Who says green can’t be affordable? Steadfast Cos. recently installed a colossal, 3,924-panel, 687kW solar system at the 398-unit, 100 percent affordable Villa Nueva Apartments, which spans 42 buildings in San Ysidro, Calif. It’s one of, if not the, largest multifamily solar installation in the country. Newport Beach, Calif.-based Steadfast acquired the 37-year-old, master-metered building in September 2007 and hit the ground running. The $37.5 million renovation included a number of green upgrades that Steadfast typically includes at all of its acquisition/rehabs, such as installing Energy Star appliances, energy-efficient furnaces and windows, and water-efficient kitchen and bath fixtures. Adding the $5 million solar system, however, was a whole new ball game for the firm.
“Either go big or go home,” jokes Christopher Hilbert, Steadfast’s senior vice president, of the firm making its first leap to solar in such grandiose fashion. “We are long-term owners, and as we look ahead, we think the cost of electricity could rise dramatically over the next 15 years. We wanted to be more in control of this cost and how it affects our overall financial performance.”
Control, indeed. The development is outfitted with six main electric meters, which allows the system to offset more than just common loads on the electric grid (i.e. outdoor lighting). Instead, the system offsets 70 percent of Villa Nueva’s electrical needs. “So far, [it’s] actually overproducing what we estimated it would produce,” says Mark Pearson, a senior energy consultant at San Diego-based Borrego Solar Systems, which installed Villa Nueva’s system.
So how exactly did Steadfast crunch the numbers to make the system’s high upfront cost economically feasible at an affordable property? In addition to 4 percent low-income housing tax credits, the developer used investment tax credits of solar energy, where taxpayers receive a dollar-for-dollar reduction of their tax liability. The value of these credits is more than $1.5 million. Plus, the firm is receiving rebates amounting to more than $1 million—once a month for a period of five years—through the California Solar Initiative (CSI). When depreciation is factored in, approximately 90 percent of the system is financed by government incentives, Pearson says.
“We were able to significantly lower our utility costs, thereby increasing our NOI and total loan dollars we were able to quality for,” Hilbert adds. “That helped us pay for not only the solar system but the development of a 21,000-square-foot social services community center for residents and the public.” Steadfast expects the system’s payback time to be two years or less, with annual electrical savings of roughly 70 percent. More firms across the country will be able to achieve similar savings, thanks to an increasing number of city- and state-sponsored programs to help offset upfront costs. For instance, California recently unveiled a program called Multifamily Affordable Solar Housing (MASH), which offers even larger rebates than CSI for any site that has had a certificate of occupancy for a minimum of two years.
“Owners can get $3.30 a watt or up to $4 a watt [through MASH], which is close to double what the regular rebate program is for market-rate properties,” Pearson says. “That’s a big pot of money. At $4 a watt, that can be 50 percent of installation costs right there if the company can also use tax credits or federal grants. Plus, with depreciation that can be taken on the solar asset, you are looking at upwards of 80 percent of an installation that can be covered by government incentives.”
But before you attempt to rely on the sun to fuel your project, Hilbert offers this singular piece of advice: “Take the time to hire an advocate, such as Borrego, who can teach you what you need to know to evaluate all aspects of the project. Don’t just judge the system on the immediate payback.”
Words of wisdom the company will continue to live by as it considers solar applications at properties throughout its California portfolio.