Storage Monitor: Self-storage firms strike gold on their rooftops with lucrative ‘community solar’ deals

According to a recent report by Morgan Stanley, there was 2.3 billion square feet of storage roof surfaces around the country as of 2022. By Solar Landscape’s calculation, that’s enough solar capacity to theoretically power millions of homes around the country.

Major self-storage companies are increasingly turning to a new solar-energy model that’s expected to net them big bucks in coming years – without investing a nickel of their own money to install solar equipment on their rooftops.

Over the past two years, Public Storage and Extra Space Storage have signed contracts with Solar Landscape, a New Jersey-based solar-energy developer and long-term asset owner, to create a combined 94 megawatts (MW) of solar capacity at the two self-storage firms’ properties across the country—roughly enough electricity to power around 10,000 homes.

And National Storage Affiliates Trust (NSA) just recently signed an even larger contract with Solar Landscape to install at least 100 MW capacity of solar power at about 150 of its more than 1,000 properties around the U.S.

The appeal of community solar projects

Solar Landscape installation at a National Storage Affiliates Facility

The three companies won’t be spending any cash for the projects because they’re merely leasing their rooftops to Solar Landscape, which will own, install, and maintain the array of solar panels and other on-site solar equipment at the sites.

In turn, Solar Landscape will sell the clean-generated electricity, at a discount, to thousands of nearby homeowners and businesses under a relatively new “community solar” program model that states are increasingly adopting across the country.

The net result of the innovative community-solar program for storage-facility owners: They can earn thousands, and possibly even millions, of dollars from rooftop leases while spending no upfront funds of their own.

In the case of NSA, it expects to earn about $2.5 million to $3 million per year in total lease payments once solar arrays are fully installed on its facilities in three to five years, company officials say. Similar lease-revenue numbers were not available for Public Storage and Extra Space.

The social benefits of community solar

As added bonuses, NSA and other corporate participants in “community solar” programs are helping the environment via the clean-energy initiatives and earning goodwill with local communities by providing nearby residents with discounted electricity.

“It’s a great program,” Will Cowan, executive vice president and chief strategy officer at National Storage Affiliates, said of his firm’s innovative “community solar” deal with Solar Landscape. “It’s a simple and economically attractive program.”

As for Solar Landscape, its revenues come from two sources: proceeds from selling discounted power to nearby residents and businesses, known as “subscribers,” and from government tax-credit programs.

Brendon Shank, executive vice president at Solar Landscape, said “community solar” programs are a winning proposition for everyone – nearby residents who buy discounted power, storage-facility owners who earn extra revenues via rooftop leases, and solar-energy firms that profit from the sale of clean power and from tax credits.

“This a revenue positive deal for everyone,” said Shank.

In addition, investments in solar make these publicly-traded self-storage operators more attractive to ESG-focused (Environmental, Sustainability, and Governance) investors. Extra Space, Public Storage and NSA are all rated low-risk ESG investments according to Morningstar.

Companies increasingly eyeing solar

A growing number of commercial and industrial property owners are eyeing on-site solar installations in general to help offset high utility bills, particularly heavy electricity users such as manufacturers and tech firms with huge data centers.

Today, the commercial-and-industrial sector accounts for about 20 percent of all solar power generated in the U.S., largely via solar panels and equipment installed on their properties, according to Gilbert Michaud, an assistant professor at the School of Environmental Sustainability at Loyola University-Chicago.

Meanwhile, the residential sector accounts for 25 percent of solar power generated in the U.S., while huge utility-scale solar farms generate 55 percent.

“We’re starting to see really big growth in the commercial-and-industrial   solar markets,” Michaud said. “It’s mostly companies that want to save on (electricity) costs and do something good at the same time. Those are the big drivers of their solar developments.”

Self-storage storage ‘makes sense’

As for the self-storage industry, Michaud didn’t have a breakdown on how much solar power the sector generates. But he said it “makes sense” for storage companies to jump into the field due to their facilities’ oftentimes large rooftops.

According to a recent report by Morgan Stanley, there was 2.3 billion square feet of storage roof surfaces around the country as of 2022. By Solar Landscape’s calculation, that’s enough solar capacity to theoretically power millions of homes around the country.

To be clear: there’s a difference between solar power “capacity” and actual solar power produced.

Energy capacity is the potential peak amount of power that theoretically can be produced. But, somewhat obviously, solar installations don’t operate at peak capacity 24/7 due to lack of sunshine at night and on cloudy days.

Instead, the actual amount of power generated by solar installations is considerably smaller than their capacity suggests.

In the case of NSA, Shank said its 100 megawatts of solar capacity, once fully installed and operating, will generate clean energy at a discount for about 12,000 homes.

