Commercial landlords seek to boost solar panel coverage, and valuation approach must adapt

 

Emre Karagozlu

 LONDON, England -- New insights from JLL reveal that more than four in ten (43%) commercial landlords globally would like to increase solar photovoltaic (PV) panel coverage to reach 50%-75% of their portfolio, despite inconsistency in valuation processes creating uncertainty.

 

Interest in solar PV has already converted into action: three quarters of landlords (75%) currently have between 5% and 25% of their portfolio equipped with solar panels. With all industries under pressure to decarbonize, the affordability and accessibility of PV offers many benefits to commercial real estate. 

As a result, PV is expected to have the highest share of future power generating capacity, overtaking natural gas in 2026 and coal in 2027.

 

The sustainability, affordability and income-generation opportunity driving PV adoption

 

In addition to the clear environmental benefits of reducing CO₂ emissions, significant advancements in PV technology have supported its adoption.

 

Between 2010 and 2020, the cost of installing PV panels fell by 90%, driven by better manufacturing and efficiency. Alongside this, modern solar PV installations have increased life expectancies, within the range of 25-40 years. This makes it one of the cheapest forms of energy generation.

 

PV panels also present a unique opportunity for extra income generation via selling energy back to the grid or to tenants. Solar PV installation therefore now acts as an investment into green energy – contributing to wider ESG objectives for businesses.

Logistical challenges and valuation complexities 

 

Installation of PV, however, is not without its challenges. There are logistical elements to consider, such as location and available space, that may limit the installation and output of the panels. 

For instance, a south-facing flat roof is better suited to large-scale implementation than a north-facing or shaded position on a roof that may need structural reinforcement to uphold the weight of a PV system.

 

At the same time, income generated by installing PV panels has a fundamentally different investment and risk profile to real estate – something that is not yet consistently accounted for in valuations.

To date it has been common for valuers to view additional PV income as similar to rental income and capitalise this at the same rate.  PV income, however, is a fundamentally different investment with complexities that need to be modelled into the income stream. 

This includes a variety of ownership structures, which can impact the potential income, up front and maintenance costs, and overall risk profile of these assets. JLL’s Value and Risk Advisory team set out a more accurate and nuanced approach to valuing assets with Solar PV in a new thought leadership paper: The value of Solar PV in real estate.

 

Emre Karagozlu, Director of Renewable Energy Valuation at JLL, sees a clear solution: “Although PV solar panels can introduce complexity to valuation, this does not have to be a barrier to widespread adoption amongst commercial and real estate landlords.

“By bringing more consistency to the valuation process, we can help landlords to better understand the impact of installing PV panels and encourage them to take this important step in the decarbonization process.

 

“The Discounted Cash Flow (DCF) approach allows greater detail to be inputted into the valuation, creating the opportunity for a more detailed appraisal that more accurately captures the benefits of installing PV panels. Increasing consistency across solar panel valuations stands to benefit us all: not just landlords, but the planet as we continue to grapple with climate change.”

 

 

 

CONTACT:

 

Kristen Murphy

Director, Public Relations

JLL

One Post Office Square, Suite 1100

Boston, MA 02109

617-543-4873