How Does Commercial Solar Depreciation Work?3/27/2023
The first decade of service from your PV system may have been remarkable—with California''s ample sunlight providing a better way to power your building. But, after the initial excitement, you may have noticed your system's efficiency has decreased over time.
Sound familiar? You're not alone in your frustration. In fact, many business owners are facing the same dilemma. This problem is a result of commercial solar depreciation, which occurs when the value of your PV systems drops.
While not ideal, it''s not necessarily all “bad news” either;. There are a few strategies to make the most of your stranded assets. So, what can you do? Better yet, where should you even start?
In this blog, we'll explore the ins and outs of commercial solar depreciation, including how it works, why it happens, and what you can do to maximize the value of your solar investment.
Let''s get started!
What Is Solar Panel Depreciation?
Depreciation is commonly defined as “the process of an asset losing value over time, due to wear, tear, and other factors.” Solar panel depreciation is the decrease in value of a PV system over time. The rate of commercial solar depreciation is dependent on a few various factors, like:
- Type of panel
Commercial solar depreciation can impact a business's financial standing and overall investment in renewable energy.
How Does Commercial Solar Depreciation Work?
At its core, the commercial solar depreciation process follows the same principles as any other depreciable asset. Generally speaking, solar panels and related equipment depreciate over a longer period of time, usually five to seven years.
Is Commercial Solar Depreciation Inherently Bad?
Honestly, it depends. While it''s definitely inconvenient for your assets to lose value, there are a few precautions you can take to soften the blow.
If your PV system is approaching the end of its lifespan, consider reaching out to a professional solar provider. They''ll assess your panels using the Modified Accelerated Cost Recovery System (MACRS)—a method for depreciating assets over a set period.
With these findings, you''ll be able to understand the severity of solar panel depreciation and life expectancy left. From there, a professional will take into account the service life left for your panels, the cost of the panels, and the salvage value of the panels at the end of their useful life—which brings a few financial advantages.
For example, if your company invested in a solar panel system for $100,000, and the IRS determines the useful life of the system to be seven years, your company can depreciate the system at an annual rate of approximately $14,286.
Simply put, commercial solar depreciation can be used to offset taxable income, resulting in a significant tax benefit for your company.
Is your PV system approaching the end of its lifespan? Schedule an assessment with the experts at Pacifico. We''ll put you in better financial standing.
Discover the Bright Side of Depreciation
How Does Depreciation Impact Commercial Business?
The impact of solar panel depreciation on commercial businesses is two-fold. And yes, while tax breaks are advantageous, the overall impacts of stranded solar assets spell bad news. Here''s why.
- Lower ROI: When the solar panels and related equipment depreciate over time, their value decreases, which can impact the return on investment (ROI) of the solar energy system.
- Loss of Benefits: Currently, the federal government offers several different incentives for businesses that invest in solar power. One of these incentives is the Investment Tax Credit (ITC). However, the ITC is only available in the year that the panels are installed, so if the panels depreciate too quickly, your business may not be able to take full advantage of the credit.
- Decreased NEM Returns: Net metering programs (NEM) deliver “cash back” for the extra energy your PV system generated. Unfortunately, as solar panels lose efficiency over time, you won''t be able to sell as much excess energy back to the utility provider. This decreases your supplemental revenue stream.
- Budgeting Complications: The loss of supplemental revenue associated with commercial solar depreciation often impacts your ability to accurately predict energy costs.
- Lower Resale Value: As PV panels lose efficiency over time, they become less valuable on the secondary market, making it harder to recoup as much of your initial investment as hoped.
Exchange Your Stranded Solar Assets for Extra Capital
All good things must come to an end, and PV systems are no exception. Depreciated solar panels often fall beyond the point of repair, becoming “stranded.” Instead of letting these assets go to waste, however, what if you could flip them for profit?
At Pacifico Power, we buy stranded solar assets to give commercial businesses another opportunity to earn value from their investment. Get in touch today and discover how simple it is to put cash back into your pocket.
Save Money in the Long Run by Accounting for Solar Panel Depreciation Now
At Pacifico Power, we understand the complexities of commercial solar energy systems, including depreciation. We''re committed to helping California businesses navigate the complexities of solar panel depreciation, develop customized solutions to help achieve your sustainability goals—all while saving money in the long-run.