The solar power
for local governments
Monetizing your real estate assets through a solar power project can create additional revenue streams and unlock capital for alternate uses
Across the United States, countless states and municipalities have made great progress toward achieving aggressive renewable energy goals. Between 2015 and the first quarter of 2020, U.S. cities signed 335 renewable energy agreements totaling 8.28 gigawatts (GW) of power. If your community is among the many that need to boost renewable energy use, one popular option is to monetize your real estate assets with a solar energy installation.
Monetizing your real estate assets through a solar power project can create additional revenue streams and unlock capital for alternate uses while helping attain sustainability and other policy goals. Leasing land or rooftops to solar power developers is a proven approach to generating revenue while benefiting the larger community.
For example, one of the five largest U.S. transit agencies, Washington Metropolitan Area Transit Authority (Metro), is partnering with a solar energy provider to install 17 acres of solar panels in one of the nation’s largest community solar power installations. Over the next 25 years, the solar power company will pay Metro approximately $50 million to lease space at four Metrorail stations for the solar arrays.
The (solar) revenue power of a ground lease
A typical solar energy partnership involves a ground lease or license, in which a municipality leases a real estate asset to a private developer who constructs a solar array and sells power to the municipal grid. In some cases, the municipality itself may buy the project’s power at a price equal to or lower than the price of conventional utility power. In either scenario, the solar power provider assumes the costs of constructing and activating the solar array in exchange for the long-term use of the real estate asset.
Solar power generation also can benefit low- and moderate-income communities most in need of affordable power and clean air. Metro’s solar project, for example, ultimately will provide enough solar energy to power at least 1,500 single-family homes and potentially reduce their energy bills. Several states now have similar community solar programs that allow constituents to reap the benefits of solar power without the need for solar array installations on their residences.
Navigating a complex solar power project
In a typical process, a municipality issues a request for proposal (RFP) to solicit proposals from potential solar energy companies. To attract appropriate partners, the RFP should include a reasonable estimate of the solar power generation capacity of your real estate assets. Capacity depends upon the type of solar power installation you envision—which requires an understanding of solar power technologies.
In response to the RFP, solar power developers will propose the annual rent they will pay to lease your real estate assets. Numerous factors will influence the annual rent amount, including availability of tax incentives to defray development costs and the cost of conventional power. If your community has both high conventional power rates and generous state tax incentives, it will be easier for a solar power developer to make an attractive offer.
Lease terms are typically lengthy, lasting 15 to 25 years Longer leases often allow a solar development to secure more attractive financing terms. The amount of power the project can produce, combined with the value of incentives available, will influence the amount of rent a developer is willing to pay. And, you have the option of requesting in-kind consideration—in the form of new facilities, repairs, electric bill credits or services—in lieu of rent payments.
The solar opportunity for city and county governments
Along with growing financial pressures, environmental sustainability and climate change concerns are at the forefront of state, city and county agendas. Many local governments are enacting more stringent renewable energy standards in response to public concerns. Solar power installations can help you address the sometimes-competing demands for financial and environment sustainability.
Several factors are converging to create an attractive environment for city and county solar project development. One is that public interest is very high. Also important, solar power technologies continue to improve and become more efficient while prices fall. Perhaps most important, your organization can enter into a solar power agreement at no cost—but with maximum returns in terms of lease payments and constituent satisfaction. When it comes combining sustainability goals with revenue generation, it’s a promising time to put the sun to work for your community.
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