwork. Good luck!

[quote=Glen Sonnenberg
My tenants pay $175 a month now. Subtract out the $12 a month fixed charges and that would mean $163 a month for electricity assuming the system zero's out the utility charges for electricity generation.

$163 * 12 = $1956 / $20653 (cash/lease) = 9.4% return

The sales guy said they have a bank who will do a 12-year amortization of the lease payments with zero down at 2.99%. That cuts into the return and doesn't count for any vacancy. At the end of the day it's pretty close to break even but I'm not sure I want to take on the additional debt. I think I'm going to wait until SolarCity makes it to Nevada and do a power purchase agreement instead. I haven't got enough usage details on our Phoenix property yet to get a quote. We'll see in a few months.

Glen:
In the instance of a vacancy, can you reverse meter the power generated back to the utility? Will they purchase it, or only give you a credit?

With NetMetering rules the utility has to purchase the energy you put back onto the grid. However, it is applied as a credit towards future use. They limit the size of the system which you can put on a property based on the past usage history since the utilities don't want to be on the hook for huge systems producing power. For most systems, you'll generate a credit during the low-usage months and then burn that credit doing the high-usage months. I do not believe the utility will cut you a check for any credits.

Originally posted by Glen Sonnenberg:
With NetMetering rules the utility has to purchase the energy you put back onto the grid. However, it is applied as a credit towards future use. They limit the size of the system which you can put on a property based on the past usage history since the utilities don't want to be on the hook for huge systems producing power. For most systems, you'll generate a credit during the low-usage months and then burn that credit doing the high-usage months. I do not believe the utility will cut you a check for any credits.

There are a few utilities that will cut you a check at the one year marker, but they are pretty few and far between and only do so because state net metering laws mandate them to do so. When they do cut you a check it's not going to be at the retail rate, but rather at the utilities avoided cost.

Yeah, in addition, it appears that NV Energy is pretty stingy when it comes to their incentive program. They apparently are on target for the state mandates regarding alternative energy and don't have much incentive to rebate the costs of installations to many customers which is why they have strict limits on the program. I also don't know if you don't get the rebate in one year whether or not you are able to apply again the following year and there are no guarantees it will continue. Once the systems is paid off, it seems to be a pretty good deal but you have to pay the up-front costs.

One thing to keep in mind- there's a decent sized apartment complex near me that has a large solar array, and even though the property isn't as nice, new, or updated as the ones around it, it rents for a small premium and their vacancy rates are really low- one of my friends used to live there, and another in the complex across the street.

I think there's two reasons for this- one, after looking at 3 or 4 apartments, they tend to blend together in people's minds, but the big solar array sticks out, and two, people are willing to spend a little (but not a lot more) to be more eco-friendly.

If the paper says the solar panels are break even, I'd give it a shot just for what I've seen them do for vacancy rates.

@Glen Sonnenberg :

Our utility netmeters as a credit against future use. The do not limit the size of the array you connect, but they do "reset" your account to zero on an annual basis ... so, if you have a surplus on the anniversary date, there is no carry-forward into the next year ... hell, they don't even send a thank-you card ;-)

As a consequence of the utilities approach to consumer generated energy, solar and wind have not really gained traction here.

There was a local developer here a couple of years ago who build a community of townhouses. There were eight row houses along one side of the development, where each had their own PV array. The builder wanted to share the power across the entire development before sending any back onto the grid, but the utility fought it and the end result was each townhouse had to netmeter its own electricity generation/consumption to the grid independently.

Its a mistake to assume the electric utility usage will be zero. What happens at night or during a storm when the sun doesn't shine. Does your quote include a battery backup system? Is that system large enough to power the house during the night? Most likely your tenants will only benefit from the daylight hours electrical usage which for most of us is not much because we are at work. In nevada, it could help offset summer ac costs if you are cooling during the day.

Additionally the panels need to be maintained or they will not work at 100%. So you would have to clean the glass on the panels once a month or something like that. What happens if one of the panels breaks? Very expensive to fix. And the reason their FMV at 10 years is zero is because they only have a 10 year life expectancy.

In my opinion solar panels do not provide much incentive to use unless you are in a remote location off the grid. They especially seem like a loser for a rental property. Renting roof space to someone else to sell the power would be the best bet.

