The three most common commercial solar financing options are cash and loans, leases, and PPAs. These different financing options each have their advantages and disadvantages; some offer better tax incentives in exchange for a slightly larger upfront investment, while others minimize upfront costs in exchange for reduced tax benefits. Whichever way you go, adding solar is one of only a few investments that starts putting money back into your business's bottom line from the moment it's turned on.
More and more companies are investing in solar energy every year, further proving that this form of clean and renewable energy isn't just an environmentally-smart decision, but financially savvy as well. If your organization is looking into commercial solar, we give an introductory explanation of the three most common types of commercial solar financing options below. A qualified solar installation company will be able to design almost any financing model that works best for your business and clean energy goals, so read on and start learning about what option, or combination of options, might work for your organization.
1. Cash and Loans
Whenever possible and suitable for the owner, cash is typically the best financing option for companies looking to reap the benefits of federal and state solar incentives and accelerated depreciation. 2019 marked the end of the current 30% rate. This year, the ITC is at 26% before dropping to 22% in 2021 and then remaining at a permanent 10% for commercial solar projects beginning in 2022. So, if you want the fastest and biggest return on your commercial solar investment, now is the time to act.
Although there aren't many downsides to a cash purchase, the biggest con would be the access to capital. Not every company has the required money to make a full cash purchase, but it's possible to combine cash with a loan or lease to maximize the ROI on your commercial solar investment.
Low interest loans or lines of credit with an existing banking relationship generally offer the fastest and most lucrative return outside of an all-cash purchase. In general, it's typically recommend to finance only the necessary portion of the net cost after incentives are applied to achieve the best payback. A qualified solar installation company will help you determine what financing combination will be most ideal for your organization's specific situation.
2. Leasing for Non-Profits
A lease generally offers a higher monthly payment and does not translate into immediate ownership. At the end of the lease term you generally have the option to negotiate a buy out. Buying out a lease usually has lower fees than buying out a PPA, which is another added benefit to leasing should you choose this commercial solar financing route. There are several lease programs that are available to for-profit companies with a tax liability. At Sun Valley Solar, our lease options offer a set payment for 8-15 years with no money out of pocket and no escalator for systems greater than 100kW.
The biggest con to leasing a commercial solar energy system is that there is no direct ability to take advantage of tax and depreciation incentives. These incentives go a long way in helping reduce the cost of commercial solar energy systems and speed up the ROI on this kind of investment.
Power Purchase Agreements, also called Solar Service Agreements, have long been used by utilities and municipalities to finance the purchase of electrical generating facilities. Sun Valley Solar Solutions offers PPA programs exclusively for qualified 501 (c)(3) non-profits, municipalities and schools. PPAs are a common way to finance solar installations at commercial and institutional facilities in certain states. With a PPA, you pay for only the power that's generated, and typically lock in energy rates lower than what utilities offer. Similar to leasing, PPAs also lack a direct ability to take advantage of tax and depreciation incentives.
If you've been thinking about adding solar to your commercial operation, or want to learn how solar can help your business and its energy goals, we invite you to schedule a consultation with a member of our commercial solar team. Not quite ready for a consultation, but want to learn more? Download our free commercial solar guide.