PPA vs Buying Solar: Which is Better for Your Business?10/1/2023
With climate change and rising power costs top of mind for many business owners, solar energy can be a cost-effective and environmentally friendly way to fuel your facility. However, the upfront investment can be daunting, driving many organizations to turn to solar power purchase agreements (PPAs). This article will illustrate why you should consider a PPA vs. buying solar panels to own outright.
Understanding Your Solar Energy Options
There's a general debate about PPA vs. buying solar outright, making figuring out the most cost-effective and efficient way to make the transition a daunting task.
Choosing Solar Power Purchase Agreement (PPA)
A solar PPA is a financial agreement where a developer installs a solar energy system on your property at little to no cost and sells the generated power to you at a fixed rate. Since you only pay for the power produced each month, the developer owns, operates, and maintains the system for the duration of the contract (typically 20–25 years). This lowers your electricity bills while the developer receives the income from these sales and tax credits while covering equipment and upkeep costs.
Choosing Buying Solar Systems
Buying a solar energy system means purchasing the panels, inverters, racking and other equipment outright and owning them on your property. While this comes with higher upfront costs, you benefit directly from the energy savings, tax credits, and incentives. The system also adds value to your property. While owning solar involves maintenance and repairs, federal tax credits and additional incentives can help offset 30–40% of the system cost.
PPA vs. Buying Solar for Your Business
When seeking clean energy solutions, opting for PPA vs. buying solar might prove to be a strategic and financially astute decision for your business.
Unburdening Upfront Costs
When considering a PPA, the upfront financial hurdle of purchasing a solar energy system outright becomes notably lighter. Businesses can sidestep the significant upfront capital investment to allocate resources more efficiently across their operations.
Predictable Energy Expenditure
One of the standout advantages of a PPA lies in the predictability it brings to your energy costs. The electricity rates tend to be lower than conventional utility rates, and they can be locked in for an extended period, often up to 25 years. This not only insulates your business from the volatility of hikes, but also offers a clear advantage in financial planning.
Harnessing Incentives and Tax Benefits
Because the solar provider retains ownership of the system under the PPA, they can pass on valuable benefits like tax credits and solar incentives onto your business. Essentially, you gain access to these cost reductions without the complications of ownership.
Mitigating Performance Risks
In a PPA, ensuring the optimal performance of the system is the provider''s responsibility. They monitor and manage the system''s output, addressing any concerns with maintenance and repairs when necessary. This saves your business from risks associated with operational performance and upkeep.
Some information is critical to know before you make the decision to go solar. This article outlines the need-to-know details to help you better prepare.
Explanation of the Various Tax Breaks and Incentives of PPA
Acquiring a solar system with a PPA doesn''t mean you can''t leverage a variety of tax breaks and incentives. Here are some specific ways you can enhance the financial appeal of your renewable energy journey:
Federal Investment Tax Credit (ITC)
The Federal Investment Tax Credit (ITC) presents a remarkable opportunity to optimize your financial gains. Despite not being a direct purchaser of the system, you can often apply the ITC to the overall cost of your solar PPA agreement, reducing your net expenditure.
State and Local Incentives
On top of federal benefits, various states and local governments strive to motivate the adoption of solar energy. Advantages can include cash rebates, exemptions from property taxes, and performance-based incentives tailored to your specific location. By capitalizing on these regional rewards, you can significantly mitigate the costs associated with your solar PPA.
For businesses engaging in solar PPAs, the accelerated depreciation can serve as an additional method to improving your bottom line. In select scenarios, you can borrow against the solar system's value, which culminates in extra tax savings.
PPA vs Buying Solar: Making Decisions That Benefit Your Business
Now that you have a better understanding of PPA vs buying solar, let's look at three critical factors to consider when making your decision to move forward:
Assessing Your Business Energy Needs
- Analyze your historical energy use and costs, including peak demand.
- Forecast your future energy needs based on growth plans and electric vehicle charging needs if applicable.
- Determine what portion of energy use you want to offset with solar.
- Model different solar system sizes and forecast the bill savings.
Considering The Financial Implications
- Review all costs, including system price, financing fees, operations, and maintenance.
- Model the cash flows for both buying and signing a PPA to compare overall lifetime costs.
- Factor in tax credits, rebates, solar renewable energy credits, and depreciation (if buying).
- Consult your accountant to understand tax implications.
- Assess available capital and financing options if buying.
Expert Advice to Facilitate Your Decision
- Consult reputable solar installers to review proposals for both buying and leasing.
- Compare cost savings projections and perform due diligence on companies.
- Ask your commercial roofer to assess the roof and provide recommendations.
- Discuss with a lawyer to review any PPA contract terms and conditions.
- Talk to an accountant to maximize tax incentives and minimize liability.
Find Your Solar PPA Solution with Pacifico Power Today
At Pacifico Power, we are dedicated to guiding businesses in California toward a sustainable and economically viable future through our innovative PPA financing model. With our custom-tailored approach, we help you unlock the advantages of solar energy without the burden of upfront costs. Contact us today to embark on your journey toward a brighter, more sustainable future.