Is a Solar PV System Right for Your Affordable Housing Organization?

Thanks to numerous incentives and better technology, installing a solar photovoltaics (PV) system on your multifamily apartment building is more affordable than ever. It may also be a smart investment. Going solar can help you lower your greenhouse gas emissions, increase your property’s value, and hedge against utility rate hikes. Perhaps more important, a solar PV system can lower your electric bill, helping you better manage your operating costs, which can help keep your rents stable. 

But installing a solar PV system does require some planning. John Shaw, a commercial and industrial solar developer and co-owner of Namaste Solar, tells HAI Group’s Amy Hourigan what you should know before investing.

(You can view projects Namaste designed and installed for Denver Housing Authority here and here.)

   John Shaw, co-owner of Namaste Solar

Amy Hourigan: Thanks for talking with us, John. Let’s dive right in. What are the first steps an affordable housing organization should take when contemplating rooftop solar?

John Shaw: First and foremost, affordable housing organizations should know that many jurisdictions are starting to require renewables. If solar isn’t required in your area but you’re considering it anyway, the first step is to determine whether the project makes economic sense. Start by contacting a reputable solar company. Let them know you’re contemplating a solar PV system, give them an idea of what your roof looks like, and then ask for a capacity assessment and a determination of whether the project will pencil out. The contractor will make assumptions about what your roof can hold, and you’ll learn what size system you can fit and what the project will cost after utility savings and incentives.

Say you can fit 200 kilowatts on your roof and that the project will cost about $400,000. If you’re a profitable for-profit entity, you can realize about $200,000 in tax benefits within the first couple of years of the system's life. Energy savings and incentives then chip away at the remaining $200,000. A nonprofit won’t be able to take those tax benefits, which amount to roughly 50% of the investment. In that case, it is worth looking at a third-party ownership model, whereby a for-profit entity owns and operates the system and simply bills you for energy, hopefully at a rate that’s lower or more stable than utility rates—or lower and more stable.

AH: Are there options for housing organizations that can’t fund a solar PV project up front?

JS: Yes. Projects like the ones affordable housing organizations might consider are seldom owned by the developer, because it’s not easy for the developer to take advantage of the federal tax credit, nor the depreciation expense tax deductions from the asset. If that’s the case, affordable housing organizations can do what’s called a power purchase agreement (PPA). In that scenario, a third party owns the asset and offers the PPA, which is just a secondary source of electrons in the electrical panel. One of the sources of electrons comes from the utility, and you pay their bill, which will be lower than normal or maybe even nothing depending on the system size. The other source of electrons comes from the solar, and you pay the solar owner’s bill, too. This third-party solar asset owner would be a for-profit company with a tax burden, so it can take advantage of the tax credit, and if they have enough profit, they can take advantage of the depreciation expense deductions as well, both of which reduce their tax burden. If you’re realizing, ‘OK, there’s no way I have this money and I don’t have any tax burden either,’ ask the solar contractor for a PPA price.

  Solar PV project at Denver Housing Authority. Image courtesy of Namaste Solar.

AH: So it’s OK to ask a solar company to figure out whether a project will pencil out?

JS: Sure. As far as companies like mine are concerned, it’s OK to say you’re two years out from the project and are just trying to figure out whether to plan for it or not. Most entities understand it doesn’t mean they will get the job.

I will say, if the PPA conceptual rate is close to what you’re paying the utility, do it, because green energy is a selling point, and you’ll chip away at a future requirement the municipality might have if they don’t already. The PPA rate will have a low or fixed escalator too, which can be a benefit since utility rates are trending up at a higher rate and are more volatile.

AH: How would a housing organization find someone to enter into a PPA with?

JS: Most companies like ours have relationships with entities we trust that we can introduce you to. We don’t benefit—there’s no kickback or commission. There’s a company called Solaris that we do a lot of PPAs with. We know the founder, we know where the tax equity is coming from, we know they’ve been around a while. We would never require you to use them but they are experienced, and we trust them. The point is, there’s help if you don’t have the budget.

AH: Speaking of budgets, where can our clients go to find out about state or local incentives?

