As with any investment, there are risks and rewards. When the rewards greatly outweigh the risks, it is a good investment. Since a solar system represents a sizeable investment, it is worthy of a risk analysis. So, what risks should be considered as a landlord investing in solar?
The basic risks of an investment in a solar system are the same for any investor. Your contractor can do a bad job. The equipment doesn’t function properly. It doesn’t give the production you were told it would. All of these risks are the same with any project. You must perform your due diligence when hiring any work done, and solar is no different. Ask for recent referrals and handle your paperwork with professionalism. Imported products will not carry the same quality or warranty strength as other brands from diversified well-known companies.
Now, what additional risks should a landlord look out for? The most obvious one is that if there is no tenant to buy the power being generated, your power is only worth 25% to 50% as much if you have to sell it directly to the utility company. Getting a small amount for your power is better than how much rent you get for an empty building, but still is not optimum, so begin with this consideration. There is plenty of available financing that is just a few percent down that runs 5 to 7 years. This financing would also be cash flow positive from the start. So, if you have just signed a new lease or you have this much time on an existing lease, that would be a prime consideration. Empty buildings do not need very much electricity.
A second risk would be if a tenant changes its electricity consumption after you have installed a solar system. If the usage goes up, you can go through the same decision making process you did at first and maybe add more generation. If the usage goes down because either their business flow goes down or they move an operation out that used a lot of electricity, you will find at the end of the year that you have excess generation that you have to sell to the utility company. If this is a long lasting situation, you are legally able to sell power to any adjacent property. The property needs to touch by at least a point, but it can be across the street or railroad. This is all done with paperwork; you do not have to run wires to the other building. I can’t think of a business that wouldn’t want to buy discounted electricity from a neighboring building.
A third risk is that the system can be vandalized, stolen or catch on fire. All of this is covered by your building insurance. Just be sure your insurance agent knows about the solar system being installed and you get adequate coverage. Theft and vandalism has not been shown to be a problem, since there is literally no secondary market for used solar equipment and it is high voltage that cannot be turned off. They also do not cause fires, although they certainly carry a lot of current during hot daylight hours. All of these considerations add up to low costs of insurance coverage.
Since a solar system adds real value to a building without raising the property taxes, it is certainly worth some risk. Since all the risks can be mitigated with planning then it is up to you to decide if the reward exceeds the risks. Ask your tenant to look at his electric bill. You will be able to put all of the usage charges (kiloWatt hours kWh) in your pocket after the system in paid off. Since there is very little down payment and these systems are cash flow positive from day one, it is a great way to add value to your building portfolio.