The challenges of commercial solar for New Mexicans

Jan. 8—The number of homeowners and utilities setting up solar energy as a power resource has shot up in recent years,but business owners haven't caught up in their use of the renewable energy source.

Commercial solar compared to residential and utility solar comes with a different set of regulations and environment. Despite the potential for clean energy bill savings, business owners also have to navigate borrowing big loans, billing disparities and building leases that don't last as long as solar panels do.

As of 2023, there are 18,200 MWdc solar installations on commercial properties in the U.S., according to data from the Solar Energy Industries Association. There is nearly twice as much residential solar and almost five times as much utility-scale solar installations.

In New Mexico, the Public Service Company of New Mexico has nearly 60,000 commercial customers. Of that, 1,115 businesses have solar installed, a utility spokesperson said.

As to why fewer business owners are setting up and using solar than homeowners or utilities, local solar experts say there are a number of reasons.

Dylan Connelly is the director of commercial and community solar for Affordable Solar, a solar energy panel installation company based in Albuquerque that focuses on residents and businesses. Gridworks, a separate company under the same ownership, does utility solar.

He said it's interesting to understand what business owners compared to homeowners have to consider when setting up solar energy infrastructure.

Ultimately, the economics for setting up solar energy infrastructure for a commercial business aren't as good as they are for homes or small businesses, he said, and that leads to less adoption.

Loans and lendingSolar often comes with large upfront costs. Average costs of commercial solar panels in the U.S. range from $50,000 to $600,000, according to Coldwell Solar.

So a business owner may need a loan.

That's a complicated process, Connelly said.

He said the uniqueness of the commercial industry makes it more complex for banks to loan to business owners compared to homeowners. Banks need to look at things like cash flows, business models and outlooks when lending money, he said.

Lending to a business can also be risky for banks because of the possibility of bankruptcy, he added.

In comparison, he said, loans for residential solar are more straightforward and well-established. He said banks are looking at credit score and debt-to-income ratio, approvals happen in about a day and there's no loan collateral.

"The loan process for commercial is not established at all," he said. "And it's much more complicated."

Connelly said it's more difficult to find a bank willing to lend for commercial solar compared to residential. Those that do lend tend to do so with higher interest rates, he said.

Jordan Barry is the director of solar at Everguard Roofing & Solar. He disagreed. Barry said there are banks willing to finance and there are options for short- and long-term loans.

"It's a financial investment. That's the main reason people are going solar, both residential and commercial," he said. "That pays dividends every month."

Though not as many commercial businesses have solar infrastructure compared to homes or utilities, the number is steadily increasing every year, according to the SEIA data.

Zach Bingham and his family own a few commercial properties on Menaul Boulevard and University Boulevard. He's thinking about installing solar energy infrastructure on his properties.

But he doesn't really like the idea of having to take out a bunch of loans.

"If you're borrowing money to do the solar upgrade, it's maybe not quite as good an investment," Bingham said.

He said high interest rates are hard to swallow, "even though big picture, it may not be a bad deal to borrow a bunch of money to do the solar."

"It's hard to agree to pay a 9, 10% interest rate on anything for any reason right now," he said. "We've been so spoiled with such good interest rates for so long."

Adam Harper is the founder of OE Solar, a solar contracting company based in Albuquerque. He said New Mexico's Commercial Property Assessed Clean Energy Program, or C-PACE, can help. It's a funding mechanism for business owners to get fixed rate, long-term financing on energy efficiency projects.

"C-PACE is going to be able to allow these business owners to be able to do energy efficiency measures, resiliency measures and things that are going to make their businesses more profitable and more resilient," he said. "It's not going to require them to sign their life away or any of their personal guarantees."

Connelly said business owners can also depreciate solar as an asset, similar to writing off a certain percentage of a computer. He said depreciating solar can benefit around 20% of the total system cost, usually in the first year.

That's if businesses have the tax liability to take advantage of the depreciation, he said, because businesses often don't pay much in taxes because they're writing off their expenses.

There are other financial barriers, though. Harper said inflation is a major challenge, and the cost of construction has gone up.

Bingham said there's also a lot of economic uncertainty in the commercial world this year, affecting how businesses should save or spend their money.

"Do we need to be conservative and hoard some cash, or do we go ahead and spend the money on some of these infrastructure upgrades and hope for the best?" he said.

Barry said in a lot of places, solar won't offset the entire electricity bill.

To get as close as possible to a net zero bill, Harper said, businesses need to incorporate batteries. Batteries can get expensive, Barry said.

The paybackReturn on investment for solar varies depending on the type of property. The faster an owner gets payback, the better. Connelly said it's a quicker return for small businesses and longer for large businesses.

He said the typical payback for small commercial is four to six years and for large commercial, it's 12 to 25 years. In comparison, he said it's usually seven to 10 years for residential.

Bingham said from an economic standpoint, solar makes sense to him. He'll break even in around five years, or even sooner taking into account state and federal tax incentives to set up solar.