JS: They can ask a solar contractor, but North Carolina State University maintains an incredible database called the Database of State Incentives for Renewables & Efficiency (DSIRE). You enter your ZIP code, and it returns every federal, state, and local energy incentive—solar, thermal, or wind. It’s quite helpful and very thorough. For example, with the federal investment tax credit, the database quantifies the amount and points to the actual bill that created it, along with the IRS document used to file for it.

AH: Is it free of charge?

JS: Yes, and I’d encourage everyone to use it. Most companies like mine know 90% of the federal, state, and utility tax incentives available, but it’s tougher for us to keep up with municipal grants and the like. I have been humbled by somebody who has said, 'Hey, didn’t you realize this was an opportunity zone?' There’s an additional 2% tax savings for that, so you need to do your own research.

AH: Assuming the economics work out, what’s next?

JS: The key is to make sure the roof has enough extra dead-load capacity and that the electrical gear is sized to accept another input, which is the solar. Optimally, you could also have some conduit pre-plumbed from the roof to the electrical.

AH: Do you recommend adding battery storage to a project for organizations whose tenants rely on medical equipment?

JS: That’s a great question. Solar inverters are programmed to shut down if they don’t sense the grid. In other words, if the grid goes down, the solar system goes down. Solar panels can generate energy as long as the sun is shining, but National Electrical Code (NEC) doesn’t allow the system to continue pushing electrons onto the electrical panel for safety reasons. A utility company representative might be sent out to stick his fingers in the transformer and suddenly the thing he thought was dead isn’t because of the solar input. So, the only way to address the needs of someone who has, for example, an oxygen pump that needs to be plugged in, is to figure out an alternative like a backup generator or an uninterruptable power supply (UPS), or solar-plus-storage.

Your readers should know that solar and storage projects are a challenge to size correctly. For it to work, you need to know the number of people and devices, and how long they need to run those devices during the blackout, because what good is it if it lasts three minutes for 12 people? The economics are improving every year, but the projects require intense due diligence upfront.

AH: Understood. Getting back to solar: What type of inspection does the roof need to undergo?

JS: What we do, and what we hope other contractors start to do, is contact the roofer of record, tell them what we’re planning, and ask them to inspect the roof before we set foot on it. We also have them flash any penetrations we’ve made. When we’re done, we have them come back to inspect the roof so they can issue a continuance of warranty document. We don’t warranty your roof. We pay the roofer to inspect it so that they can issue a document that says all is good.

                                                    Another view of the solar PV project at Denver Housing Authority. Image courtesy of Namaste Solar. 

AH: What if the roof won’t support a solar PV system? Are solar farms an option?

JS: Sure. We call them solar gardens, and virtual net metering (VNM) is applied. Net metering is a law that many states have enacted. It essentially gives one-to-one retail credit for any overproduction of solar. Here’s how it works: The solar system will overproduce during the day, and you'll use up your credits at night, and they'll overproduce in the summer, and you'll use up your credits in winter. That only works if the utility is giving you one-to-one retail credit for what gets pushed back to their grid. So, they install special meters that can spin both ways. If you don’t have any space on your roof, but you have land next door or down the block and you put a system there and tie it into the electric company’s grid, and you want that metered and credited to your account, that’s virtual net metering. It’s not always a great deal, though it is a way to get your energy from a renewable source. That said, somebody else, frequently a developer, is benefiting from the tax benefits, but at the same time, those benefits allow them to offer a rate for energy that is frequently competitive with the utility’s rates. Theoretically, VNM is an option as long as the utility allows it and the deal is good for you.

AH: There are many methods for mounting a solar PV system. Do you have a preference?

JS: It depends on the building and the roof type. For pitched roofs, it’s typically done like you see in residential construction: lags into rafters which hold a ‘foot’ that connects to a rail, with panels laid on top. For standing seam roofs, we usually use clamps instead of lags. For flat roofs, we use what’s called a ballasted racking system. These can be used on a fully adhered membrane, a mechanically attached membrane, or a membrane held down by rock ballast. Wind zone, building height, and parapet height drive how much ballast is needed. If it gets to be too much for the structure, ballast can be replaced with mechanical attachments. Nowadays,  convenient options can be welded onto fully adhered membranes or attached to the decking with deck screws through a baseplate, which then has a like-for-like membrane glued over the top.

