When Is Community Solar Much Better Than Net Metering?
Prior to the launch of NYC’s Community Solar program, the only real solar program available was Net Metering. Co-ops, condos and other commercial buildings that have looked into rooftop solar under Net Metering were often disappointed by the results. The proposals forecasted long payback periods, limited savings, and low return on investment. Some were told their roof is too shady. Many simply couldn’t afford the up-front capital investment.
But as one condo in Queens discovered, NYC’s Community Solar incentive program now makes going solar an absolute no-brainer that anyone can afford. The design they ultimately signed off on is going to net them just under $980,000 over 25 years...all for a roof they thought was useless to them.
(Note: This blog post is largely based on the transcript of a Habitat Magazine video interview with Urbanstrong’s principal Alan Burchell for their June 2021 issue. Click here to watch the video.)
A Queens Condo Consults Urbanstrong On How Best To Develop Their Roof
Urbanstrong develops rooftops for condos and co-ops and other buildings into lush garden amenity spaces or we help them go solar or both. We were approached by a 63-unit condo in Queens, on Woodside Avenue.
Urbanstrong approached by a 63-unit condo in Queens, New York on Woodside Avenue asking for advice on how to maximize their roof’s potential.
They wanted to turn their 8,000 square-foot roof into a food garden. We got very excited because we love promoting urban agriculture in the city. Urbanstrong is a co-founder and currently sits on the board of a local non-profit called The NYC Agriculture Collective.
A Lot Has Changed In The World Of NYC Solar
Unfortunately our structural engineer said the building’s roof didn’t have the capacity to support a green roof regularly accessed by tenants. And to structurally reinforce the roof was beyond the board’s budget.
We then suggested they consider installing solar panels instead which are far lighter than a green roof. They said they looked into the state’s Net Metering program a few years ago but didn’t find the payback to be worthy of investment.
That’s when we explained that a lot has changed in the world of NYC solar since many buildings last got a solar quote and it was definitely worth taking another look now. A new program called Community Solar is now the better option for many NYC buildings compared to the old Net Metering program.
How Does Solar Net Metering Work?
With the old Net Metering program, the solar power that buildings produce on their roof rolls back their own consumption meter.
Under the old Net Metering solar program, for every 20kWh your solar array produces, they’ll take 20kWh off your bill. There’s no dollar conversion though.
The electricity your array produces is only worth whatever discounted rate your building has to buy electricity. With Net Metering, you’ll never get paid any actual cash. Also, the program doesn’t compensate you for any electricity you produce beyond what your building consumes. In fact, by the program’s guidelines, “projects calculated to offset more than 110% of the systems annual electric usage are not eligible.”
Even then, Net Metering only offsets the supply charges on your bill, not the delivery fees (which you will have to pay in full), yet another restriction.
So while it can help somewhat reduce your bill, the Net Metering program is rather limited in terms of the long-term profit it can generate for buildings looking to maximize the revenue-generating ability of their roof. This lost opportunity for earnings is even worse for larger roofs. Thankfully there’s a new program called Community Solar that can earn buildings vastly more money.
How Does NYC’s Community Solar Program Work?
Most people familiar with the program know it from the subscriber perspective. The Community Solar program gives all New Yorkers, including people like me who live in rental apartments, the option to go solar. Subscribers can effectively say they only want their home to be powered by electricity that’s been produced by solar panels on NYC rooftops. Clean renewable energy that’s also hyper local. Pretty great.
What we at Urbanstrong offer our condo and co-op clients is the chance to be the developer or host of one of those rooftop solar systems that produces electricity for NYC’s Community Solar program.
Back in 2017, the New York State Public Service Commission put a higher value on electricity produced in this type of distributed manner. So now, electricity produced for the Community Solar program is way more valuable. Building owners will often get twice as much selling their solar electricity into the Community Solar program than they would through Net Metering.
What Are The Upfront Costs Of Community Solar? Are There Any Financing Options?
Urbanstrong offers two investment options for building owners looking to go solar and sell into the Community Solar program: a ‘No Investment - Roof Lease’ option, a ‘No Investment - Re-Roof’ option, and a ‘Full Investment’ option.
The ‘No Investment - Roof Lease’ Option
With our No Investment - Roof Lease option, building owners can go solar and enjoy many of its benefits, but without any investment or any risk. Under this scenario, together with our solar partners, we install our own solar system on our clients’ roof.
