Solar Wave: Community Solar is set to Transform Lease Income

High power prices in many utility jurisdictions—now soaring even higher because of AI-induced demand—can yield healthy savings when offset through on-site solar production. But bringing landlords and tenants together in a legal contract to share in such savings (e.g., through a power purchase agreement) has been a challenge.

There is now a quiet revolution underway in on-site clean energy that avoids the split-incentive challenge entirely. That revolution is community solar.[i]

Through community solar, commercial real estate owners can garner meaningful new lease income—up to high six-figures per year per property for larger industrial buildings—for leasing underutilized space like rooftops and parking lots to host essential community infrastructure under state community solar programs.

BEHIND-THE-METER (BTM) VERSUS FRONT-OF-THE-METER (FTM)

The physical distinction is exactly as it sounds, whether an on-site clean energy system like a solar array or a battery is in front of (FTM) or behind (BTM) a utilities’ electric meter. It’s the economic and legal distinction between the two that matters much more.

Many commercial real estate properties in the United States utilize NNN lease structures whereby utilities are the financial and legal obligations of tenants. Landlords can offset house electric expenses with solar, but the bulk of electricity consumption at most properties—and thus the opportunity to garner savings through solar—comes from tenants.

On-site clean energy systems that are installed behind-the-meter must be carefully optimized for both the building’s total energy load (total kWh consumed) and load profile (when that kWh is consumed), as well as for net-metering regimes (i.e., compensation that utilities provide for excess power sent to the grid). For many buildings, there is a risk both to constructing a system that may be too large or too small for the building. Finding the right size system for a buildingOne of Lumen Energy’s earliest endeavors was a software product that performs such optimizations in a fully automated manner.

In contrast to BTM, FTM systems like community solar provide one of the few avenues in which commercial solar arrays can compensate building owners for “feeding the grid;” historically impossible under the dominant monopoly system for investor-owned electric utilities in the US. Community solar programs typically involve solar developers setting up entirely new service that does not interact with the building’s utility infrastructure, and which can often be installed without formal tenant consent.

Unlike with BTM systems, lease income from FTM or community solar systems generally scale linearly with installed system size. This linear relationship typically provides an incentive for property owners to maximize excess rooftop and parking lot space for solar or batteries (e.g., by leaving only space necessary for future rooftop units through designated reserve area).

WHAT IS COMMUNITY SOLAR?

According to the Coalition for Community Solar Access, “community solar refers to local solar facilities shared by multiple community subscribers who receive credit on their electricity bills for their share of the power produced.”^[ii]

Community solar, sometimes referred to as shared solar, exists inherently as a policy tool that is employed at the state level under state specific legislation. Examples of such legislation include the CSEP program in New Jersey, the Shines program in Illinois, and the SMART program in Massachusetts. Common policy objectives achieved through community solar programs include:

1. Discounted electricity for renters or income qualifying individuals. Many state programs, such as those in New Jersey or Massachusetts, require that at least 50% of solar production credits generated by community solar arrays be provided to low or moderate incomes individuals at a substantial discount (often at least 10%) to their current retail utility rates.^[iii] Renters who do not have access to install rooftop solar on the homes in which they live can also receive meaningful savings benefits from subscribing to community solar.
2. Avoided cost to transmission and distribution grid infrastructure. By providing a framework to encourage the deployment of meaningful clean energy production close to consumption, these programs can reduce the need for significant transmission and distribution grid spending, which would otherwise increase consumer bills. Programs like Massachusetts’s SMART further encourage resilience through requirements to integrate distribution storage.^[iv]
3. Economic and workforce development. Many programs are set up to benefit local workforces with requirements for prevailing wages or equity eligible contractors. More than 50% of program capacity in the Illinois Shines program is reserved for such Equity Eligible Contractors or through an alternate program that encourages local community participation (Community Driven Community Solar).^[v]

WHY IS COMMUNITY SOLAR GROWING NOW?

For the first-time in decades, electricity consumption is rising sharply. Much of this rise is the result of AI-induced demand. This rapid growth in consumption has caught both utilities and state regulatory bodies like Public Utilities Commissions in a lurch, with widespread shortages of key equipment that can help utilities meet such demand. Some large-scale natural gas-turbines have five-to-seven-year waitlists according to E-Cubed Policy Associates.^[vi] By contrast, many community solar installations can achieve time to power in approximately two years, or potentially even faster.

