In a recent magazine article, I listed several criteria for evaluating whether the time is right for installing on-site solar power projects on commercial real estate properties. A number of housing authorities, including the Philadelphia Housing Authority and the Denver Housing Authority, have benefitted indirectly from the incentives provided to owners of solar power projects. The lists below provide some tools for evaluating the possible applicability of these projects to housing authorities.
The article lists five areas of consideration, which are also applicable to housing authorities:
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Which areas of the property would be feasible for solar installations? Relatively flat, shade-free rooftops, or unshaded vacant lots or parking facilities are generally best.
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Who pays the costs of electricity? Does the building owner or individual tenants directly pay for electric usage?
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Who controls access to the roof (many retail facilities lease their properties and may have a wide range of rights to access and use the space on the roof)?
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Lease or license? Many building owners prefer not to allow peripheral leases on rooftop or other areas due to concerns over the extent of real property rights conferred by leases. Since many owners are comfortable with executing a license for uses such as rooftop cell antennas, this approach is often preferred.
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Roof replacement schedule. Since it is expensive to temporarily relocate rooftop solar property, and the useful life of solar equipment is generally considered to be 30 years or more, it is important to coordinate roof replacement schedules with the initial rooftop solar installation.
Applicability to Housing Authority Properties
Additional items to consider for housing authorities include the following:
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Utility allowance impact – Similar to the concerns regarding who is responsible for the cost of electricity for commercial buildings, the way the utility allowance is administered by a housing authority needs to be considered. For housing authorities, HUD currently has no process in place for sharing the benefits of reduced utility prices due to on-site generation, as it does for utility saving energy efficiency improvements. Although long-term power purchase agreements often result in power savings, the value of those savings can also be capitalized in the form of building upgrades, including electrical system improvements and roof repairs or upgrades.
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Housing authority as utility customer – Third party solar power project developers would prefer to have the housing authority as the counterparty to a long-term power purchase agreement rather than individual residents with a variety of credit profiles. As a result, housing units in which the residents currently pay utilities present some administrative challenges.
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LIHTC Properties – If the properties on which the equipment is to be installed are owned by a low-income housing tax credit partnership, approvals from the partners will generally be required prior to signing a license or other agreement providing access to and use of the rooftop or other available space. In addition, if LIHTC projects are under construction, the LIHTC partnership may have an interest in owning the solar projects and benefitting from the rare opportunity to “twin” low-income housing tax credits and energy tax credits.
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Ongoing obligations – Based on the long-term nature of the agreements related to the installation and maintenance of solar power projects, housing authorities should be aware of ongoing obligations to maintain physical security of the solar equipment, prevent shading, conduct periodic inspections of the facilities, and provide prompt notice of any problems to the equipment owners.
While these lists may appear to be intimidating, the decision regarding whether to install on-site solar power often comes down to weighing the potential long-term benefits of lower-cost power provided by third parties who are putting their capital at risk against the review, negotiation and analysis that needs to be done up front.
