(1) Available Incentives, Accelerated Depreciation, and Lease Options
Federal and state governments have put in place aggressive financial incentives to help make the out-right purchase of a solar power system much easier. First and foremost, the federal tax credit, the Investment Tax Credit, allows businesses who install a solar power system a 30% tax credit on the cost of the system. There is no cap on this amount so whether you install a $100,000 system or a $1,000,000 system, there is no cap on the amount a company can claim as a credit. In addition, the ITC may be rolled into the following tax year if it is un-used in the current year. On top of all of this, each state and local utility has its own rebate system to reduce the overall cost of installing a solar power system. In many instances, the amount of the rebate increases as the size of the system increases.
In addition to these incentives, many states have a net metering policy which means that you only pay for the net amount of electricity that you use. With net metering, businesses with solar installed are able to “bank” the excess electricity their solar system generates and receive credit up to 100% of their electric use bill at the full retail electricity price that they can use later to offset their bill even further. In addition, many states have even gone so far as to exempt the value of a renewable energy source from a building owner’s property taxes. Unlike other improvements, businesses would not have to pay increased property taxes even though the value of your building may increase with a solar power system.
In addition to the government incentives, businesses may take accelerated five (5) year depreciation on the cost of the system under the federal Modified Accelerated Cost-Recovery System’s (“MARCS”). So while your company will receive cash flows from a solar power system for upwards of 20 or 25 years, the total value of that system (in terms of upfront costs) will be taken out of gross income over the five-year period allowed by MACRS resulting in a lower tax liability over the initial five years the system is installed.
Lease Options/Power Purchase Agreements
For businesses that do not want to come up with a large up front cash payment for a solar power system, many states allow companies to lease solar panels for between 15-20 years. In this instance, the business does not benefit from the federal or state financial incentives as they will not own the system, instead the business pays a fixed rate for the use of the solar power system and receives all of the benefits of cheaper, stable power.
In addition, a variation on the leasing model is the power purchase agreement (“PPA”). Under the PPA model, the solar provider secures funding on their own for the solar system and then installs the solar system on your building. Subsequently, the solar provider maintains and monitors the energy production from the solar system. You pay nothing for this installation and maintenance. The solar provider then sells the electricity from the installed solar system to the building owner at a fixed contractual price for the term of the contract. So in essence, you are paying a fixed rate for the cheaper energy produced on the top of your building. In most instances, the cost of this electricity is initially about 20% lower than electricity from the utility grid and the savings usually increases over time as the rate of electricity from the grid increases due to inflation, yet with a PPA, you are locked in at a fixed rate. PPAs generally lasts between 5 and 25 years. In some renewable energy contracts, the host has the option to purchase the generating equipment from the PPA provider at the end of the term, may renew the contract with different terms, or can request that the equipment be removed.
(2) Significant Operating Advantages
There are also a number of significant operational advantages for businesses to invest in solar power.
Reduce Your Building’s Operating Costs
Installing a solar system can dramatically reduce your business’ operating expenses which can have a ripple effect throughout your company balance sheet. Regardless of whether you pay for your solar system up front or lease it, corporate utility costs will significantly decline to the point where the savings can eventually pay for the solar system. In fact, an environmental report released in 2003 claims that financial investment in a solar power system as well as other energy efficiency measures can pay for itself 10 times over. The report, conducted jointly by the Lawrence Berkeley Laboratory, several California state agencies and clean-energy consultant the Capital E group, used national data from 100 green buildings and concluded that sustainable green buildings lower operations and maintenance costs between $50 and $70 per sq. ft., or about 10 times the additional costs associated with green buildings.
And depending on your business model, the savings associated by investing in solar power can affect different parts of your business. For example for a commercial office building owner who relies on rent from tenants, typically has two options when dealing with high utility rates: (a) absorb these costs or (b) pass on some or all of these costs to the building tenants. There are consequences to both paths. With option (a), absorbing some or all of the energy costs of operating the building will reduce the profit margin of the building. With option (b), if energy costs are passed on to the tenants, then the building owner may wind up pricing many of his tenants out of the building and the owner might be left with vacancies and loss revenue. By reducing operating expenses with solar power, a building can avoid this Catch-22 and (i) keep the lease rates of the tenants at a more favorable rate, (ii) keep the building at or close to 100% occupancy and (iii) maintain strong profit margins due to reduced expenses and strong revenues as a result of high occupancy.
Hedge Against Rising Utility Rates
In addition to lowering your operating expenses, solar power can help insulate a business from volatility in the power markets. Not only are their seasonal swings in utility rates due to high consumption (ie. summer and winter months) but historically electricity rates have increased on average 5.5% a year. With continued volatility in the Middle East, dwindling resources and an aging infrastructure at home, consumers may be looking at even higher rates over the next decade.