“That’s still a lot of power,” said Loyola’s Michaud of NSA’s planned total solar-power rollout. “It’s an impressive amount.”

Though Michaud didn’t have estimates on how much solar power is generated at self-storage sites today, he noted that total solar power production across the country accounts for only about 3.9 percent of the nation’s total electricity generation, suggesting there’s enormous potential for growth for solar in general.

Existing solar-power models

Solar Landscape installation at an Extra Space Storage facility in New Jersey

Many self-storage companies were already producing solar power before “community solar” programs recently began to gain in popularity around the country.

Generally, storage companies have previously had two operational solar models to choose from: buy their own solar equipment to generate on-site electricity exclusively for their facilities (sometimes referred to as “offset” plans); or enter into oftentimes complicated deals to sell solar-generated power to grid operators or utilities, getting reimbursed via steeply discounted electric rates and/or via sharing proceeds from the sale of power to other customers.

In the case of NSA, it had only about 20 solar installations at its more than 1,000 properties, prior to its recently announced Solar Landscape deal.

At Extra Space, it’s been aggressively expanding its solar-generation capacity over the past 13 years, according to McKall Morris, senior manager of communications and sustainability at Extra Space.

Today, approximately 33 percent of Extra Space’s more than 3,800 stores are generating solar power. Before its acquisition last year of Life Storage’s approximately 1,200 stores, Extra Space could boast that 55 percent of its pre-merger stores had solar deployments, Morris said.

Community solar: Innovative and simple

Extra Space’s recent deal with Solar Landscape – which included the recent installation of solar equipment at 10 of its sites in New Jersey, generating a total of 6.5 MW of power—is the storage company’s first foray into community solar. The resulting installation produces discounted electricity (about 20% less than market) for approximately 1,400 area homes, most of which are inhabited by low- and moderate-income families.

And Morris said Extra Space is looking to do more “community solar” projects moving forward.

The reason: they’re comparatively simple arrangements that involve Extra Space leasing its rooftops and not having to invest its own upfront money to get solar-installations up and running. Solar companies, such as Solar Landscape, handle all aspects of community solar programs, from obtaining necessary permits to installing equipment to selling the energy to nearby customers.

“Other (solar deals) can get very complicated,” Morris said. “Community solar programs make it easier. They’re less complicated.”

The evolution of community solar

Loyola’s Michaud said community-solar programs were initially designed for, among other things, to help residential electric customers to band together to invest in off-site “solar gardens” that could generate enough clean power for all investors to share.

Only recently has the concept, with various tweaks and changes by different states, caught on with corporations—which, in effect, share the solar power generated at their sites with surrounding communities.

Solar Landscape is just one of a number of companies doing community-solar deals with various entities, though Solar Landscape has carved out a strong niche of late with self-storage companies.

“It’s really taken off,” said Michaud said of community-solar projects involving companies. “Businesses seem to really like it.”

While about 20 states now have community-solar programs, only a handful of states have more advanced programs geared toward companies that want to lease out their rooftops, industry officials say. Those states include Illinois, Maryland, Massachusetts, New Jersey, New York and Pennsylvania.

NSA’s Cowan said his company is still studying where it will eventually deploy solar equipment, but he said the company is closely eyeing states with either well established or emerging community-solar programs.

‘A state-by-state regulatory mess’

One of the biggest challenges facing widespread deployment of solar-installations in general is a state-by-state patchwork of regulations and incentives, officials agree.

With so many varying solar rules, restrictions and financial programs, companies operating in multiple states often get frustrated with the time-consuming chore of dealing with different regulatory bodies and dealing with separate solar-development partners familiar with the ins-and-outs of a specific state’s regulatory requirements.

Extra Space’s Morris noted that her storage company has had to rely on dozens of different solar-development partners to get solar projects done across the county.

“It’s a lot of work for us,” she said. “Solar (installations) get complicated for us because it’s different from state to state.”

“It’s a state-by-state regulatory mess out there,” said Wyldon Fishman, president and founder of the New York Solar Energy Society, a chapter of the American Solar Energy Society.

“Regulators in different states will tell you what you can and can’t do for this and that. It’s a huge challenge. We really don’t have a national solar policy.”

‘Beginning of a high-adoption model’

Loyola’s Michaud agreed that state-by-state solar rules can be stifling and frustrating, particularly when solar policies suddenly change after new elected officials come into office.

But he said one of the major pluses of consumer-solar programs is the that the concept is simple and easy to implement. Solar Landscape’s Shank sees plenty of growth ahead for community solar programs – and for storage companies wanting to jump into the solar-generation field.

“We’re just at the beginning of a high-adoption model,” he said. “We know there’s a lot of interest out there for this.”

This article by Jay Fitzgerald was originally published in the StorageBeat newsletter on October 9, 2024.