In self-storage, net operating income (NOI) is a key measure of facility performance. Operators aim to increase this metric by growing revenue and/or decreasing costs, but there aren’t always that many levers to pull to make a significant improvement. One option that can make a big impact is solar energy, which allows you to reduce costs and potentially improve income in one fell swoop. It also positions your company as being eco-friendly, which is increasingly important to today’s consumers.
The self-storage industry is already a leading adopter of solar energy across the United States because of the immense opportunity it offers. For example, real estate investment trust Extra Space Storage Inc. has installed solar panels across 65 locations. The company is estimated to save $600,000 during just the first year. These savings are projected to result in $15 million over a 25-year period—a direct NOI impact. As energy prices surge, solar can serve as a hedge against the unpredictability of the future.
But how does the average self-storage owner adopt solar? What options are available? This article looks at what you need to know to get started.
Is Your Property Good for Solar?
Many self-storage properties are ideally suited for solar energy due to their large footprint, significant electricity needs and abundant rooftop space. With that in mind, there are two major factors to consider when evaluating the suitability and cost of a solar project:
Location. This is important because incentives and policies vary by state, municipality and utility-service territory. Most states have a framework known as “net metering” that allows solar customers to “export” their excess energy to the grid during periods of high production (and low consumption) and receive a credit for it. Each month, the electricity bill reflects the net usage, and the overall impact is a reduction in cost. Beyond net metering, there are many other programs such as community solar or property-tax incentives. A solar-energy developer can help you navigate the available options in your area.
Utility rate. The higher your current electricity rate, the easier it’ll be for solar to create a savings opportunity and positively impact NOI. For example, solar is very popular in high-priced areas like California, the mid-Atlantic and New England; but it makes sense in other locations, too. Some of the more unlikely states that are great for solar energy include Illinois, Maine and Minnesota.
If you had installed solar panels a decade ago, you likely would’ve had to pay for the entire system upfront. While it can still be a good investment to purchase a system outright, there are now other buying options available that don’t require capital investment.
The most common way for a business to procure solar energy is through a power purchase agreement (PPA). This is a financial contract in which a solar developer invests the capital to pay for the system including all design, permitting, equipment and installation. In exchange, they sell the power to the property owner at a fixed rate that’s often lower than the local utility’s retail rate.
These agreements typically last 15 to 25 years. At the end of the term, the owner can extend the agreement, remove the system or purchase the system at a fair market value. PPAs are great for businesses that want to enjoy lower operational costs without the upfront investment needed to install solar.
Choosing a Provider
There are many solar-energy providers out there. If your self-storage business has a nationwide or regional footprint, I recommend that you find a larger developer with experience across several states. They’ll know how to navigate the policy and regulatory intricacies in each area and can offer portfolio pricing for economy of scale benefits. On the other hand, smaller businesses that only have a few locations or are geographically focused in one or two states may want to consider a local company.
Aside from looking at the service area, you can evaluate providers just as you would for any other product or service. For example, does the company have relevant experience and project references? Does it have a solid team?
Once you choose a vendor, it’ll likely take a few months to a year to successfully complete the project. This time is necessary to prepare system-design documents, receive permits from the local government, and schedule an installation with minimal impact on your self-storage operation.
Leveraging Sustainability Benefits
Beyond reduced electricity costs, solar energy has the potential to increase your NOI even further by allowing you to charge higher self-storage rental rates. More and more consumers are researching companies to understand their sustainability impact before making purchases. Solar panels not only improve the marketability of your facility, tenants may be willing to pay more to rent there.
A recent report from the global consultancy EY shows that buyers are willing to pay a 39% premium for a sustainable product compared to a conventional one. A separate report from technology firm IBM found that more than half of consumers have paid a premium for socially responsible or sustainable products. Installing solar panels at your self-storage property not only serves as a differentiating factor in markets with high competition, it can even help drive employee retention and customer loyalty, thereby reducing the costs of turnover and churn.
Whether your self-storage facility is a small, independent operation or part of a large enterprise, solar energy provides opportunities to improve your NOI and meet sustainability targets. The good news is providers are often willing to do a free analysis to determine feasibility of a given property or portfolio.
Matt Brenn is director of business development for Pivot Energy, a national solar provider that develops, finances, builds and manages solar energy and energy-storage projects. The company helps decarbonize our nation’s electricity, increase equitable access to clean energy for local communities, and provide real cost-savings to businesses and families. Pivot has reduced operating costs for more than 100 self-storage facilities across the country. For more information, call 888.734.3033 or email [email protected].