By investing in solar power, businesses can insulate themselves from these increases by producing their own cheap electricity. And by guaranteeing themselves a certain electricity rate with solar, businesses can take the variable nature out of their utility costs and begin to categorize their utility costs as more of a fixed expense, providing for a more predictable and stable balance sheet in which to work.
(3) Low Maintenance/High Reliability
Solar energy systems from reputable solar providers require virtually no maintenance and operate with no noise. Given the roof structure of many commercial buildings, the access to them is easy. While individual solar cells are fragile, they are encased in a highly tempered and protective glass case, which is framed by non-corrosive aluminum. Because solar panels are exposed to the elements they are typically very sturdy and built to withstand rain, hail and other weather-related threats. In addition, the photovoltaic cells that make up the panel experience very little break down over time, similar to computer chips. Accordingly, most solar manufactures offer a full warranty over their solar panels for 20-25 years which means that once you make the move to solar, you will experience clean electricity for at least 25 years from a system that is just as functional and more reliable than standard utility electricity.
(4) Marketing Advantages
Businesses that make the decision to invest in solar power can also reap a marketing advantage.
Reputation for Quality
First, the actual decision to install solar power on your building takes time and diligence to make sure the requisite financial and operational components fit within your business model. More than anything, it represents a commitment to quality, care and operational efficiency. These are critical factors needed to acquire and retain tenants with any building project and demonstrate a corporate commitment to quality and the environment, separate from your competitors.
While more commercial buildings are beginning to see the virtues of going green, these types of complexes are still in the minority. By marketing your building as a green building, you raise the likelihood of media attention as you are the forefront of modern construction. What’s better, most of the time this media attention is free and helps tremendously to spread the word about your business.
One final advantage of investing in solar power relates to the possible acquisition of your commercial building. As we have shown, incorporating solar power into your commercial building can dramatically change the economic value of the building by improving vacancy rates (if applicable) as well as lowering the buildings operating expenses. These types of commercial buildings are excellent investment vehicles for real estate investment trusts or other investors who are looking for real estate with tremendous cash flow upside. By marketing solar power, you not only help the economic value of your multifamily building but also raise your profile to those investors who might be willing to pay a premium for a building that is economically and operationally efficient.
(5) Many Types of Commercial Buildings/Businesses Are Good Candidates for Solar Power
For commercial building owners, installing solar power is an easier proposition due to the fact that commercial buildings typically can handle a larger solar system size and benefit from a lower per kilowatt-installed rate. In addition, businesses tend to stay in one building for a longer period of time than homeowners thus more completely realizing the economic benefits of solar power.
Unfortunately, many businesses do not believe or even know that solar power can help their business save money. Many see solar power as only works for high technology businesses or that solar power just would not make sense for as they run their operations throughout the night. The good news is that solar makes sense for a wide variety of businesses and buildings regardless of industry. The key factors to look for to determine whether solar power would work for your business would be (1) large electric bill due to heating water or operating machinery, (2) round the clock operations, and (3) subject to energy spikes in high intensity months. Whether you are a laundromat, data center or huge manufacturing facility, if you suffer from any or all of the above, you should consider solar power.
For those businesses with high electric bills due to heating water, such as a laundromat, solar thermal power can heat water at a fraction of a cost. In addition, solar power can help offset a substantial portion of a buildings electric usage by providing power during the day when utility rates are the highest and then go back on the electric grid during the evening when rates are lower. In addition, all solar power systems come with a battery that can store any excess power produced during the day so that it can be drawn on at night. In addition, solar power can also help offset and smooth out fluctuations in electric usage during high intensity months such as the summer or winter by supplementing your power supply so that you are pulling less energy from the grid. So whether it is a manufacturing facility or a data storage center that runs all night, provided the building has enough space to house solar panels, solar power will help can provide the necessary power to help operate a diverse range of businesses regardless of when or how they conduct their operations.
For those interested consumers commercial business owners that are still unsure about solar power and how they should go about evaluating whether solar is right for their situation, please know that there are answers to your problems and all you need to do is a little research at great sites like the U.S. Department of Energy and the Solar Energy Industries Association.
And for those businesses that are looking for help in finding the right solar installer, solar energy matching services can also take much of the guess-work out of selecting a solar installer. There are several free matching services that connect you with pre-selected and highly reputable solar installers based. The process is simple: you provide basic information on your location and project type and within minutes or up to 1-2 business days the qualified solar installers will contact you to bid on your project. These services have saved homeowners time and the headache of dealing with poor quality installers. For example, see www.solaramerica.com.
Remember, solar power is potentially a large investment, so it’s advisable to look into both the technical and financial considerations before either getting the wrong solar panel system or dismissing the chance to save with solar.