Whole Foods Market, Various Locations
Materials
After six months of planning and internal deliberations, Whole Foods Market selected two firms to develop 100- to 150-kilowatt rooftop store solar systems for retail store installations. Select distribution centers also will house arrays of about four times that size. The approximate 100 systems are expected to start generating power in 2017.
Unlike past ad-hoc installations, this installation process was designed for efficiency. By working with two vetted system providers, Whole Foods benefits from better terms; volume pricing; and consistent, field-tested hardware. The broader roll-out will also benefit from an average installed cost decline of 58 percent between 2010-15 for non-residential solar, giving a boost to investment returns.
Solar Array Developers: NRG Energy and Solarcity
The Retrofit
Whole Foods Market’s experience with rooftop solar power began in the early 2000s with a series of single-store installations initiated by local solar developers and led by onsite managers.
Subsequently, Whole Foods Market’s regional offices took the lead on new solar project management, working with a variety of solar developers. By the end of 2015, Whole Foods Market had completed almost 40 solar installations.
To successfully facilitate the rapid solar roll-out of 100 more facilities, Whole Foods Market has to address several challenges that it encountered during the previous 40 installations, including lease and landlord concerns, roof quality and installation oversight responsibilities. Like many retailers, Whole Foods Market leases its facilities’ building shells subject to tenant improvements. This constrains the company’s ability to make changes, like installing solar arrays. Further, many properties are part of multi- tenant or mixed-use projects where Whole Foods Market is located next to other building tenants, increasing landlord concerns.
Second, solar projects are complicated by concerns about the roof and related conditions, especially in older buildings. About two-thirds of the combined completed and planned solar projects are retrofits on existing buildings with the remaining one-third additions to new buildings. Challenges include determining liability and maintenance responsibility for the roof and overcoming age and condition of the roof membrane and electrical switch gear. Ultimately, lease and roof compatibility were the biggest determinants in selecting the locations for installation.
Finally, for the initial 40 installations, installation oversight responsibilities, such as financing and equipment procurement, varied across systems, making Whole Foods Market’s costs inconsistent and uncertain. The initial 40 solar developments were primarily financed through power purchase agreements (PPAs) or with internal capital. Of those financed through a PPA, Whole Foods Market opted for a third-party ownership variation, where a third-party solar developer finances, installs, and operates the system and provides power to the store at a guaranteed price that is typically below market price. Consequently, stores with a short lease term remaining usually require renegotiation to accommodate the 10 years or more length of a typical PPA.
About seven years ago, Whole Foods Market began to establish standard solar language in store leases, reserving the option to install, operate, maintain and remove solar power provided that it isn’t visible from the ground. The solar installation was classified as personal, not real property that is attached to the land. The standardized lease language helps to streamline project implementation; leases don’t have to be renegotiated later when solar is installed.
All projects will be third-party-owned with PPAs or leases for sites where PPAs aren’t allowed. The installers have partnered with finance companies to provide this service. While Whole Foods Market might realize greater returns through direct ownership, third-party ownership reduces capital investment and is generally easier to execute. Given the inherent challenges in securing internal capital and scaling up, Whole Foods Market was drawn to the relative ease of third-party ownership through PPAs.
Because the corporate office will coordinate the roll-out rather than the regional offices, obtaining regional office buy-in was essential. One significant benefit of a headquarters-led project is the reduced demand on the regional offices. Furthermore, with such a large portfolio of projects, Whole Foods Market can balance easier projects with those in more difficult locations, so all 11 regions benefit and the overall return on investment is positive.