The Sun King: Arno Harris Talks Solar Power With CoStar
The Sun Will Come Out Tomorrow -- and a New Solar Energy Platform from Recurrent Energy's Arno Harris Could Help Real Estate Owners Take Full AdvantageHarris went back to the drawing board to form Recurrent, which uses a novel new purchase power agreement (PPA) structure he calls Solar as a Service that allows users to buy solar electricity without buying the system.
At no upfront charge, Recurrent installs and operates solar panels fitted on the user's rooftop, guiding clients from preliminary site-selection planning all the way through project execution (the company also handles solar maintenance, so there's no operating risk to the user.) The electricity, purchased by the customer from Recurrent, is guaranteed to be priced competitively with utility rates.
Harris is targeting large investment owners of real estate, a market segment he feels has been barred from solar entry in the past due to a variety of cost and complexity barriers associated with solar energy systems. And with a wave of new energy constraints, tenant sustainability demands, local ordinances and other market conditions forcing real estate owners to finally think green, the timing couldn't be better for Harris' marriage of solar energy and real estate.
CoStar Advisor caught up with the Recurrent CEO for a few questions.
CoStar Advisor: How did you get into the solar industry?
Harris: I got into solar power in 2001 based on a personal interest in global warming and also on the business sense that there was an opportunity emerging in California with the advent of California's pioneering solar incentives.
The timing and the intuition were good -- the market really took of from there and we were just ideally positioned to serve what was really a brand new market.
Advisor: There's a barrier between tenants and landlords when it comes to implementing green upgrades such as solar power. What's the problem?
Harris: Everyone can agree that that all those roofs can be covered with solar. The key thing really comes down to the challenges of actually getting it done. One of the big challenges out there is getting around triple-net leases.
When you have triple-net lease, the tenant is not that motivated to make a big investment in the property, and the owner is not incentivized to make an investment that's going to solely benefit the tenant. What we've done is structure an agreement [Solar as a Service] that allows us to provide benefits to both of them.
Advisor: So the Solar as a Service platform could eliminate the "green" barrier between tenants and landlords while providing inexpensive renewable energy with no upfront costs. What's the catch?
Harris: I don't think there's a catch. We're seeing huge amounts of interest on the part of our customers. It's a matter of getting through and doing something for the first time and then rolling it out on a larger scale.
Advisor: And you consider Solar as a Service to be an industry shift rather than niche?
Harris: Absolutely. If you look at the data coming out, it demonstrates that the majority of new projects are going in under some sort of power purchase agreement.
Advisor: Recurrent advertises solar power as a LEED-compatible upgrade. What other real estate benefits does solar power offer?
Harris: Solar is a great way to green a building. There's more and more evidence coming out that green buildings are better for tenants. There's an increase in the competitiveness of a property that has solar.
Green building is something that most people intuitively think of as new construction. One of the big questions any property investor has to ask is 'what about these existing assets? How do we keep them competitive in an increasingly green world?' The neat thing about solar is that it can be applied very quickly, very easily to an existing building to green what is otherwise a non-green asset.
Advisor: Why has Recurrent chosen to focus on large institutional investors of real estate as its customers?
Harris: It comes down to the fact that to provide Solar as a Service, we want to bring the project to a scale where we can do this with greater and greater efficiency. That efficiency is the key to making solar more affordable.
Advisor: Recurrent receives government incentives to help offset the cost of financing solar installations, but those incentives decline over time. Does your business model need to change over the long-term?
Harris: No. The incentive structures that were put in place were worked out hand-in-hand with the industry itself. What that downshift reflects is the expected decrease in the cost of equipment.
If the government helps stimulate the early stages of the market and creates a roadmap for where the market can go, the industry can then, in greater and greater capacity, achieve economies of scale resulting in decreases in cost.
Advisor: You have a number of direct competitors out there, many of whom are also based in California. Even with solar heading into the mainstream, can the industry support all of you?
Harris: We're all approaching the financing the same way, and the financing is becoming more and more standardized. What makes us unique is our focus on solving this triple-net lease problem, particularly in putting together a structure that meets the needs of both owners and tenants. To that extent, I don't see anyone else focusing on the market the way that we're focusing.