This mismatch of supply and demand for power is resulting in meaningful increases in real prices. In July, PJM, which manages the wholesale electricity market and reliability for thirteen states and Washington D.C., procured energy supplies as part of its annual capacity auction at a 22% increase compared to the prior year.^[vii] Prices obtained through such capacity auctions has only just begun to bleed into retail customer utility bills. And yet, from the beginning of the pandemic in March 2020 through September 2025, per kWh rates in the US increased from 13.4 cents/kWh to 18.8 cents/kWh, a 40.3% increase.^[viii]

Community solar programs are a key policy tool for lawmakers to provide direct utility bill relief to consumers while also providing for system-wide benefits in the form of avoided cost to transmission and distribution grids. In many cases, community solar programs also enable access to clean energy resources that are otherwise infeasible because of inadequate transmission infrastructure.

This was made apparent with the Trump Administration’s cancellation of a loan guarantee enabling the 804-mile Grain Belt Express, the largest privately funded transmission line ($11 billion) in US history, meant to move wind power from Kansas to population centers across the Midwest.^[ix] Community solar enables deployment of quasi-utility scale renewable energy closest to where it is actually demand.

WHAT DOES THIS ALL MEAN OR BUILDING OWNERS?

Community solar developers rely on commercial and industrial building owners to serve as hosts for the essential community infrastructure that is deployed under these programs. This means that owners can lease underutilized space like rooftops and parking lots (for carport solar) on your assets to new tenants in the form of commercial solar arrays. The leases for these commercial solar arrays provide long-term, durable sources of income, typically 20 to 25 years, that scale in a linear fashion with installed system size. These leases are typically fully turn-key with $0 CapEx borne by the building owner and with all obligations for development, maintenance, and operation of the solar array undertaken by the solar developer.

Crucially, all tax incentives associated with the array (e.g., the 30% investment tax credit, which provides a dollar-for-dollar tax credit against eligible project basis) are effectively monetized by the community solar developer, typically through tax equity facilities, with the value indirectly passed to the building owner in the form of higher rents than otherwise would be provided.

While the future is uncertain, the policy environment that benefits these systems grows stronger every day. It’s no wonder that community solar legislation has been introduced to states such as Michigan, Ohio, and Wisconsin.^[x]

Community solar is a wave, is your portfolio ready to catch it? 

ISSUE #20:

ASSOCIATE SPONSOR

+ EDITOR’S NOTE

+ ALL ARTICLES

+ ARCHIVE

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+ POLICIES

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+ CONTACT

+ MEDIA KIT (PDF)

CONTENTS

Note from the Editor: Issue #20

Benjamin van Loon | AFIRE

AFIRE Investor Survey: The Case for US Real Estate in 2026

Benjamin van Loon | AFIRE

The Data Center Pipeline: Is it a Boom, or a Bubble?

Scot Bommarito, William Maher, Andrew Janko, Amber Hughes | RCLCO Fund Advisors

Autonomous Intelligence and the Global CIO: Formalizing Conviction in a Fragmented Market

Francis Huang | Apers AI

A Home Genome Project: How a City Learning Cohort Can Create AI Systems for Optimizing Housing Supply

Brookings

How C-PACE (and Stretch PACE) are Rewiring Global Real Estate Finance for the Energy Transition

Jonathan Seabolt | Clearwater PACE

Solar Wave: Community Solar is Set to Transform Lease Income

Michael Sanduski | Lumen Energy

Trade Winds Redrawn: US Tariffs and Commercial Real Estate

Stewart Rubin and Marshall Swett | New York Life Real Estate Investors

The Complexity Premium: Leveraging the Alpha Opportunity in Regulated Gateway Cities

Donal Warde | Consultant + Richard Cadena | Bank Hapoalim (BHI) + Wenpeng Ding | Zicklin School of Business

NYC Office Recovery: Repricing Physical Infrastructure in the Age of AI

Scott Crowe | RXR

Beyond Motivation: Why Invest in US Affordable Housing? And Why Now?

Deborah La Franchi | SDS Capital Group

Build-to-Rent: Redefining Housing for Renters and Investors

Paul Kolevsohn, Alex Lachman, Lev Kling-Bronstein | Stockbridge + Don Walker, Kevin Cody | John Burns Real Estate Consulting

Inflation Fighters: The Case for Mission-Critical NNN

EJ Wislar | PRP Real Assets

Private Apartment Equity or Private Debt: Comparing Investment Performance of the Two Quadrants

Gleb Nechayev | Berkshire Residential Investments

Meet Them Where They Are: National Demand Landscape Survey

Kevin Hudak and Michael Broder | RCKRBX

REIT Puts and Calls: Public Market Signals for Private Real Estate Investors

William Pattison, Michael Steinberg, Carsten Raaum, Kiel Deitrich, Jacob Kurosaki | MetLife Investment Management

Modernizing Management: How Structural Shifts in Real Estate are Rebalancing the GP and LP Relationship

Finn DuComb-Festor and Miles Treaster | Cushman & Wakefield

Clarifying Vision: Exploring the Dynamics of Slowing Capital Flows

Cliff Booth | Westmount Realty Capital

DISCLAIMER

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