The owner of Paso Robles Glass wanted to take his business solar, but there was one problem: He doesn’t own the building. Like many business owners, Paso Robles Glass leases the space from a commercial landlord. And generally, convincing commercial landlords to add solar to their rental properties is an idea that’s dead on arrival. Why should they? In most cases, the electric bill is in the tenants’ name, leaving them responsible for all the power bills. But in this case, Paso Robles Glass’ savvy landlord read my article: Commercial Solar – A Win/Win for Landlords and Tenants and contacted me to find out more.
I explained to the landlord that by installing a solar system on his property, he was eligible for a 30% Federal tax credit.
This means the landlord can deduct 30% of the total system cost from his federal tax liability. If he can’t use the entire tax credit in year one, it can be taken back one year or carried forward for up to 20 years until it is used up. Also, a commercial landlord is allowed to depreciate the system over 6 years which can add up to another 20%-30% of the total system cost (depending on your tax bracket).
Besides the tax advantages, a solar system provides a second income stream for a commercial property. Here’s how it works:
- The landlord and tenant enter into an agreement where the landlord sells the power generated from the solar system to the tenant.
- The price per kWh (kilowatt hour) charged to the tenant is at a lower rate than the amount they currently pay the utility company. This saves the tenant money each month without spending any money out of pocket.
- As an incentive for the tenant to stay in the building longer, the landlord can lock-in the rate charged for power, saving the tenant more money each year as utility rates go up and up.
After explaining all of the advantages to the landlord, we gathered PG&E usage information from the tenant and prepared a solar quote and cash flow analysis spreadsheet. The landlord ran these items by his CPA who agreed that it was indeed a sound financial investment. And a few months later, Paso Robles Glass had gone solar!
To sum up, these are the advantages to adding solar to commercial rental properties:
Landlord:
- Receives a 30% Federal Tax Credit
- Depreciates the solar system saving more on taxes
- Gains additional income stream by selling power to the tenant
- Adds value to the property without increasing property taxes (Solar is exempt)
Tenant:
- Provides no money out of pocket
- Saves money from the start by paying less for power
- Locks-in rates for power, saving more money each year as utility rates go up
- Is able to tout the fact that they are a “green” company
