Jeff Schwartz, CEO of major distributor ProLogis, uttered words in an interview with Fox Business Channel in April that will ring like a cash register in the ears of property owners worldwide: “The return on investment is infinite,” he said. “We’re utilizing our roofs with other people’s capital.” Schwartz was describing a recent deal with Southern California Edison (SCE) in which the major utility will use 607,000 square feet of bare roof space at a ProLogis distribution center to install and operate solar panels.
This project in Fontana, Calif., is only the initial stage of SCE’s plan to install 250 megawatts’ worth of solar panels on commercial rooftops across the region in the next five years. When finished, the newly installed solar panels will cover 65 million square feet and provide enough electricity to power 162,000 homes. Though the initiative is being funded internally, SCE has said they hope to receive $875 million from the California Public Utilities Commission. Eventually that cost is likely to be passed along to consumers in the form of a rate hike.
![filekey=|1989| align=|left| caption=|Rooftop leasing provides added revenue for commercial real estate owners| alt=|Solar panels on the roof of a public building in Cologne|]California Gov. Arnold Schwarzenegger has said he believes that this project is only the beginning. “If commercial buildings statewide partnered with utilities to put this solar technology on their rooftops, it would set off a huge wave of renewable-energy growth.” That huge wave of growth is a necessity, considering the state of California has mandated that 20 percent of its energy be produced from renewable sources by the year 2010 and 33 percent by 2020.
Though many customers would groan at the possibility of rate increases, this project could produce great economic gains for both utilities and real estate owners while acting as a catalyst for the competiveness of solar power.
For those who own commercial real estate, news of the ProLogis contract reveals the potential for an entirely new revenue source. Consider the simple principle of supply and demand: As renewable portfolio standards are adopted across the nation, more energy companies are on the lookout for ways to increase their production of renewable energy. This increase in demand for renewable energy has intensified the search for new sources of supply. Essentially, SCE has allowed commercial property owners to realize that they are in possession of a key element to this supply: leasable space for solar panels that is already connected to the main electricity grid. Specific dollar amounts were not disclosed for SCE’s 20-year agreement with ProLogis, but it is evident that no initial investment from the distributor was needed.
This means that ProLogis can continue normal business operations and simply watch the additional income roll in—not a bad deal.
Utility companies also have a number of reasons to be excited about partnering with commercial properties. During an event held at the ProLogis’ Kaiser Distribution Park, Edison International’s CEO John Bryson outlined one of the many perks. “To build most of the renewable installations requires building major transmission lines,” he said, “but the beauty of this is that it’s right here, right where we need the power.” The sheer size of the project also gives the utility a cost advantage. Installation costs will be around $3.50 per watt—half of the average market rate, according to SCE.
As SCE progresses with their solar initiative, other utilities are likely to develop similar partnerships with local commercial property owners. Gov. Schwarzenegger emphasized how this could influence the California energy landscape, but it has the potential to influence the real estate industry as well. By providing an avenue for supplementary revenue, vacant rooftops may soon be considered an important asset capable of increasing property value.