Commercial Solar: When the Math Works for Businesses

Commercial and industrial (C&I) solar sits in an awkward middle zone. It's neither the razor-margin utility-scale game nor the consumer-credit-driven residential segment. C&I projects often look like easy wins — big flat roofs, daytime-dominant loads — but the realized IRR disappoints roughly as often as it delivers.

The four conditions that make C&I solar work

From hundreds of deal reviews, four factors consistently predict strong C&I solar economics:

1. A host with investment-grade or near-IG credit. Financing terms for sub-IG hosts move from 7% debt to 10–12% debt, which wipes out most of the arbitrage.
2. Retail electricity rates above ~10 cents/kWh. Below that threshold, there's not enough spread between retail and behind-the-meter solar LCOE to absorb development costs.
3. Daytime load coincidence above 70%. Solar generates midday; if the facility runs 2nd shift only, the economics shift toward net metering, which is under political pressure in most states.
4. Roof or land without near-term redevelopment risk. A 25-year PPA on a building the tenant will vacate in 8 years is a restructuring event waiting to happen.

The ownership models

Three structures dominate:

Direct purchase — The host buys the system outright and monetizes the ITC and depreciation themselves. Best for hosts with sufficient tax appetite, typically large profitable corporations. IRRs of 10–14% are common with good site selection.

Power Purchase Agreement (PPA) — A third party owns and operates; the host buys the electricity at a fixed rate. No upfront cost, no O&M burden. The host's savings come from the spread between the PPA rate and retail utility rates.

Operating lease — Rare in C&I solar today because of accounting treatment, but occasionally surfaces in municipal and non-profit contexts.

Where we see the best opportunities

The strongest C&I pipelines we've seen recently share three traits: industrial hosts with high electricity intensity (cold storage, data centers, manufacturing), located in states with high retail rates (CA, MA, NY, NJ, HI), with multi-site portfolios enabling program economics. Single-site 500 kW projects rarely pencil; 20-site 10 MW portfolios often do.

The financing landscape

Debt for C&I solar has tightened in 2024–26 as regional banks pulled back. Specialty lenders and C-PACE programs have partially filled the gap, but at higher spreads. For developer-owned portfolios, aggregator structures (where an aggregator takes tax equity, leaves debt and equity to the developer) have become the workhorse structure.

The Axis view

C&I solar is a site-selection discipline disguised as an energy business. Developers who pass on 70% of the sites that look good on a first filter — and concentrate capital on the sites that check all four boxes — consistently outperform developers who chase volume.