The Real Estate Solar Investment Handbook: A Commercial Property Guide To Managing Risks And Maximizing Returns

By: Aaron Binkley

Rating: A

This book is fantastic! This author dumbs solar down for the real estate investor. You need to read this one. It explains key terms and designs of solar systems. With pictures and arrows for my little brain to understand. 

Intro to Investigating Solar:

What often happens when a commercial real estate investor looks into solar: They get a couple of quotes from different providers and then make a decision that solar just doesn’t make sense.

These same investors wouldn’t take that same approach when deciding to enter a new real estate market. They wouldn’t give up after trying to buy one property in a new market. They would have a long-term strategy and a systematic approach to build an understanding of the market, target properties, and position themselves to capture the greatest value over time.

The pursuit of value from solar projects requires the same approach. Market knowledge, clarity around your goals, and the ability to capitalize on changes in the market over time can help effectively mitigate solar risks while maximizing value.

Terms of Interest:

Photovoltaic cells (PV): referred to as solar cells, are the individual components in a solar module that generate electricity. Cells measure roughly 6 inches on a side, and are composed of semiconducting materials that generate DC electricity when struck by the sun. PV cells may be composed of silicon, as well as combinations of elements including CdTe, CIGs, as well as other compounds. PV cells are combined in a sheet to form a module.

Net Metering: a regulatory policy that exists in most property markets. This policy is what enables property owners to connect their solar system to the utility grid. The term refers to the “net” amount of electricity that the utility charges each month once solar production is subtracted from the total metered consumption of energy from the grid.

Power Purchase Agreement (PPA): a long-term sales agreement between a producer of energy and a buyer of energy, where the producer agrees to sell the output of their array to the buyer at an agreed-upon price for a fixed period of time.

Renewable Energy Certificates (RECs): Represent the intangible emission-free attributes of the electricity produced by a clean energy source. A solar renewable energy certificate is technically described as an “sREC.” RECs can be traded in a renewable energy certificate market in certain regions. The energy produced by a solar array and the renewable energy attributes conferred by the REC can be sold separately. The value of RECs can vary widely from one market to another. In certain markets, RECs have virtually no value, while in others they can be more valuable than the electricity produced by the solar array.

Six elements of solar project value

  1. Revenue Arbitrage: i.e. leasing the rooftop space to host a solar project.
  1. Energy Price Reduction: Increasing electrical infrastructure costs to replace outdated systems and power plants further contributes to rising prices. Just as importantly, peak solar system output tends to coincide with times of the day and year when time-of-use charges are highest.
  1. Energy And Sustainability Regulations: California is exploring regulations that would require all new commercial buildings to be zero-net energy by the year 2030. Zero-net means that new commercial buildings will be designed to produce as much clean energy as they consume over the course of a year. In Chicago, projects that meet pre-established sustainability criteria automatically receive expedited permit review, which can reduce project schedules. These situations foreshadow a future for real estate development where renewable energy knowledge becomes mandatory in order to deliver projects that local communities want.
  1. Responsible Property Investment: Addressing investor interest proactively can make it easier to attract and retain investment capital.
  1. Occupant Demand: Building occupants increasingly seek ways to reduce their operating costs. For the property owner, being able to offer occupants a lower energy cost supports lower operating expenses compared to other buildings. Even in situations where solar is only powering common area energy needs and not the tenant’s own energy use, the image of the property owner and the building may be enhanced in the eyes of the tenant.
  1. Reputation: Solar projects can improve a commercial property owner’s image as a responsible member of the business community, strengthen their perception among customers, and enhance a reputation as an employer-of-choice within the real estate industry.

The Building Blocks Of Solar Projects

  1. Insolation: The combination of intensity and duration of energy from the sun in a given location. Affects how much electricity the solar modules can produce.

Projects at higher elevations also receive more energy from the sun.

To check insolation levels for your area visit 

  1. Electricity Price: Solar power is particularly valuable in locations where electricity prices are high, and for buildings that have high demand for energy at peak periods during the day when electricity is most expensive.

Grid electricity prices are typically highest during the summer, especially during the working week in the late afternoon, when energy demand spikes.

Take southern California, the poster child for high-energy costs and volatile prices. Electricity price inflation has grown 4.4% year over year over the past 2 decades.

  1. Technology: used broadly to refer to the solar module as well as the other electrical components that make up a solar array.

Technological advancements have reduced the cost of solar panels 80% in the past decade.

BUT advancements in the lab take years to reach the market. Incentives and any financing are locked in based on the design and technology specified for the projects, meaning, the incentives available to support your project with newer tech may have declined.

When new products come to market they usually command a premium. You may pay disproportionately more for them. Installers may also face a learning curve when installing a new product if it is different to previous versions. This could drive installation costs higher for your project or even delay permitting if local code officials are not familiar with the new technology.

  1. Incentives: Incentives are often thought of as cash subsidies, usually from the government or the regional utility. In reality, incentives can come in a variety of forms (cash grants, tax credits, production-based payments such as feed-in-tariffs (FiTs), and non-monetary project support). Solar projects may be eligible for expedited permitting that allows you to reduce carrying costs. 