Most flat roofs use a ballasted racking system, but it’s a bit of a misnomer because they nearly always have some complementary mechanical attachments, typically on the windward corners. When there are a bunch of single panels in a row, more weight is needed, or more mechanical attachments. The whole thing is designed to be one piece, so it’s difficult—actually, it's engineered to be impossible—for the wind to lift it. There are cases where we don’t need any mechanical attachments—usually high dead load capacity in roof structure—and there are cases where we need hundreds of them. It depends on the wind zones and the height of the building. We can’t tell you what any one building would be without looking at the jurisdictional requirements and the structure itself. 

Nobody likes to pop holes into a new roof, but again, all of this can be done in coordination with the roofer of record. They can offer advice or flash it correctly themselves to maintain the warranty.

AH: Any roofs you don’t like?

JS: Corrugated roofs often suggest pre-engineered buildings, and those seldom have enough load-bearing capacity for solar. Additionally, they can require a lot of penetrations and are kind of a pain for solar companies due to labor costs.

AH: Any common problems you see with solar PV projects?

JS: It’s not a good idea to put a solar system on a 10-year-old roof that only has a 20-year life, because in 10 years, somebody will have to pull off the system to replace the roof. There’s a lot of labor involved, so the solar investment economics go out the door. In most cases, you’re talking about new construction, though, which means a new roof. If it’s engineered correctly and installed per racking manufacturer specifications with the knowledge and guidance of the roofing company, there shouldn’t be any surprises for the life of the roof and solar—they have a similar estimated useful life.

I’m not here to say, ‘Oh, there’s never a worry.’ There are definitely ways for shoddy organizations to screw up these systems or installations—all the more reason to work with a reputable company.

AH: What about leaks?

JS: If there is a leak under a panel, the racking company we use has panels that can tilt up, so there’s very little that a roofer couldn’t access. We might do the repairs in tandem where we’d come and lift the affected components so the wires don’t get pinched or broken while the roofing company makes the repair. There’s also a possibility that the racking may have to move, but you’re looking at probably a day of work—one truck roll for, say, $100 an hour.

AH: What’s the typical length of the construction project?

JS: It depends on several variables, including the system type, the size of the project, and the number of crews you put on the job. We did a 30,000-square-foot roof for a sports equipment retailer with a 300-kilowatt system. We were on the roof for over a month with a week of staging and a week of de-staging and cleanup. So, it was a six-week project with two crews. If we doubled the crews, we could have cut the time in half; the project might have run for two months with one crew.

AH: Are tenants or office workers interrupted during construction?

JS: First and foremost, we build into our contracts the expectation that our workers will have a place to park on site. If parking is limited and you’re giving us some of those spots, your employees and tenants will be affected. If we have to park a mile away and take a shuttle, we will build in that cost. We also use 40-foot trailers to store our equipment on your site. That’s space. That’s aesthetics. And we typically install a security fence. You can’t really undertake a construction project without the ugliness of construction tools, but it’s temporary.

As far as the roof work, there are no impact drills or pneumatic hammers for flat roofs. But if you have poorly insulated roof and there’s no drop ceiling, your workers on the top floor will hear us walking around. If it’s a pitched roof, you’ll probably hear us when we’re sinking a lag into a rafter. If noise is a concern, you can specify that the work has to be done at night or on the weekends, but that will increase the price.

AH: I imagine you have to turn off the electricity at some point.

JS: We do. When everything is ready, we do one interconnection into the facility's electrical panel that requires us to take the building down electrically for about four hours. You can dictate when that happens, though. You could wait for good weather or a weekend. Then you just let your tenants and staff know to plan for it.

AH: How often does the system need to be inspected?

JS: Every system we install has a data acquisition system that is connected to the internet, and anyone you give access to can monitor the equipment. The inverters, which are the workhorses of your system, have a 10-year warranty. You should have them inspected annually for the first 10 years to maintain that warranty. After that, you can wait until the data monitoring system reports an issue. That said, you might consider planning on one truck roll a year, for something as simple as resetting a breaker. As I mentioned, solar panels seldom just fail, they peter out over three or more decades at about -0.5% per year.

