Financing Solar In 2023

Capitalizing On the Benefits Of Renewable Energy

Financing Solar In 2023


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Solar energy is free. Well, after you install the system, that is. In addition to reducing ongoing operating costs for a building, the cost of installing it can be mitigated with incentives. Plus, solar can provide significant financial and reputational benefits for business owners. While in the past, building solar energy systems to electrify commercial and residential buildings has seemed out of reach for most business owners, times are changing. Green bank loans, power purchase agreements, leases, energy service agreements, and government tax incentives now make solar attainable with a minimal upfront cost.
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Sustainability

The Solar Energy Industries Association estimates that in 2021, 46% of all new electricity added to the United States energy grid was solar. Furthermore, they forecast the solar industry will double over the next five years, burgeoned by increasing tax incentives and falling costs. Solar is driving a bottom-line transformation where environmental and economic benefits are in sync and only improving over time. For businesses, switching to solar energy is a significant opportunity.

The Benefits of Renewable Energy 

The advantages of converting to commercial solar are measurable across the value chain. Environmental regulations, demand for ESG disclosures (Environmental, Social, Governance), and economic incentives all benefit from switching to renewable energy. 

For example, newly proposed SEC amendments would require public companies to disclose climate-related financial and emissions insights. Switching to solar provides a tangible, quantifiable green asset to balance emissions within a company portfolio and meet sustainability targets.  

In addition, implementing renewables provides a highly-visible commitment to responsible business practices. Awareness of renewable energy is at an all-time high, and it is a valuable metric to present to stakeholders. A conscious shift towards renewable energy shows an actionable measure to meet key ESG goals for future-proofing and green investment.  

Another significant benefit is the economic savings seen from lower energy costs, tax credits, and the avoidance of the volatile fossil fuel market. While materials, installation, and maintenance of solar have historically had a long break-even period, the price of solar is steadily dropping – between 2020 and 2021, solar costs fell by 13%. Furthermore, around two-thirds of renewables installed in 2020 produce lower-cost energy than the cheapest fossil fuel alternatives.  

Although the break-even point is getting shorter and the return on investment is improving, solar does typically have a relatively high upfront cost. Many companies will need to finance solar installations as the government, global climate goals, and consumers demand a lighter carbon footprint.  

Financing Options For Commercial Solar 

The return on investment of solar over traditional fossil fuel power is well documented. Once you have determined your project's goals, there are multiple avenues to finance commercial solar projects. Ultimately, you can fund solar installations with minimal need for upfront capital.  

Loans 

Many banks and lending institutions offer preferable loan rates when opting for energy-efficient and renewable infrastructure. Green banks and private lenders, in particular, are excellent options for low-interest ESG-linked loans.  

Choosing a financier whose mission aligns with your company's is paramount. For example, a company like Solaris Energy finances and builds solar energy infrastructure projects with low-cost loans. Additionally, they are just as committed to their own ESG goals as they are to yours. As a certified B Corp and 1% For The Planet company, they maintain third-party certifications that hold them to verified environmental and social performance standards. 

Ensuring this similar viewpoint between client and lender provides reassurance that the lender ethically conducts work, which helps bolster the client's ESG-related metrics and public relations. 

Lease or Power Purchase Agreements 

A commercial solar Power Purchase Agreement (PPA) allows users to dive into renewable energy without out-of-pocket costs. Utilizing a PPA puts the design, development, installation, and maintenance of a solar system on the energy contractor. The commercial customer then pays for energy directly from the solar company instead of towards a utility bill, which is generally a lower rate than the local utility company.  

Solar leasing similarly requires no upfront costs for equipment and installation. Instead, commercial customers pay a fixed monthly fee, which can be more cost-effective than the per kilowatt pricing that a PPA offers. However, because the system is leased, customers do not reap the benefits of tax incentive programs.  

Energy Service Agreements 

An Energy Service Agreement (ESA) may be a suitable solution for a company that wants multiple property retrofits or is in a risk-averse period of growth. An ESA is a performance-based financing mechanism that is off the balance sheet and allows companies to implement energy efficiency projects with zero upfront capital. 

With an ESA, the provider pays for all project development and construction costs and owns the energy infrastructure. The customer buys the energy from the provider with monthly service charge payments based on their actual realized savings. These payments are a fixed monthly rate, which is at or below their previous utility costs. This results in immediately reduced operating expenses.  

ESAs are good options for large-scale energy retrofits because they limit risk while providing an avenue for short-term utility savings. 

Government Assistance 

The U.S. government has made it clear that they support developing a resilient renewable energy grid. In this pursuit, local and state, as well as the federal government, offer incentives to reduce the barrier of entry into solar for corporations and domestic homeowners. 

ITC Tax Credits 

The Federal Solar Investment Tax Credit (ITC) was developed in 2006 and offers a direct dollar-for-dollar reimbursement to drive down the upfront costs of installation. Solar PV Systems were eligible for a 26% tax credit up to 2021, and the Inflation Reduction Act increased the credit to 30% for installations developed between 2022 and 2032. This covers solar projects paid by cash, loans, financed installations, or PPA frameworks.  

Inflation Reduction Act - Extension of Benefits 

In addition, the Inflation Reduction Act extended and updated several other existing tax incentives for green buildings. The 45L Energy Efficient Home Credit was extended for 10 years. This provides tax credits for builders developing energy-efficient residential projects. In addition, the 179D Energy Efficient Commercial Building Deduction will now include qualified retrofits and remove lifetime limits on deduction claims. Both show the government's support of the economy actively participating in net zero goals. 

Rebates

A solar rebate involves the partial refund of a solar system investment which is returned to the owner after purchase. Typically, this consists of buying the system from a solar vendor and then filing for a rebate with the utility company, local government, or other organizations running the rebate program.  

However, rebates can be limited in scope. For example, you may have to install in a specific region, use a preferred partner, or meet system specifications to be eligible.  

Solar Is The Present, Not The Future 

Adding solar systems to your commercial and residential projects adds tangible and intangible value to your building portfolio. This includes both short-term and long-term benefits like increased property value, compliance with green building standards (like LEED), creating avenues to redistribute operational expenses, and helping projects meet sustainability targets. 

Funding a solar project doesn't have to be stressful. Emerald Built Environments can help you secure financing for your next renewable energy project.  

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