One last thing. Try running all the calcs on typical appliances that will be running on electricity and see how far 7.5kw gets you. Concentrated solar thermal is much more promising, but you don't see anything here on the scale of a single residence. I will not deny that it could be useful as a marketing tool.

From what I can tell, they take your average usage patterns from the past year and size the system such that it will be slightly higher than your average usage. The systems generate power during the day to bank energy credit with the utility and then at night you are using that credit to power your house. Also, the expectation is that during low-usage parts of the year you will build up a credit which you will burn through during peak-usage parts of the year. Probably why the one utility resets their credits after a year. This way they don't have long-term liabilities building up on their balance sheets.

As for maintenance, you're right that they do need to be cleaned. However, with the lease agreements or power-purchase agreements the seller actually monitor the panels to make sure they are operating correctly. In addition, they warranty the panels and repair them if they fail. That isn't the case if you purchase them outright though. I'm not sure I agree with your assessment that they have a 10-year lifespan. Most are saying 20-25 year and they model their financial returns based on that. That's why it's not clear to me how they justify a zero FMV after a 10 year lease. Not sure if the Feds would agree. :)

Lastly, I haven't seen a system yet which includes a battery backup option. They exist but typically are there just to protect you against brown-outs like a UPS system. I haven't seen any systems which allow you to charge them during the day and discharge them at night. I doubt that they would be affordable given the price of batteries.

A solar system makes the property more self-sufficient and lowering utility costs over time. The amount that the property owner will actually save after installing solar power will depend on several factors. This could include the fees that your electricity company charges, the type of solar system you install, and the overall efficiency of your property.

Solar City called me back and after discussing it with them they thought they could quote me a system for our house in Phoenix with only about two months of electricity usage data. I have an appointment with a tech on Tuesday morning to discuss it. I will post the results/quote once I have it.

Met with a Solar City rep and got their information. Apparently they don't have a power-purchase agreement in Arizona either so the only option is a lease for rentals in order to get the benefits of the tax credit. Their terms are better than the company in Nevada. They offered two plans both for 20 years. A zero-down pay-as-you-go option or a pre-paid lease. They have the ability to recalculate based on any set amount you want to put down but once its installed you're committed to whatever plan you decide. They also have a 12 month option where you pay for the whole system over 12 months rather than financing over a longer term.

Once they put in our usage data, it turned out that with the roof space we have we can do a system which will cover ~66% of our usage. I'm sure it fluctuates but that's the base guarantee. APS has a few billing plans and they recommend that we switch to a plan which bills high rates during peak times (noon-7pm) and very low rates off-peak. They quoted me for a ~7.5kW system (slightly smaller than the one in Las Vegas but the house is smaller ~1500 sq ft.). After all of the rebates, etc. I can either start paying $127 a month for 20 years or pre-pay $15200 for the system (maintenance, monitoring and insurance included). They project our electric bill will drop to around $60 a month on average. I'm not exactly sure what our electric bill will look like during the winter but last month's was $322 so it looks like a pretty good savings. I'm pretty sure I'm going to get it. Just need to work out the financing since I'm thinking about using a cash-out refi to pre-pay the $15k. After that I'll probably focus on some of the things we can do to reduce consumption but since this is a student rental and utilities are included it makes sense to go solar. Lastly, they say there is a two-month lead time to get it installed. Sometimes longer if there are permit, electrical or HOA issues but our house was build in 2004 and there isn't an HOA so we should be good to go in a few months. I'll see about posting data once we have it up and running. Solar still may not be 100% competitive but with the incentives and credits it seems to be a good option in areas where there's lots of sun. More to come later...

Slightly different idea -- I recently helped a client purchase a vacant Sam's Club building in Phoenix and they are going to create office space there. Their plan is to get with a solar company that is going to install covered parking in the parking field with solar cells on the roof of the parking.

From what I understand (this wasn't part of the deal, just conversation while we were working on other aspects), the solar company would install and maintain the structure at no cost, but the power generated would all belong to the solar company. The benefit to my client would be the free covered parking in an otherwise wide open parking field.

Could be a good idea for office or retail owners who want to make their building more attractive for little cost.