(Bloomberg) -- For Prologis Inc., the global industrial REIT, space for storing goods is a key asset. But the huge, flat roofs atop the company’s warehouses are another significant asset, argues Chief Energy and Sustainability Officer Susan Uthayakumar.
With a long-term plan to plaster roofs with solar panels, Prologis views on-site renewable power — and the reliable costs and resiliency it can provide — as a selling point for tenants. “We do this to future-proof our buildings,” Uthayakumar said.
A corporate push in the US to expand rooftop solar highlights the evolving challenges of adding renewable power amid shifts in technology, regulations and land use. Corporations see upside in putting renewables on-site, although commercial and industrial solar is often trickier financially than residential rooftop solar. If they’re buying the systems outright, it also has higher upfront costs than procuring power from solar farms.
Environmental advocates and many in the renewables industry argue that the challenge of getting rural renewable projects permitted and connected to the grid, the growth of wind- and solar-focused NIMBYism and the sheer amount of space needed to meet clean energy targets with wind and solar farms make solar on top of industrial and commercial buildings all the more essential to build out. Big-box stores and warehouses are often located in industrial or commercial zones far from forests or farmland.
Roofs are a resource that’s only begun to be tapped: On-site commercial solar currently supplies less than 1% of corporate power.
“If we’re going to really make use of the amount of sunshine that falls on our cities, while also protecting open space goals, it’s critical that we unlock the commercial sector,” said Bernadette Del Chiaro, executive director of the California Solar & Storage Association, the state’s largest clean energy trade and lobbying group.
Read more: China Takes Its Climate Fight to the Rooftops
Governments and businesses need both rooftop and utility-scale solar projects to hit renewable energy targets, says Mark Jacobson, a professor of civil and environmental engineering at Stanford University. Boosting on-site energy generation reduces the amount of power lost through transmission (about 5% of what’s transmitted), builds a more resilient grid and preserves open land.
California alone would need roughly 1,400 additional square miles of solar panels to power the state by the sun, according to Jacobson.
The advocacy group Environment America is pushing Walmart Inc. to add solar panels to every store and has even made this campaign one of its main efforts in 2023. Currently, the retail giant is third in corporate rooftop installations behind Target Corp. and Prologis. But if the roofs above every US Walmart store — a combined area the size of El Paso, Texas — were fully outfitted for solar, half of these buildings’ energy needs would be met.
“It’s clear that if Walmart made this move, it could change the market,” said Johanna Neumann, senior director of renewable energy for Environment America and director of the Walmart campaign. In addition to cutting the firm’s energy costs, inspiring other retailers to invest in their rooftops and adding significant renewable energy capacity, such a move could create a network of local resilience hubs and EV charging stations, she said.
Corporations that have already made sizable rooftop investments see value in stable energy costs amid market fluctuations and in keeping the power on when the grid is out. Prologis, which now has 405 megawatts of solar generation capacity, plans to get to 1 gigawatt — akin to adding a nuclear plant — by 2025 and could eventually hit 10 gigawatts with its 1.2 billion square feet of rooftop.
But 55% of US corporate solar power came from off-site facilities as of last year, according to the Solar Energy Industries Association (SEIA), and the majority of new solar installations in recent years by firms such as Amazon.com Inc. and Meta Platforms Inc. have been off site.
There are many reasons corporations haven’t fully seized the on-site opportunity, which Environment America estimates could amount to 7.2 billion square feet of panels on retail rooftops alone. Often, companies believe the return on investment takes too long, and many do not directly own all of their buildings or stores, meaning they have to sell commercial landlords on a big capex investment.
When asked about the Environment America campaign, Walmart pointed to its record of renewable investment, which includes on-site projects: 46% of the company’s global electricity needs were supplied by renewable energy as of 2021, nearly halfway to its goal of 100% by 2035.
Read more: Walmart Is Changing the Way Its Employees Get to Work
As the cost of rooftop solar drops — making projects in smaller buildings pencil out — and sustainability issues become more intertwined with building operations, more firms are starting to make such installations standard whenever they acquire or upgrade buildings, said Chad Edwards, senior director at DSD Renewables, which helps large corporate clients install renewables. There’s more synchronization between roof manufacturing, warranties and implementation, he said, and the market has also evolved past earlier problems with poor installations, when a “trail of leaky roofs” led many firms to eschew on-site.
Even landlords, who used to see energy bills as the tenant’s problem, view solar as a way to increase the long-term value of their assets in an ESG age. That’s a big part of the Prologis approach; retail tenants can also claim emissions reductions of rooftop solar in their own supply chain.
Home Depot Inc., which has roughly 1,980 stores in the US, plans to accelerate its deployment of rooftop solar installations, currently atop just 85 stores, said Vice President of Sustainability Ron Jarvis. The firm’s goal of 100% renewable energy equivalency by 2030 includes more on-site solar, which is now tied to building retrofits and roof repairs, including 25 new rooftop projects in California alone.
“Fixed, stable, clean energy is a big win for any company,” Jarvis said.
The Inflation Reduction Act will also bolster the economic case for rooftop panels by extending the 30% tax credit for solar installations for a decade, introducing a $7 billion fund to support community and rooftop installations and offering more benefits if projects take place in environmental justice zones or economically depressed regions. SEIA estimates that rooftop installations will jump 24% in the next five years due to the legislation.
Other policy levers will also likely speed up installations. California and New Jersey are set to include solar-ready requirements for commercial buildings, and California’s South Coast Air Quality Management District, which covers the Inland Empire logistics hub, has mandated that warehouses invest in sustainability measures, including solar power.
“We’re sort of penny pinching it on the rooftop solar, and putting all our eggs in the utility-scale basket,” said Del Chiaro of the California Solar & Storage Association. “We’re just costing ourselves, making the price tag of climate change way higher by not taking advantage of that low-hanging fruit.”
©2023 Bloomberg L.P.