"Saving money is making money in that regard," he said.

He could also get extra money by raising electric rates for the renters in his properties when PNM's go up.

But it's more complex than just upfront costs and savings. Bingham said he also has to take into account other factors like the high interest rates and his aging roofs.

"It's maybe a little more complicated than just looking at the strict numbers," he said.

Bingham contemplated if he even wanted to stick around in Albuquerque long enough for solar to be worth it. He said it's hard to make huge capital investments like that in the city when it's in "such a state of disarray and crime."

He said he wants officials to continue cleaning up and improving the city.

"Solar specifically is a very long-term investment," he said. "Is it worth my investment? Do I want to be around that long to reap the rewards of that investment?"

Billing and building barriersConnelly said utility rates and net metering, which is how a company like PNM measures electricity usage to charge customers, can also create obstacles for business owners to set up solar.

Small commercial businesses, like a dentist's office, are on a PNM pricing tier called "2A," which has a flat energy charge of around 11 cents that Connelly said works well for solar. Barry agreed that it's never going to get better than it is.

But, Connelly said, most small businesses don't own their own buildings and are located somewhere like a strip mall or center.

"And so if you do not own the building, you typically have anywhere from a five to 10 to 20 year lease, and you don't have the extra funds to invest into the building," he said.

Connelly said the typical warranty on a solar panel is 25 years, so its useful life is anywhere from 25 to 35 years.

"But as a business owner, if you could choose to put $50,000 into your business or $50,000 into solar, most are going to choose their business," he said.

Barry said one of the hardest parts can be trying to find the actual building owner to get permission to set up solar. He said if a business owner is willing to write a check and finance it, it's doable, but requires the building owner's involvement too.

Connelly said box stores like Walmart or Smith's also may not own the building but often sign longer leases, like for 20-25 years, making it more feasible for them to set up solar. He said those types of large national businesses also sign a lease that makes them responsible for the roof maintenance.

"Basically, they almost own the building without owning the building," he said.

However, larger businesses like Walmart or CostCo are on a different rate tier called "3B" that Connelly said doesn't work well for solar energy.

The rate is only five cents per kilowatt hour, Connelly said, which is less than half that of small commercial. However, he said, large businesses also have to pay what's called a "demand charge." That's a fee added to bills based on the highest power usage during a 15-minute window at any point throughout the month.

The demand charge can quickly rack up commercial electric bills.

Connelly said another barrier in the utility world is that PNM doesn't roll over credits for systems over 10 kilowatts, something the size a large house would use. The utility pays it out at three cents instead, he said.

"You can't roll over the credit if you overproduce solar in the spring, which we mostly all do," he said.

Harper said if utilities like PNM start fixing some of these problems, the utilities will see significant revenue loss. Those companies aren't incentivized to change this system, he said, which is hurting the solar industry.

"It's disincentivizing and increasing the amount of infrastructure and hurdles that are needed for commercial property owners and business owners to be able to benefit," he said.

An aging power gridBarry pointed to the power grid as a reason to do solar now. In the U.S., it's an old system that'll likely take trillions of dollars to overhaul. In New Mexico, PNM and other utilities are trying to modernize their grids so it's more stable and reliable as more renewable energy is added on, a process required by state law.

As the grid continues filling up or tapping out, Barry said, there will be areas that can't support solar energy.

"It's kind of like do it now, or don't do it at all," he said.

Harper agreed the grid is outdated and said a change in utility rate structure could help solve the problem. He said commercial businesses could help fix the grid too.

"We're trying to operate 21st century devices on a grid that was designed and built in the '30s, '40s and '50s," he said.

Instead of transmitting electricity across New Mexico and from other states, Barry said, people should have rooftop solar panels and batteries. Businesses using solar could even become emergency power source hubs in cases of disasters, he said.

"Why are we still doing transmission lines from New Mexico to California? Just doesn't make a whole bunch of sense to me," he said.

The future of solarConnelly said business owners with an incentive or initiative to use solar energy are the ones setting the infrastructure up.

For example, he said, big box stores like Target or Walmart often have corporate clean energy goals to meet. Half of all solar capacity installed since 2020 has been corporate solar, according to the Solar Energy Industries Association.

There are also business owners with smaller companies that want to do it for the good of the environment or to help make ends meet financially, Connelly said.

To get more people on board with the renewable energy source, he said, the adoption process needs to be faster. He said it can take up to a year for businesses to adopt solar in New Mexico, compared to the mere days it takes to do that somewhere like Australia that has a simple and fast permitting and interconnection process.

He said it'll take a while before solar is more normalized.

Barry is hopeful that eventually solar will be installed everywhere. He said there's a negative stigma around the industry right now, pointing to solar groups that have gone out of business.

But, he said, New Mexico has good local companies that have been around for decades doing solar.

"I really do think every house is going to have solar; every house is going to have a battery," he said. "So it's a matter of time."