AH: How can our readers find a reputable solar provider? Do they need specific certifications? What about permits?

JS: The best way to find a reputable solar company is to go through a state branch of the Solar Energy Industries Association, because most organizations that choose to enroll in the state or national industry advocacy group know they’re going to be held to a certain standard. Ultimately, the permitting authority ensures that everything is up to snuff. There are entities that design systems and then subcontract out just about everything else, but you’re better off going with a firm that can design and build because it will be a smoother process, particularly in the area of change orders.

The National Board of Certified Energy Practitioners (NABCEP) has varying certifications. It’s critical to work with an entity that has some NABCEP-certified installation professionals as team leads at least. As far as the solar PV system itself, you need someone for the direct current (DC) and someone for the alternating current (AC) sides. Theoretically, any master electrician can do the AC side. They don’t have to be on site, but they do have to be involved, whether on the payroll of the solar company or just allowing the permit to be pulled under their license. The more NABCEP-certified people the better. Every authority having jurisdiction (AHJ) is different. Many require the solar contractor to have a general contractors license as well as an electrical contractors license. But it’s the solar contractor’s job to know what’s required for a specific jurisdiction, so affordable housing organizations don’t have to worry about that. Optimally the solar contractor has the required licenses, so it’s just a matter of us asking the AHJ which one it needs to see.

To get the necessary permits for a solar project, you need to have certain licenses, and you’ll need an electrical engineer and a structural engineer stamp. We engineer the systems, both electrically and then structurally with the racking companies, and then we hand the documents over to independent engineers, who stamp them for the permit packages.

AH: What permits are required?

JS: It will always be considered a building permit. You might also have an electrical permit, but some general contractors will have the solar electrical permit under their general contracting permit. We don’t recommend this, because if, say, the panels haven’t been delivered yet, then the certificate of occupancy for the entire project might be held up just because the solar panels are late. Even if the solar contractor is a subcontractor to the general contractor, it’s best to do a separate permit for the solar.

AH: Have you seen any snags with HUD agreeing to the terms since solar panels last about 25 years?

JS: Solar panels have a production warranty of 25 years. Most solar developers expect the system to last at least 25 years, sometimes 30 or more. As I mentioned, the panels lose half a percent efficiency every year. They never just up and die; they peter out. The inverters that change the direct current to alternating current to match the building’s electrical voltage are the hardest working devices. On a 200-kilowatt system, which is an average office building, you’d have five or six inverters, and one might die in year eight or so. Then you might have one die in year 11, and another in year 12. You’re always monitoring the production over the web. If production is not meeting the sun that is being sensed by the monitoring system, an alert goes out. Somebody goes out to the site, and they may notice, for example, that an inverter has died. If it’s year eight, it’s under warranty. If it’s year 11 and no longer under warranty, you can replace it for around $6,000. You could also get an extended warranty.

I don’t know for sure whether HUD is uncomfortable with a 25-year contract. To a certain extent, though, it’s no different from another utility bill. For a PPA, the entity that owns it is going to want some sort of indication that you’re willing and able to pay for the energy that’s getting put into the building, but the reality is that if you stop paying for the solar energy, they’ll come take the system off. We’ve worked with cities where we did what’s called a Solar Host Agreement. In Colorado, we have this thing called TABOR (Taxpayer Bill of Rights) that precludes any municipality from entering into multi-year contracts. That’s dangerous to an entity that owns an asset that lasts 25 or 30 years, so what they do is have a one-year contract that automatically renews. They are theoretically able to pull the plug after a year. That type of arrangement might be something that HUD is more comfortable with, if they could look at it from the perspective of being another utility bill, which happens to come from an asset on the roof.

AH: Do installation contracts typically include hold harmless agreements and waivers?

JS: I don't know for sure, but it’s something you can demand. A company that either installs or owns these systems will have standard language in their documentation and contracts, but you’re the host of the system, and possibly the owner. You can make it a requirement. As long as they can quantify the cost of that risk and include it in the number they’re presenting to you for the cost of energy, it’s fine. It’s all about being upfront about what you require as the host.

