Solar as a Hedge Against Rising Energy Costs

The Cost Squeeze on CRE Owners

Commercial electricity rates continue to climb in 2025. National averages are up ~4.4% year-over-year (to 12.96 cents) with some regions in the Northeast seeing much steeper increases. For real estate owners, every uptick in rates directly impacts Net Operating Income (NOI) and tenant costs — eroding returns and complicating long-term planning.

At SolarKal, we’ve historically modeled energy cost escalation at 2–2.5% per year. That was conservative. Today’s reality suggests escalation is closer to 4% in many markets. Whether you assume 2.5% or 4%, the compounding effect adds up to hundreds of thousands of dollars in operating expenses over the next decade.

The Hedge: Solar

Unlike utility power, solar locks in predictable costs. By directly owning a system, CRE owners can insulate a large portion of their energy spend from volatility. Layer in the Investment Tax Credit (ITC), and the economics are even better. (See webinar sidebar: "Treasury’s New Rules for the Solar ITC")

3 Ways Commercial Real Estate Owners Win

1. Locking in Energy Costs with Ownership

With utility rates rising nationally — and even faster in hotspots like Connecticut and Rhode Island — solar offers cost certainty. Generally, a typical commercial project reaches payback in 5–10 years and delivers nearly two decades of predictable, low-cost energy after that. For owners, this directly offsets operating expenses, strengthens NOI, and creates a competitive advantage with tenants.

2. Lease Income from Community Solar

Even if a property doesn’t require large quantities of on-site solar generation, rooftop systems can still create a hedge through lease revenue. In a community solar model, the owner can earn stable NOI from roof rent while subscribers — including tenants — enjoy discounted power. That translates into:

• A reliable income stream valued at $800k–$1M at typical cap rates
• A sustainability amenity that enhances tenant retention
• An indirect hedge on utility costs if the owner also subscribes house meters to the project’s discounted credits

3. Protecting Long-Term Portfolio Value

Electricity costs vary widely — from ~7–8¢/kWh in North Dakota to ~35–38¢/kWh in Hawaii — and the gap is only widening. Capacity auction spikes (like PJM’s recent jump), grid upgrade costs, and AI-driven demand are all pushing rates higher. For CRE owners, unchecked energy inflation eats into forecasts, compresses margins, and complicates asset valuations.

Solar provides predictability: by delivering ownership savings or lease revenue, solar hedges against volatility, safeguards NOI, and enhances long-term portfolio resilience.

The Bottom Line

CRE owners face mounting pressure from escalating electricity costs. Solar is one of the few tools that directly addresses that pressure — turning volatile utility expenses into predictable savings or lease income.

Learn more from an experienced solar advisor: Inquiries@SolarKal.com