In self-storage, net operating income (NOI) is a key measure of facility performance. Operators aim to increase this metric by increasing revenue and/or decreasing costs, but there are not always so many levers to pull to make a significant improvement. One option that can have a big impact is solar power, which allows you to cut costs and potentially improve revenue all at once. It also positions your business as being environmentally friendly, which is increasingly important to today’s consumers.
The self-storage industry is already one of the leading adopters of solar energy in the United States because of the immense opportunity it presents. For example, real estate investment firm Extra Space Storage Inc. has installed solar panels at 65 sites. The company is estimated to have saved $600,000 in the first year alone. These savings are expected to translate to $15 million over 25 years, a direct impact on the NOI. As energy prices rise, solar can serve as a hedge against the unpredictability of the future.
But how does the average self-storage owner embrace 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 power due to their large footprint, large electrical requirements, and abundant rooftop space. With this 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 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 generation (and low consumption) and receive a credit for that. Each month, the electricity bill reflects net usage, and the overall impact is a reduction in costs. Beyond net metering, there are many other programs such as community solar power or property tax incentives. A solar energy developer can help you navigate through the options available in your area.
Utility rate. The higher your current electricity rate, the easier it will be for solar power to create a savings opportunity and positively impact the NOI. For example, solar power is very popular in high-priced areas like California, Mid-Atlantic, and New England; but it makes sense in other places too. Some of the more unlikely states that are perfect for solar power include Illinois, Maine, and Minnesota.
Purchase options
If you had installed solar panels ten years ago, you probably would have had to pay for the whole system up front. While purchasing a system can still be a good investment, there are now other purchase options available that don’t require a capital investment.
The most common way for a company to procure solar power is through a power purchase agreement (PPA). It is a financial contract in which a solar developer invests the capital to pay for the system, including design, permits, equipment and installation. In return, they sell the electricity to the owner at a fixed rate that is often lower than the local utility’s retail rate.
These agreements generally last 15 to 25 years. At the end of the term, the owner can extend the agreement, retire the system or purchase the system at fair market value. PPAs are ideal for businesses that want to benefit from lower operating costs without the initial investment required to install solar power.
Choose a supplier
There are many solar energy providers. If your self-storage business has a national or regional footprint, I recommend finding a larger developer with experience in multiple states. They will know how to navigate the political and regulatory complexities of each area and can offer portfolio pricing for economy of scale benefits. On the other hand, small businesses that have only a few locations or are geographically concentrated in one or two states may consider a local business.
In addition to looking at the service area, you can rate providers just like you would any other product or service. For example, does the company have relevant experience and project references? Does he have a solid team?
Once you have chosen a supplier, it will probably take a few months to a year to complete the project. This time is needed to prepare system design documents, receive local government permits, and plan an installation with minimal impact to your self-storage operation.
Leverage the benefits of sustainability
Beyond reduced electricity costs, solar power 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, but tenants may be willing to pay more to rent there.
A recent report from global consultancy EY shows that shoppers are willing to pay a 39% premium for a sustainable product over a conventional one. A separate report from technology company IBM found that more than half of consumers paid a premium for socially responsible or sustainable products. Installing solar panels in your self-storage facility is not only a differentiator in highly competitive markets, but can even help retain employees and retain customers, reducing turnover and churn costs. .
Whether your self-storage facility is a small, independent operation or part of a larger enterprise, solar power offers opportunities to improve your NOI and meet sustainability goals. The good news is that providers are often willing to perform a free analysis to determine the feasibility of a given property or portfolio.
Matt Brenn is Director of Business Development for Pivot Energy, a national solar provider that develops, finances, constructs and manages solar power and energy storage projects. The company helps decarbonize our nation’s electricity, increase equitable access to clean energy for local communities, and deliver real savings to businesses and families. Pivot has reduced operating costs at over 100 self-storage facilities across the country. For more information call 888.734.3033 or email [email protected].
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