Your Complete Guide to Commercial Solar Financing2/22/2023
In today''s economy, every organization should focus on improving profit margins. Many companies are transitioning to commercial solar as a cost-effective way to invest in the efficiency of their business.
Business owners who are on the fence about switching usually share one common concern: commercial solar financing is confusing. From allocating funds to applying for tax credits, the process itself can be tough to navigate, and you might be asking a few questions, like:
- What are a few common ways businesses fund commercial solar projects?
- How can I tell if my business is eligible for solar-related tax breaks, and how can I apply?
- How can I find a dependable, experienced provider for my commercial solar needs?
Keep reading to discover the answers to these questions and learn more about the intricacies behind commercial solar financing.
What Are the Five Most Common Ways to Fund Commercial Solar Projects?
Generally speaking, there are five main ways in which companies fund commercial solar projects. However, it's important to note every model comes with its own unique selling-points and drawbacks. Let's dive into the specifics of each structure so you can tell what's best for your business:
Cash or Loans
The first way enterprises can pay for a commercial solar project is through upfront cash. This is a standard option for larger businesses with financial resources already at their disposal. For small businesses without available capital, securing a loan to pay for the project is a popular option. There are a number of different types of loans that a company can use for this purpose, including:
- Traditional bank loans
- SBA loans
- Renewable energy loans
These loans help provide the funding your business needs to pay for the project. You'll borrow the money and make payments overtime to repay the loan. This helps you save on the initial costs associated with a large-scale solar project while at the same time leveraging the advantages of renewable energy.
Power Purchase Agreement (PPA)
There are several reasons why a business might consider a Power Purchase Agreement (PPA) to fund their commercial solar project. One of the main reasons is that PPAs enable your business to obtain the benefits of solar energy without having to pay the upfront costs of installing a solar panel system.
Instead, you enter an agreement with a solar developer, purchasing the electricity generated by panels at a fixed-rate over a set period of time. This helps provide your business with a predictable, stable source of electricity, all while reducing energy costs and improving your bottom line. Further if the system doesn''t produce energy you don''t pay so the owner of the system is incentivized to keep it well maintained and running
Another popular commercial solar financing option is leasing. Similar to taking out a loan, your business can rent its solar equipment through a third-party provider, bank, or lending institution. Leasing panels allow you to reap the benefits of solar energy without having to worry about maintenance and repairs.
While these commercial solar leases usually have lower buy-out fees compared to PPAs, it's important to note you'll need to make regular payments on your systems—regardless of if they're working well or not. So in leases you''ll take performance risk. Additionally, with a lease agreement, you're not considered the "owner" of the solar panels, meaning your business will not qualifying for tax rebates and other federal solar incentives rather the lessor will, however typically the value of these rebates and incentives will flow to you in the form of a lower lease rate
Public financing is the process of using bonds and grants to help pay for the cost of a new solar system. Essentially, it helps provide the capital to businesses who might not be able to obtain funding by traditional means. This type of model is designed specifically for government agencies, educational institutions, or other businesses in the public sector. It''s advantageous because you're able to stack multiple benefits, including:
- Tax-exempt leases
- Government-subsidized bonds
- Special incentives
- PACE - Property Assessed Clean Energy
Compared to private financing options, public financing often provides more favorable terms, such as lower interest rates. However, it can be challenging to stay on top of all your available options without expert guidance, and you may need to combine several financing options to meet your fiscal goals. Further these programs have funding or time limits so you need to act quickly when they become available
Tax Incentives or Rebates
Companies can also take advantage of various government incentives and financing programs designed to help fund renewable energy systems. These programs help you get a grant to install solar panels, provide tax credits, and offer other forms of financial support to help corporations finance their project.
Overall, the best way for a business to fund a commercial solar project will depend on its individual financial situation and the specific details of the project. It's a good idea for businesses to explore all of their options and consult with a professional advisor to determine the best approach for their needs.
Ready to make the jump to renewable energy but unsure what approach to take? Don''t worry, Pacifico Power is here to help you navigate the commercial solar financing process. Get in touch with our professionals to learn more, and let''s start tailoring a solution for you. Start a Conversation Today
How Can I Tell if My Business Is Eligible for Federal Tax Incentives?
Simply put, the solar investment tax credit (ITC), is a specific amount of funding you're able to claim on your corporate income taxes. Essentially, you'll be able to receive a credit—not a deduction—for 30% of the cost of your solar system. To be eligible, you need to be compliant with section 48 of the IRS tax code, which states your company must:
- Be Located in the U.S. and Pay Federal Taxes: First and foremost, your business must be located domestically or in a surrounding U.S. territory. Additionally, the solar panels must be used by an enterprise who pays U.S. federal income taxes. Any type of tax-exempt entity, such as nonprofits, won't qualify.
- Have Limited Previous Panel Use: In order for your business to get a 30% refund on your solar purchase, the panels must be brand new or have limited previous use. This means no more than 1/5 of your business's PV system can be classified as "used equipment."
- Only Used for Eligible Expenses: The ITC only applies if you're investing in upgrades that relate to your business' energy consumption. Simply put, you can't use the electricity generated to power personal luxury items like electric cars.
At the end of the day, there's no “right” or “wrong” way to get renewable energy. Ultimately, it just comes down to deciding what's best for your business. That''s why it''s helpful to partner with a dependable, experienced provider who can help you navigate the commercial solar financing process to find the best avenue for your needs.
Looking for a Dependable, Experienced Provider to Tackle Your Commercial Solar Project?
Ready to capitalize on the advantages of renewable energy? Don''t let commercial solar financing hold you back. For years, Pacifico Power has helped enterprises evaluate, install, and scale their commercial solar solutions. Start a conversation with the experts to learn more, and let us help you break free from the grid