Then, rather than using the electricity produced on the roof to roll back our client’s meter, we immediately export 100% of it into the Community Solar program. The utility compensates us for this electricity, in the form of bill credits. We apply these bill credits to the building’s account to lower bills for the common areas and individual units who opt in. But since the utility issued these bill credits at the premium Community Solar value, there’s often lots left over. And these we sell to our Community Solar program subscribers.
Our investors take the federal tax credits, bundle these together with the subscriber revenue, and share the profits with our building owner clients. They pass through these profits in the form of annual roof lease payments. At the time of signing, a fixed rate is agreed upon and guaranteed to be paid to the building owners every year for 25 years, regardless of solar production. In this way, our solar investors assume all the risk.
Also, the building owners collect the 4-year property tax abatement and they improve their energy efficiency to comply with NYC Local Law 97.
In summary, under Urbanstrong’s No Investment option, building owners invest nothing, assume no risk, but get to go solar, reduce utility bills, comply with LL97, and just sit back and collect a fixed passive income.
The ‘No Investment - Re-Roof’ Option
Our No Investment - Re-Roof option is the same as the Roof Lease option with one very attractive difference. The 25 years of lease payments are front loaded and instead paid out in the form of a roof replacement budget. Buildings who are staring down the barrel of an expensive roof replacement budget they either don’t want to pay for or can’t really afford to, love this option.
Under our No Investment Roof Budget option, building owners get a new roof without paying for it, get to go solar without paying for it, reduce their monthly bills, collect tax credits and comply with NYC Local Law 97.
The Full Investment Option
Many co-op board treasurers or company CFOs who first hear how much they can earn through our No Investment option eventually start thinking, “if we’re making this much without investing anything, then somebody else is getting rich off our roof.” This leads to them asking how they can keep all the revenue.
Under our Full Investment option, the building owner is the investor of their own rooftop community solar project. If they have the reserves and are able to be the investor, then in the long run they will make significantly more profit with the Full Investment option than with the No Investment option. We still handle all the design and permitting and installation, but the building owns all the equipment. They just sign contracts with us for Operations and Maintenance and Subscriber Management, and then other than our annual fees, the building owners keep all the profit.
And even if the building doesn’t pay federal taxes, our tax experts have ways around this where the individual unit owners who do have the federal tax appetite can split up the tax credit and depreciation.
Which Building Types Are Best Suited for Community Solar?
Community Solar, especially the way the Urbanstrong offers it with different investment tier options, might be particularly good for your building if:
You once got a solar proposal but didn’t like the long payback period
You’ve been told your roof was a bit too shady for solar to be worth it.
You want to go solar but can’t afford the initial investment.
You can’t collect the solar federal tax credit (ITC) because you don’t pay federal taxes.
Your building could use a free roof replacement
Buildings with a large roof that will never be used as an amenity space are a great fit for Community Solar. Examples are:
Self-Storage Buildings
Warehouses
Parking garages
Buildings with weak roofs
Big Box stores
Cinemas
Shopping Malls
Residential buildings who don’t want the insurance liability of accessible roof decks
CASE STUDY: Queens, NYC Condo Community Solar Investment
Our Queens, NYC condo client went all in on the Full Investment option. For their 8,000square-foot roof, their 25-year net profit will be $225,000 with an IRR of 28%. But they didn’t stop there.
Once their treasurer and legal counsel signed off on our projected cash flows, the board started looking for opportunities to invest even further. Now we’re solarizing their parking lot which is even bigger. Adding the carport to the roof, the payback period of the entire project is only 3.8 years. And in total, it’s going to net them just under $980,000...all for a roof they thought was useless to them. And all thanks to the very generous Community Solar program.
Down in our Queens condo client’s parking lot we’re building them a solar carport. It produces vast amounts of valuable solar electricity and doubles as a canopy that protects their cars from the elements.
Limited Time To Apply Before The Community Solar Credit Sunsets
It’s important building owners be aware that the opportunity to take advantage of NYC’s Community Solar credit incentive will not be around forever. The availability of this incentive is on a fixed capacity basis so there’s a limit to the total megawatts worth of solar panel installations that will be granted this incentive. Essentially it’s first come first serve, and we expect it to be dried up by late spring of 2021. So if you’re reading this and you're interested, I suggest you drop us a line soon.
