New solar investment metric: Return On Visibility
Clarksville Commons is a beautiful new mixed-use development in Maryland, with office and retail space. They’ve made several investments with environmental impact: a 165 kilowatt rooftop solar system, storm water management, electric vehicle charging, and efficiency measures. The developer has also invested in a Spotlight Solar structure to make solar visible. Like their other investments, they expect their “solar tree” to yield a return. We this call this Return on Visibility.
Every investment is made in anticipation of a return. Return On Investment, Internal Rate of Return, etc. govern investment decisions. This is especially true with solar energy, where cost saving is a central benefit. The ROI and Payback Period on Clarksville Commons’ rooftop solar is compelling.
But there are opportunities for return that come from people seeing a property owner’s investment in clean energy. This type of return comes from improvements in customer loyalty, occupancy, employee engagement, and people’s consideration of their own energy choices. In Clarksville’s case, making solar visible reminds shoppers and office workers that solar technology (hiding up on the roof) powers the building they work in. And it makes a statement of support for clean energy to everyone who sees it.
George Stone, Clarksville Commons’ developer, explains: “Our striking solar tree signals our many energy and efficiency efforts. Tenants and shoppers prefer to come here because of our environmental stewardship. In our next building phase, we’ll add two more Spotlight Solar structures.”
Many studies have established a strong connection between corporate responsibility and customer or employee affinity. For example, the 2015 Cone Communications Ebiquity Global CSR Study found that when companies support social or environmental issues, US consumer preference surges:
91% will have a more positive image of the company
71% are willing to pay more for an environmentally and socially responsible product
Further, the vast majority consider corporate social responsibility when deciding…
where to work (79%)
what to buy or where to shop (80%)
But for these benefits to be realized, the company’s actions need to be seen.
The solar industry has standardized spreadsheets for ROI, IRR, and Payback Period so clients can understand return from savings. Well and good. But it has not endeavored to present or quantify the benefits of visibility beyond some arm-waving in the direction of how solar “demonstrates your commitment to sustainability.”
Admittedly, Return On Visibility is not as cut-and-dried as something like Payback Period from savings. But the economic yield from solar can be significantly increased by visibility. Let’s consider some scenarios.
Scenario A: Colossal Container
This is a retailer of household goods, with many locations. The company has implemented sustainability measures including onsite and offsite solar energy.
If solar is made visible and engaging where shoppers can see it, people will be reminded of the retailer’s environmental stewardship. This creates preference for Colossal Container -- more shoppers shopping more often and recommending Colossal to their friends who shop.
Let’s consider one store of 100,000 square feet; $300 sales per square foot; 25% gross margin. It invests $100K in some great looking visible structures out front.
3 year ROV = net gain / investment in visible solar = $275 / $100 = 275%
Scenario B: Headquarter Heights
This office park has five buildings and many tenants across 400,000 square feet. It has green building features and a 300 kilowatt rooftop solar system no one can see.
If solar is made visible with a few engaging installations around campus, its tenants and visitors will viscerally experience the property’s advocacy for clean energy. This creates preference for Headquarter Heights as a place to work. That preference has economic value, in the form of 1) increased occupancy and 2) a premium on rental rates. Consider the impact of a modest 1% increase in those two metrics.
3 year ROV = $400 / $200 = 200%
One of our friends in the solar industry has been known to quip about the investment payback time on Spotlight’s aesthetic solar structures: “three years after never!” Yeah, we beg to differ. The math above, even if it is over-optimistic by 2X, shows the fastest payback period in the galaxy. Can we forecast ROV to the second decimal place? No, but if we're talking triple digit returns within three years, directional accuracy is sufficient for decision making.
And notice how visible solar creates benefit in the core business of a property owner, by increasing revenue. That moves the value of solar from Procurement into the C-suite.
Striking, visible examples of solar and sustainability will encourage more people to adopt clean energy themselves. Such examples show that solar technology is ready for prime time, and endorsed by sophisticated organizations. In academic literature, this is called the Neighbor Effect. And it makes the property owner a leader.
Those who have invested in projects with environmental benefit have an opportunity – dare we say responsibility – to add an element of visibility to unlock additional return and encourage others to step up as well.
Show your solar!
P.S. This is actually Part 2 on Return on Visibility. See Part 1 in an article on this topic in PV-Magazine.