Germany, a country with an oversized share of overcast and cloudy weather, became the largest solar market in the world due in large part to its strong FiT program.

Tax benefits. The federal government provides a tax credit worth 26% of qualified solar project expenditures. Solar projects are also eligible for 50% bonus depreciation. Together, the tax credit and accelerated depreciation make up the largest incentive in the US.

Check out to see every available incentive. I mapped out all of them for every major market in Texas. There are a lot there. 

Utility incentive programs. The incentive programs are often implemented through local or regional electric utilities. Additionally, some utilities may offer lump sum cash grants to qualifying solar projects, while others may fund project incentives based on the electrical output of the system over several years. Others have set up trading markets that place a value on the clean energy attributes of solar electricity to enable project owners to sell these attributes in order to offset project costs. These attributes are known as RECs and are bought and sold in an open marketplace.

Rules of thumb. Project size.

Small: less than 50 kW

Medium: 50-250 kW

Large: greater than 250 kW

Capacity vs. Production-Based Incentives

Capacity-Based: Incentive payments are determined by the nameplate rating of the solar array, measured in KW. Typically for smaller projects.

Production-Based: Incentive payments are tied to the energy output from the array. Incentives are then paid periodically based on the total kilowatt-hours produced. Common for commercial size projects.

State Incentives.

  1. Property tax exemptions for solar property
  2. Sales tax exemptions on solar materials
  3. Accelerated depreciation for solar equipment
  4. Streamlined permitting and zoning exemptions
  5. Cash grants for projects that use the local labor force

Identifying Opportunities In Your Portfolio

Installing solar on outdated buildings may create a safety risk that can only be remedied by retrofitting and enhancing the building structure.

Outdated buildings have been “grandfathered” into a lot of newer building codes. Installing and retrofitting mechanical features of your properties increases your exposure to having to significantly update older buildings to be within code.

A roof that needs to be replaced in the middle of a solar array’s lifetime is a costly and disruptive event – one that is best avoided. Solar projects are designed and underwritten with an expected useful life of 20-25 years, although they can operate for longer when well maintained. In comparison, commercial buildings typically have roofs expected to last anywhere from 15 to 25 years, but few were planned with solar in mind. 

White reflective roofing is a good comparison to solar projects because white roofs do not get as warm as dark-colored roofs such as modified bitumen or some membrane roofing. This matters because solar modules produce more electricity if they stay cool.

Solar Service Provider

Only use solar developers with experience on projects of a similar scope and size that have been completed in your market within the same utility territory.

Check the capital expenditure model in the package they prepare. Some models show no capex whatsoever over 20 years. Even if it were possible, the solar project would be in such poor condition at the end of the 20 years that it would be severely underperforming and would probably be unsafe to operate.

Selecting The Best Project Structure

Direct Ownership: A structure where you purchase and own the solar project yourself.


  • Cash incentives;
  • Tax credits, deductions, and depreciation;
  • Revenue from selling solar electricity or from offsetting your utility bill;
  • Revenue from sellings RECs if available in your market.

Power Purchase Agreement (PPA): A structure where a third party develops and owns the solar project and sells electricity to you under a long-term contract. The first factor is the term of the power sales agreement. The term is typically aligned with the solar financing term.

Can be set up to generate revenue for the property owner in several ways by:

  • Replacing a portion of grid-purchased electricity with lower cost solar energy;
  • Re-selling solar electricity to building tenants at a price greater than the PPA cost;
  • Reducing building peak energy demand charges.

Lease: A structure where a third party leases space on your property to develop and own a solar project. They sell electricity to the utility or an unrelated third party under a long-term contract.


Spain Case:

In 2007 Spain introduced a lucrative FiT incentive. The market saw project application grow out of control in 2008 as solar developers sought to cash in on the generous incentive program. The following year, incentives were trimmed back significantly. This was done in order to cool the market and to limit the government’s ballooning incentive payment obligations. From 2008 to 2009, the number of megawatts installed dropped almost 80%, from 2,400 MW to 500 MW. In this case, Spain had abundant insolation, access to efficient and reasonably priced solar technologies, and moderate electricity prices. Adding high incentive levels was unnecessary and quickly proved to be unsustainable. The ensuing incentive cuts were severe and the market has been heavily constrained ever since.

There are so many positive things coming out around solar. The technology has developed by leaps and bounds over the last decade. Incentives are the only thing making them make any business sense. “Sense” being a loose term. The only problem with incentives is that you eventually run out of other people’s money. 

The challenge is creating a business model that makes business sense. I think we are close. But that is the challenge.

Next Action:

Keep reading and meeting experts in other industries to develop our business model to create a win for our residents, our property, our investors, and the environment.

One thought on “The Real Estate Solar Investment Handbook: A Commercial Property Guide To Managing Risks And Maximizing Returns

  1. Hello , thanks for sharing this blog . this is very helpfull for me . if you want any help regarding solar maintenance in New Jersey then contact with Solar Medix.

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