The Top 5 Challenges Real Estate Developers have with Solar

The Solar Investment Tax Incentive (ITC) has been restored to 30%, making solar more economically feasible. Now what?

Many non-traditional developers and investors are being enticed to join the market. Real estate developers are amongst the most likely to find the proposition attractive. And oh boy, are they heeding the call, including solar as part of their commercial or residential real estate projects and building standalone projects to boost profits and diversify revenue streams. After all, they already have land acquisition, project management, and permitting expertise, which can be valuable in the solar project development process.

However, there are also some challenges that real estate developers may face when entering the solar project development market that they may not be equipped to handle. As a career Credit Analyst, I like to explore opportunities with my eyes wide open.

So, let's dig in.

5. Technical challenges

Solar projects require specialized technical expertise, particularly in designing and installing solar panels and related equipment. If a project team lacks the necessary technical knowledge or experience, this can result in delays or suboptimal outcomes that make the project less effective or efficient.

4. Financial challenges

Solar project development requires access to financing, which may be challenging for residential real estate developers who may not have experience in project finance. Solar projects often require significant upfront capital investments, and if funding is not secured, the project may not be completed. Raising the upfront capital may involve applying for grants, loans, or tax credits and seeking investment from private investors or venture capital firms. Therefore, it's crucial to clearly understand the financing options available to you and develop a solid business case to attract the "right" investors.

3. Changing Market dynamics

Solar projects are often impacted by quickly changing market dynamics, such as shifts in government policies or incentives, changes in energy prices, or the emergence of new technologies. With the average solar project taking 2-4 years to complete, any delays may expose it to unforeseen changes affecting its feasibility. In addition, real estate developers may need to gain expertise in this field and will have to assemble a team with the proper knowledge.

2. Grid Integration

Finally, once a solar project is completed, it must be connected to the electric grid. This process requires coordination with transmission and distribution system operators and may involve upgrades or expansions to the grid infrastructure. Developers must ensure the solar project can operate reliably and efficiently within the grid system. According to a report in the New York Times, more than 8,100 energy projects, the vast majority of them wind, solar and batteries, were waiting for permission to connect to electric grids at the end of 2021, up from 5,600 the year before, jamming the system known as interconnection. Traditional real estate developers may not know how to account for and navigate the delays due to grid integration.

1. Resourcing Professionals

Ultimately, in successful Project Financing, risks are mitigated by building a solid project team. A project requires the input and expertise of various professionals, including engineers, contractors, and legal and financial experts. Therefore, building a solid project team with professionals with a track record of success and that openly and honestly communicate and collaborate is key to the success of your project.

Due to the modern gold "sun" rush, there are fewer experienced solar experts to round out the developer's teams. The lack of capable bodies is one of the main reasons the backlog of projects continues to grow.

In summary, by including solar to their offering, a real estate development can offer significant cost savings, appeal to market demand for sustainable properties, and take advantage of government incentives. By considering these benefits, developers can make informed decisions about incorporating solar into their development plans and ultimately enhance the value and marketability of their properties.