In Focus: Financing Solar 0

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Solar energy has been steadily growing in popularity among US businesses in recent years. As solar capacity has risen, technology has improved and equipment prices have fallen. Despite its long expected lifespan (typically as long as 25 years) and promise of greatly reduced future energy costs, the high initial costs of a solar installation can be prohibitive for many businesses.   Fortunately, there are a number of financing options and incentives that can help businesses afford the conversion to renewable energy.

Federal Incentives

The American Taxpayer Relief Act of 2012 (HR.8) allows for a tax credit of up to 30% of the cost of new solar installations that are in operation by December 31, 2016. There is no dollar limit to the credit that is available. Businesses can claim a 30% credit regardless of the project’s size or cost. Like all commercial tax credits, the business must have a tax liability in excess of the credit to be eligible. However, the credit may be carried forward into the future if it cannot be fully claimed in a single tax year.

In addition to the ATRA tax credit, the solar array may be eligible for accelerated asset depreciation for tax purposes for the remaining value of the asset (roughly, the purchase price of the system minus the federal tax credit). Given the complexity and variability of tax accounting, the amount of this benefit will be different for each business. It would be wise to discuss accelerated depreciation with a tax professional to determine whether it makes sense for your business.

PACE Loans

Property Assessed Clean Energy (PACE) loans are used by several municipalities to spur energy-saving improvements on commercial  properties. PACE loans used to finance the cost of solar panels and installation typically offer below-market interest rates and are repaid through a surcharge added to the property tax. The repayment period for these loans can be as long as 20 years.  In the event of sale of the property, the capital improvement – the solar panels in this case – and the obligation to repay the loan remain with the property and are transferred from one property owner to the next.

By stretching repayment over a period of 20 years, businesses can immediately realize the cost savings fromsolar energy while pushing the bulk of the payments for the new installation out into the future. Additionally, the solar panels purchased with a PACE loan may still be eligible for the federal tax credit and/or a tax deduction for the associated interest payment.  A PACE loan presents a valuable opportunity for firms to employ the latest technology while minimizing upfront costs.

Several cities and states offer PACE programs. The not-for-profit PACENow  provides information on the current status of PACE legislation and implementation around the country.

 

Feed-In Tariffs and Net Metering

Once the solar array has been installed, Feed-In Tariffs and Net Metering may help offset the initial costs over time. A feed-in tariff (FIT) agreement with the local electricity utility guarantees a set price for all renewable electricity that is generated on site and then fed into the electrical grid.  Solar energy that is captured and not used, such as during weekends or holidays when the business is closed, can be sold to the local electric utility company. This can provide a valuable source of passive income for the property owner. By setting an agreed upon rate with the utility on the front end, businesses can more accurately estimate how a FIT will factor into the potential benefit of a new solar investment. According to the US Department of Energy, FIT programs are available in 15 States.

Net Metering, on the other hand, allows electricity customers to use renewable energy fed into the grid to offset electricity purchased from the utility at another time. In other words,  excess solar energy fed into the grid during non-business hours, for example, can be credited towards electricity purchased from the utility at times when your business’ energy needs are greater. Like FIT programs, net metering can significantly offset a business’ energy costs, helping companies more quickly realize a return on their solar investment. Net metering policies are currently available in nearly all 50 states.

The size and nature of FIT and net metering  programs vary greatly by jurisdiction.  Your local electricity provider should have the most up-to-date information.

Other Programs

Support for solar and other renewable energy technologies differ across the country. State and local governments, not-for-profit organizations, and electricity providers offer programs designed to make renewable energy more affordable for businesses of all sizes. To aid in identifying programs in your area, North Carolina State University has developed DSIRE, a database highlighting incentives and programs supporting solar energy and other forms of renewable energy around the country.

Editor’s Note:

If you are interested in learning how to design and install solar, check out CleanEdison’s Solar Training

Original Article on CleanEdison Blog

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