“I’d put my money on the sun and solar energy.” Thomas Edison 1931
In the beer industry, sunshine is good for business. If the weekend weather calls for 80 degrees and sunny, you can bet that beer sales will be strong. The problem is, you can’t always count on the sun to shine.
However, there is another way to profit from the sun: Solar energy.
Electricity is a big expense item for beer distributors. It takes a lot of juice to refrigerate the warehouse and keg coolers, charge forklifts and keep the lights on. Solar energy is one way to reduce this expense
We looked into the economics of using solar energy in our business, and found a solution that produced a $760,000 cash flow stream over 20 years.
We took on very little risk, eliminated a number of variables related with solar power, and enjoyed the reward of additional cash flow.
In this article, I’ll share the method we chose, along with other options for taking advantage of solar energy so that you too can profit from the sun.
You can’t always count on the sun to shine, but you can count on a nice revenue stream from solar. You just need to know where to look.
Go Green and Save Green: Three Options to Profit from Solar Energy
- A Solar Array of your own: You build it, you own it
- The Power Purchase Agreement (PPA)
- The Solar Land Lease
Solar Energy: You Build it, You Own it
Let’s call this the high risk, high reward option. Under this scenario, you buy the panels and reap the benefits of the power that is produced. You can use the power for your own needs and sell the excess back to the grid. If electric rates keep rising, you win.
The cost of the equipment, installation, maintenance and upkeep is your responsibility. You also own the risk that the panels will produce the amount of energy that you expect to make the project viable and show a return on investment.
The risk of panel degradation is yours as well. Over time, the panels won’t function quite as well as they did when brand new.
All of these risks and rewards are summed up neatly in a solar energy pro forma. This set of numbers is produced with the help of a solar consultant or installer. These experts will be able to guide you through the myriad of tax credits, incentives and creative financing options that may be available.
You can check out a sample solar energy pro forma here. A word of caution: incentives and tax rules vary from state to state and change regularly. Make sure you have a solar energy consultant build a pro forma specific to your situation.
We explored this option, but very quickly realized we did not want to be in the business of owning and maintaining solar panels. For us, the cost was too high, and the variables too great. Next, we looked at a PPA, or Power Purchase Agreement.
Power Purchase Agreement (PPA)
Under this option, a third party will purchase, install and maintain the equipment. The panels are usually installed on your property – either on the warehouse roof, or vacant land that you own.
Your obligation is to buy 100% of the power generated by the solar panels. The agreement is for a fixed rate, with modest annual increases. The contract is for a fixed period of time, generally 20 years, with penalties for breaking the agreement.
The fixed rate under a PPA may be listed at a percentage discount to the current utility costs. For example, if your utility provider is charging $0.12/kwh, the PPA may provide for a $0.10/kwh rate. The gamble here is that the utility rates will continue to rise at a quicker pace than the PPA annual increases.
This option was tempting for us. It provided relatively low risk in that we didn’t have to own or maintain the panels. Further, if the sun didn’t shine enough and the panels underperformed, it was not our problem. Since we weren’t buying any equipment, we didn’t need to worry about getting a return on investment.
The reason we did not go with this option was that the upside – the reward – was not great. There were small savings on electricity charges, but that would only be realized if utility rates continued to rise faster than the annual increases in the PPA.
In our situation, we would be giving up some land and the use of our roof to make the project work. In the end, there wasn’t a compelling enough reason to commit to a PPA.
So, we turned to the last option: a land lease. And this produced a nice $760,000 jackpot.
Solar Land Lease
The solar purchase option was too rich and too risky for us. The power purchase agreement was interesting, but the reward was simply too small. The land lease option turned out to be the best fit given our circumstances.
We had a large warehouse roof and several acres of undeveloped land available for the project. The roof was in good shape, and the land was of little use to us.
We talked with our solar energy consultants and worked out an arrangement for a 20 year lease at $38,000 per year. The total revenue over the life of the land lease would produce $760,000.
We chose this option because it was guaranteed income. There were no variables about energy rates or how much power the panels would actually produce. Rain or shine, we would be collecting lease payments.
The cons of the project were minimal. We had small concerns that the property might be more difficult to sell in the future, as several acres were now covered in solar panels. Further, a prospective buyer would have to be approved by the owner of the solar panels, and this might nix a future deal.
In the end, we decided these small risks paled in comparison to the large reward of a guaranteed revenue stream from the panels. The solar land lease was the best option for our company.
Wrap up and Action Items
We count on the sun to help drive sales and now we can count on it to add additional cash flow and profit to the bottom line. Perhaps you can, too.
Our journey to earning money with solar energy began with phone calls and meetings with local solar installers, manufacturers and contractors. With each meeting we learned more about our options, and how the process worked. We understood more about the risks and rewards, costs and benefits of solar power.
Ultimately, we found a solar energy solution worth $760,000.
Action item: Check out solar options for your warehouse properties. Start with a phone call to local businesses that have put up panels. Ask who they used for a consultant. Ask what option they chose and why. Set up a meeting to talk through your options.
If you run dry on recommendations, check out Solar Energy Industries Association, www.seia.org. Here you will find a listing of manufacturers and installers for your state, along with facts about the solar industry.
Set up a meeting and talk through your options. Soon you too can profit from the sun.