AH: What general liability limits are typically provided by the owner of the panels if not the housing authority?

JS: Again, up to you. We're talking with the city of Edgewater to bring together a solar PPA for them and I believe they asked for $1 million per incident. Suggest what’s needed and as long as the PPA provider knows about it ahead of time, it can be rolled into the energy and should work out.

AH: Any potential boiler or mechanical equipment concerns with the electrical generation?

JS: No, and I’ll tell you why. Again, our system is a secondary source of electrons onto the electrical panel busbar, which sits behind the main service panel face. Our source of electrons also happens to be cleaner energy than what comes from the utility. So, not only is it the exact voltage of the service panel—usually 208 volts or 480 volts—but it's also a cleaner 60-hertz sine wave than that from the utility. So, we are never connecting our system to a boiler, to any specific device. We’re dumping electrons onto the panel’s busbar, for any load to use as needed, with the utility’s energy at the ready for any needs exceeding what the solar is providing.

AH: What if there’s a fire? Do the panels affect firefighters’ ability to do their jobs?

JS: Yes, and that’s why a lot of jurisdictions require the fire department to sign off on the permits. The National Electric Code has a section on solar. Some sub-sections require, for example, a four-foot break in the design every 125 feet so that firefighters can walk through the array without stepping on the panels. I’ve seen some interesting videos of firefighters stepping on or axing through panels. It’s another obstacle on the roof they’ve come up with rules to address.

AH: Any concerns with snow or wind?

JS: Yes and no. Snow affects production, but it's historically quantifiable. There’s no logic in sending a person up to the roof to remove the snow because you’re going to pay that person $15 an hour and it’s going to take them around eight hours to save $50 in electrical costs. That doesn’t make sense. When we design systems, we use historical weather data for the exact area to come up with production estimates. Those estimates include snow potentially sitting on the modules for three days straight, or two weeks straight if it’s North Dakota, so there’s no reason to clean them off to hit predicted energy targets. And the modules themselves have a certain structural capacity for snow load—I think they can withstand 50 pounds per square foot. Then of course, the roofs themselves are built to withstand local snow loads and, in most cases, hopefully even more, for the solar. Other than some production losses, which we account for, we go to the AHJ, and they say to us, ‘OK, here's what you need to design for: You need to design for eight-second bursts of 120-mph wind, Class A fire rating, and risk category three.’ That information is part of the design that we share with the racking company partner, which ultimately gives us an engineered racking plan that’s stamped to meet those requirements. Wind and snow have been taken into account during the design and permitting phases.

AH: What about hail?

JS: I’m not here to say it’s not a problem. Insurance needs to cover it. I will say, like snow and wind, that it’s been contemplated in advance and that the electronics of these modules are covered by tempered glass that is quite hard. In fact, part of the UL test includes two different hail impact tests. In one, a two-inch steel ball is dropped from 50 inches onto the glass. In another, a one-inch ice ball is shot out of an air cannon at the glass. Occasionally, the glass will break, but the electronics are built to shut down the inverter or the series wiring, per National Electric Code rules. There’s also a mandatory requirement in National Electric Code called a module-level shutdown. If there is any sort of shorting from the glass breaking or water infiltration, there’s a device that senses a short in that one panel and will shut it down, preventing the panel from giving any of its energy. You’ll see production losses on the data monitoring system. You can then initiate a truck roll.

During one recent hailstorm, my car was totaled, and my roof was damaged, but the solar panels were fine. Everything around my property was destroyed except my solar panels. A few years back, there was a hailstorm that collapsed the roof of the Colorado Mills Mall. But only three of 10,000 modules of the solar PV system across the street on National Renewable Energy Labs were broken—three out of 10,000!

On a related note, I’ve seen some studies that suggest that the rate of insurance for a solar system for a typical commercial entity is anywhere from .25% to .5% of the system’s original price per year. That’s HAI Group’s realm. I build the suggested .35% of the system price per year into my cash flow presentations.

AH: Thanks, John, this was really informative.

JS: My pleasure.

Planning on installing a solar PV system? Make sure you notify your insurance company!  

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