Commercial Solar and solar power for your business
Adding a solar project to your business can benefit your bottom line, and your business in more ways than one. After reading this article, you’ll know all about commercial solar and solar power for your business, including how it works financial benefits, and financing options.
Now let’s take a close look at commercial solar.
Let’s start with an explanation of how onsite commercial solar works for businesses. This is where a solar array on your roof or somewhere on your property powers your facility. The array is constructed of photovoltaic solar panels. They convert the energy from the sun into electricity.
When you generate energy, it is first consumed in your building. Any extra energy is fed back into the grid. And then your meter literally runs backward, counting down the kilowatt-hours you’ve overproduced. In most cases, the utility credits the excess power that your solar panels produce at the retail rate that they would normally charge. Net metering is the term for this. It is also the most common method for companies to reimburse customers for generating energy. This implies that you are not paying the utility company for it when you use clean solar energy.
Additionally, this technique allows you to transfer any excess electricity to the power grid. As a result, you may reduce your costs even further. And because you’re using solar energy, you’re not reliant on fossil fuels to generate power. As a result, green gas emissions can be reduced.
So now you want a commercial solar array so that you can save money and benefit the planet. Great, let’s talk about how you can reduce the price of your solar array, and that is through various solar incentives. Before jumping into this, we want to point out that every solar program in each state is slightly different, but let’s start with a couple of incentives to apply to everyone.
The federal investment tax credit
The federal investment tax credit was first implemented as part of the Energy Policy Act in 2005. It was also recently extended under the federal COVID Relief bill passed by Congress in December 2020. This allows businesses to continue receiving the 2020 value of 26% of the entire system cost as a tax credit in 2021 and 2022.
Solar energy is eligible for Bonus accelerated depreciation at a rate of 100%. That means you can depreciate the entire asset in the first year depreciation is an expense on your books and having a huge amount of expenses certainly helps to lower your tax liability. We always recommend consulting with your own tax advisor regarding being able to monetize both the tax credit and depreciation.
Oh yes, and there are still more incentives, in addition to federal incentives, some state municipalities and even utilities offer rebates or other incentives for solar projects depending on your state and policy.
REC stands for solar renewable energy certificate. They account for the environmental value that a renewable energy system provides beyond electricity. And they hold the monetary value businesses can sell these certificates to utilities that have renewable portfolio standards. The price that businesses get varies between utilities and states.
The fact that most of these incentives can be combined with net metering is a huge plus. That is, the incentives’ returns are in addition to or distinct from the savings on your power bill.
How to finance the projects?
All right, now that you know some of the ways you can save money on your electricity, and in your initial investment in a solar project let’s talk about how you pay for your project in the first place. While cash is always King and generally provides the best return, many large investments are financed and solar offers a few ways to do that. As you begin to consider your options for solar energy programs, it’s important to think about the different ways that you can finance your project.
Power Purchase Agreement (PPA)
With this option, a solar developer permits finances to install and owns the solar system on your property for no upfront cost. Instead, pay for the solar array by paying for the electricity produced by the array. Which is typically at a lower rate than they would have paid the utility. This results in immediate cost savings and limiting the risks of ownership.
Another way to finance a system is with an operating lease. This is similar to any other type of equipment lease property owners may have. Making them easy to understand for most business owners. One of the main differences between an operating lease and a PPA is that with an operating lease you are paying for equipment and with a PPA you are paying for the energy produced by the equipment. In both of these scenarios at the end of the term of the agreement, the business owner can choose to purchase the system for a significantly reduced price.
According to the financing alternatives discussed above, a PV system is often owned by someone other than the solar energy customer. Aside from these alternatives, a commercial solar client can choose to purchase their PV system outright or through a loan.