Residents are increasingly seeking apartments that offer sustainable features, and onsite renewable energy generation can have a number of benefits for the multifamily developer or owner. Implementing renewable energy enhances a building’s asset value and resale value, reduces electric bills for both tenants and developers and presents an excellent marketing opportunity for socially conscious tenants.
While there are various sources of renewable energy for developers to consider, solar electric has the brightest future for onsite renewable energy for the mid-rise multifamily market. Compared to other renewable generation technologies such as solar thermal and geothermal, solar electric delivers a better return on investment, greater impact on overall site energy use, and is more feasible in urban and suburban locations.
While solar electric has had a presence in other forms of residential housing for a while now, it is a relatively new entry into the multifamily market. Today, the pathway to integrating solar electric into larger developments is much clearer than even five years ago with fewer barriers to entry. The cost of implementing solar has decreased significantly thanks to falling solar module prices, newly available tax credits and incentives and improved design tools for assessing feasibility at properties.
Facing Challenges
Despite these positive trends, the multifamily market has been slower to incorporate solar into developments because of very real universal and region-specific challenges. Engineering, roof space and the energy demand at a property are key and universal challenges when implementing solar electric. Developers must consider the ratio of roof space to the total energy used by the building and the number of tenants. For example, solar likely would not make a meaningful dent in the electricity demand of a high-rise building with hundreds of tenants given the limited roof space, as well as the competition for roof space with the growing number of amenities offered to residents.
Mid-rise properties present the best balance of sufficient energy demand and available roof space. Still, challenges remain. Many midrise multifamily properties will have split systems for heating, ventilation, and air-conditioning with equipment for each individual unit on the roof, leaving minimal square footage for solar panels. Combined with any rooftop amenity spaces and clearances required by fire code, there will be few areas left to lay out arrays. Compared to commercial spaces, which are more likely to have larger areas of open roof space, the patchwork layout required at a multifamily location can drive up engineering, design and installation costs.
Financial Incentives
For better or for worse, developers know the government is interested in renewables. The evolving financial implications due to trade, federal financial incentives and legislation add an additional layer of challenges. While it’s great for developers to take advantage of subsidies to implement a solar program, they must be aware that subsidies can be quite volatile due to timing and political sensitivities.
For example, the Investment Tax Credit allows for a credit of 30 percent of the cost of a solar installation only for projects beginning construction through 2019 and will decrease to 26 percent in 2020, 22 percent in 2021 and then permanently to 10 percent in 2022. However, the 30 percent tariff on imported solar cells and modules issued this past January has reduced the financial returns for many projects.
Incentives and location-specific considerations from state and local governments and electric distributors also exist at the regional level. While regional incentives are often key to justifying financials in the short term, it is imperative to research incentive funding limitations, openings and deadlines. For an organization new to solar, it is helpful to select contractors and consultants who are familiar with the incentives to help guide the process.
Developers need to estimate the financial savings output of a solar array at a particular site to account for the regional solar intensity and electric prices before making the decision to move forward with a solar project. Solar intensity, the amount of solar energy available for capture by the cell, is dependent on regional characteristics like average cloud cover and latitude in addition to site-specific characteristics – like shade from nearby buildings and trees. Regions may also have a policy around net metering for developer compensation if the building pushes more electricity to the grid than it is using. It is a best practice to execute an in-depth study of estimated solar output along with existing electric rate structures before making an investment in solar to identify the most promising locations within a portfolio.
The Power of Solar
Despite the challenges, mid-rise multifamily developers can break through these obstacles by using multiple arrays of panels. Developers need to spend the extra design time and/or incremental investment in order to be successful. The right formula incorporates the right incentives, captured investment tax level at the federal level combined with added value from suppliers and distributors.
With so many incentives, financing options, and ownership structures available, multifamily owners, operators, and developers are likely to find a combination that aligns with their financial and sustainability goals. The growth of solar power in multifamily will continue, regardless of favorable or unfavorable government intervention. Companies that are able to best manage the above challenges will position themselves for future growth while reducing environmental footprint.
