Can Solar Spark Multifamily’s Future?

As costs fall, the technology improves and incentives remain reasonably robust, solar power installations, which include rooftop panels and batteries for power storage, are experiencing significant growth. With large and small rooftops spanning the nation, multifamily stands to benefit mightily from this tech.

Though data on the pace of multifamily solar installation is sparse, adoption has been slower than for other property types. A variety of obstacles have slowed adoption for multifamily in recent years, but none appear to be insurmountable.

“Some of the most persistent challenges for solar installations on multifamily properties are steep upfront costs, complicated permitting processes and property-specific constraints,” said Integrity Energy CEO Mike Naughton. Multifamily properties often require customized system designs and shared metering to accommodate multiple units and ensure an equitable distribution of energy savings, he noted.

There are also long-term considerations. “You have to make sure that your roof will last the life of the system, which is 20 to 25 years or more,” said Elie Rieder, founder & CEO of Castle Lanterra.

For owners with geographically diverse portfolios, the viability of solar systems is also impacted by the availability of renewable energy credits, which differ from jurisdiction to jurisdiction, Rieder said.

As for owners with smaller footprints, installation can be a complex, expensive process that makes them ask: “Why bother?”

Weighing the upsides

“If tenants in rental units pay their own electricity—and most do—there’s no direct financial incentive for the multifamily property owner to pay for an installation, unless it’s for the common-area meter,” according to Jan Gudell, associate director at Elevate, the Chicago-based nonprofit that administers the Illinois Solar for All program for the Illinois Power Agency.

Even so, solar offers some well-established advantages for multifamily owners, especially the opportunity to add a revenue stream or attract residents by providing lower electricity bills. Moreover, though initial setup can be complicated, solar panels are generally a low-maintenance way to create a more sustainable property.

Other industries, and other property types, are also turning to solar. Adoption of the technology across the U.S. has been trending upward in recent years. As noted in a study by the National Renewable Energy Laboratory, the U.S. Energy Information Administration reported that nationwide 15.6 gigawatts of solar capacity were installed in the first half of 2024, a 55 percent increase from the record achieved in the first half of 2023.

On the other hand, the residential slice of the solar pie shrank during the same period, impacted by high interest rates and regulatory changes in California that made solar generation less remunerative.

Texas, Florida and California remained the most active states for solar installation in 2024, the EIA reported. But other states are seeing installation growth, since these three states now represent a much smaller percentage of the total market (37 percent) than in recent years, the agency noted.

There is also evidence that solar adoption skews more toward single-family residential than multifamily. According to a 2022 report from Lawrence Berkeley National Laboratory, solar power adopters tend to have higher than average household incomes—$115,000 as of 2020, compared to the U.S. median of $63,000.

Growth potential

Under the right conditions, however, multifamily solar installation will grow, just as it has in other property categories, experts say. Some needed changes are local; for example, streamlining permitting would significantly reduce project timelines and costs.

“The permitting process requires building permits, electrical permits for grid connection and interconnection approvals from local utilities,” said Naughton. Property owners must also comply with local zoning laws, safety codes and building standards, which often require detailed plans for the solar array. “While these details are necessary for ensuring the system’s safety and effectiveness, they are time-consuming and resource-draining.”

A combination of permitting reforms, local policy updates and maintaining or increasing government incentives would drive greater adoption.

Technical innovations in metering might also help, according to Aliya Bagewadi, U.S. director of strategic partnerships for Allume Energy. The company’s product allows operators to provide solar power to residents by distributing energy from an installation to multiple meters. That allows the owner to track how much energy is provided to each unit. Operators can create power purchase agreements which generate lower utility bills for residents while also giving building owners a new revenue stream to offset the cost of their investment,” Bagewadi said. 

Policy is a new wild card. Widespread adoption of solar has thus far relied on strong federal financial incentives, such as the Investment Tax Credit. By reducing costs, the ITC has contributed significantly to the solar industry’s growth, which has averaged 33 percent over the past decade, observed Naughton.

“However, the recent election results have cast uncertainty on the future of these crucial incentives,” he noted. “If the incoming administration decides to roll back green energy tax incentives, developers may face even greater challenges in financing solar installations.”

In this scenario, it would fall to individual states to create their own renewable energy incentives. California, New York and Illinois, which offer strong incentives, could be models for other states. Illinois Solar for All, for example, provides funding for installations at communities where at least half of the units are occupied by households with incomes at 80 percent or less of the area median income, Gudell noted. Since 2019, ILSFA has supported 13 projects at such properties and has $30 million available for multifamily projects.

Partnering up

Considering the complexities of solar installations, finding the right partner is critical. Rieder cited the intricate bidding process Castle Lanterra undertook to choose a specialist for its properties in the Northeast. Six developers competed to provide and manage solar panels for the company.

“The one we selected offered a high lease payment on the net present value and demonstrated significantly more experience than other financially viable competitors, completing similar projects in this specific region,” shared Rieder.

Since utilities have widely varying requirements and concerns, a solar installation partner must have comprehensive local knowledge and experience in dealing with the local utility.

Multifamily will adopt solar to the extent that it’s economically viable, commented Universe Holdings COO Scott Kurzban. Large landlords will lead the way, since it will be in their interest to do so, he added.

Universe Holdings is planning to install solar on as many as eight properties. The process is underway now, and Kurzban believes many landlords will eventually take similar steps, regardless of the vicissitudes of public policy. “I believe in the market. The market solves most problems.”

Power options

Several basic models are available to larger owners, Kurzban noted. One option is to install the panels and sell the power to the grid. Providing it to the property might be an additional part of that approach, especially when lower energy bills would help attract and retain residents.

Another model is more involved but requires less direct involvement of the landlord. An investor leases roof space, installs and operates systems, and takes a cut of the proceeds of power generation. A canny owner can negotiate a win-win-win, Kurzban said—revenue for the owner, as well as the investor leasing the roof space, and lower energy bills for residents.

Landlords shouldn’t underestimate the competitive advantage of a property that offers reduced electric costs, since for many residents that’s an unpredictable expense. A 2022 study by the American Council for an Energy-Efficient Economy indicates that renters who have access to information about energy efficiency and the cost of power are more likely to choose properties with high efficiency or low energy costs.

Adoption of solar by smaller landlords will be a harder hill to climb, but it will increase with educational efforts by the solar industry, predicted Erik Holvik, EnergySage’s director of business development. “Like a lot of people who sell solar, we’re helping educate landlords, making sure that they understand the different incentives they’re eligible for,” he said.

Federal policy might change at the margins, but Holvik doubts that the fundamental support for solar, much of which is baked into the Inflation Reduction Act through the 2030s, is going to change.

“Solar isn’t going anywhere, and its adoption by small and midsize businesses, including multifamily and other real estate, is going to continue to grow because utility rates will continue to increase,” commented Holvik. “It will make more financial sense for owners to put in solar, whether (or not) they’re leasing out the roof space.”

Read the January 2025 issue of MHN.