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The concept of “Solar Panels for Businesses” might seem like a risky move in a complex and confusing market. Maybe you’re considering installing commercial solar panels at some point in the distant future, when your organization can afford to make a major investment in something that seems like an environmental “good” rather than a strategic financial decision.
Commercial solar panels make sense for businesses of all sizes
Time to shake off that old way of thinking and join the growing chorus of smart business owners that have discovered that commercial solar panels are a great fit for a small to mediums sized business. Solar isn’t just for Intel or Walt-Mart anymore. Businesses of all sizes are capitalizing on the financial opportunities of installing solar, proving that a solar energy system is a key strategic decision that virtually guarantees a solid financial return for your business.
To better evaluate the potential economic value from solar in your business we use a comprehensive, robust solar analytics model that incorporates:
• Property-specific electricity usage data
• Property-specific electrical load and meter data
• Utility-specific rate data
• Roof orientation, age, condition and idiosyncrasies • Property-specific structural issues
• Technology type best suited for your performance
priorities, location and property characteristics
• Ownership structures - availability and pricing
• Incentives at the federal, state, local and utility levels
• Upcoming incentives and legislation
The key to robust, objective modeling is capturing the most accurate data. Many levels of preliminary analysis will have to be performed to feed accurate data into the model. For example, is the proposed incentive limited in any wayIs it possible to meet the demands of several “meters” with one system? Does “splitting” the system output into different meters (“load splitting”) allow you to better capture the intended incentives?
Let’s take a look at the numbers – this is a financial decision, after all.
According to EnergySage marketplace data, the average commercial property owner pays around $538 in monthly electricity bills before going solar. After their installation, their electricity bill was reduced to approximately $91 – an 83% reduction.
There are important factors that can reduce the out-of - pocket costs for commercial projects :
Federal Investment Tax Credit (ITC): This is the most significant financial benefit for anyone interested in using solar panels at their business or residence. Owners of newly installed solar panel systems get a federal tax credit for 30 percent of the cost of the system. (Some states also offer additional tax credits.) Update: On December 18, 2015, Congress extended the solar tax credit for homeowners through
2021. Learn more about the extension.
Accelerated depreciation: Businesses can deduct 85 percent of the value of the solar asset from their taxes, providing another significant offset to the upfront cost of a system array.
Performance-based incentives (PBIs):
PBIs, including solar renewable energy certificates, are a way for solar owners in some markets to receive payment from their utility for the solar electricity that their system generates. These incentives can be significant and greatly enhance financial returns for system owners over the life of the system.
Beyond the direct short-term financial benefits, installing solar panels can also help your business to hedge
against electricity price volatility and inflation. In many states, the price of electricity can fluctuate significantly due to demand, creating a headache for business owners who are closely managing their cash flow. By installing solar, your business will be able to lock in electricity prices and reduce reliance on an unpredictable expense. Going solar makes it easier for companies to budget and plan for the future.
In total, the ITC and depreciation benefit can reduce the system price by as much as 60 percent. Add that to savings from a reduced utility bill and other incentives like PBIs, and business owners are looking at an investment that’s hard to pass up. If paying upfront isn’t an option for your business, not to worry – there are many financing options available to businesses with good credit, including solar loans and solar leases/power purchase agreements (PPAs).
ROI FLOW CHART:
Business Energy Investment Tax Credit (ITC)
Businesses that install solar photovoltaic (PV) systems are eligible to receive a tax credit in the amount of 30% of the total PV system cost. Unlike tax deductions, this tax credit can be used to directly offset your tax liability dollar for dollar. If your tax credit exceeds your tax liability you can roll the credit into future tax periods for 20 years.
State (CA) 10-year straight line Depreciation
The straight line method divides the cost or tax basis, into equal amounts over the estimated useful life of the property. Per California Franchise Tax Board, Form 3885, state MACRS depreciation is not allowable for Corporations, except to the extent such depreciation is passed through from a partnership or LLC classified as a partnership.
Total Incentive Value: $9,204
Federal MACRS, Bonus Depreciation - 50%
Under the federal Modified Cost Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. MACRS establishes a lifespan for various types of property over which the property may be depreciated. For PV systems, the taxable basis of the equipment must be reduced by 50% of any federal tax credits associated with the system. The 50% Bonus Depreciation provision means that in the first year of service, companies can elect to depreciate 50% of the basis while the remaining 50% is depreciated under the normal MACRS schedule.
NEW AND LIMITED TAX REFORM INCENTIVE
Federal - 100% bonus depreciation (Tax Reform Bill)
The Tax Reform Bill modifies bonus depreciation under Code Section 168(k) to allow 100% expensing for property placed in service after September 27, 2017 and before January 1, 2023. By increasing bonus depreciation to 100 percent, the new tax bill essentially allows eligible entities to deduct the entire allowable tax basis of the system in the first year of operation. Under the federal Modified Cost Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. MACRS establishes a lifespan for various types of property over which the property may be depreciated. For PV systems, the taxable basis of the equipment must be reduced by 50% of any federal tax credits associated with the system.
As you can see, the numbers add up – solar panel systems are a smart capital investment for businesses. They have short payback periods, provide steady financial returns, and help business owners hedge against rising energy prices. There are lots of great resources available today that can help you evaluate whether “going” solar makes sense for your business, so be sure to do your homework!