The Benefits Of Solar Panels For Commercial Buildings
Updated: Oct 17, 2022
Commercial electricity costs are increasing across much of the United States, boosting operating costs. When energy costs increase, it creates uncertainty about future electricity rates, making it difficult to plan. This is especially true of businesses that use a lot of electricity. However, commercial solar projects can drastically reduce energy costs while also helping the environment. Currently, there are two tax benefits available to solar-powered companies that significantly reduce the total system cost.
Understanding the commercial solar energy market is critical for expanding your solar business and reaching new potential customers. So, let’s explore this vital segment of the industry to better capture this business opportunity.
Going Green Is Great For Brands
Consumer demand for green products and services has skyrocketed in recent years. As a result, many large corporations have created carbon-neutral goals to help curb climate change by reducing greenhouse gas emissions and fossil fuel consumption. Typically, transitioning to renewable energy is a critical step to reducing their carbon footprint.
Although they may not have formally created environmental goals, many small and medium-sized businesses are also going green. In addition to helping the environment, it can increase customer loyalty, help attract talented employees, and promote brand reputation.
Rooftop solar systems can be highly visible and make a bold statement about going green. Communicating solar achievements can be a smart marketing strategy. Some companies even include solar system information to customers to highlight the benefits, such as a plaque on the wall, a press release, or a page on their website.
Solar Panels Can Decrease Overall Cost Of Operation
Businesses must pay for electricity, but later have nothing to show for it. This is because most companies basically rent their power instead of owning it. The solar panels can either be installed on company property or at another site. When transitioning to solar energy, companies either enter a power purchase agreement (PPA) or purchase the solar photovoltaic system.
With PPAs, businesses often save considerably on electricity bills each month because solar energy is usually cheaper than grid power. However, a third party actually owns the solar panels, not the company using the power. Therefore, companies can often go solar for no money down, which can be a great selling point. In addition, the company using the solar electricity isn’t responsible for panel maintenance and upkeep, but they also do not receive the tax incentives. For non-profits and governmental agencies, PPAs are often a good choice because they are unable to use the tax incentives anyway.
When owning a solar power system, a company can enjoy many years of “free” power, after the system has paid for itself in savings. Your client would then be eligible for a federal tax credit and bonus depreciation if they have a sufficient tax appetite, which is a fantastic opportunity. It is essential to ask clients to speak with a tax expert to determine if they qualify for the solar investment tax credit (ITC) and depreciation and be careful not to offer tax advice.
Potential Increase In Property Value
Numerous studies have shown that solar panels increase home values, so the same is likely true for commercial property owners with solar PV systems. This is because properties with solar panels are cheaper to maintain thanks to lower energy bills. Keep in mind that it is necessary for your customer to own the solar system and to be the building owner to have the solar system impact the property value.
Tax Breaks For Commercial Solar Installation
There are two federal tax incentives available to solar-powered businesses. These financial incentives help boost the return on investment of the solar system while reducing the payback period.
In addition, some states and utility companies offer additional tax credits or rebates for commercial solar systems. It is critical to also understand these incentives to provide this information to potential customers.
Solar Tax Credit
A 30% tax credit is available to companies that purchase solar systems before 2033. However, this incentive will decrease to 26% in 2033, so it. makes sense to encourage potential commercial clients to go solar before it tapers down.
A tax credit is a dollar-for-dollar reduction in taxes owed to the federal government. Therefore, it is essential that the company have a sufficient tax appetite to take advantage of the tax credit.
Bonus Depreciation Or Accelerated Depreciation
Businesses can either apply 100% of the depreciation in year one with bonus depreciation or follow the Modified Accelerated Cost Recovery System (MACRS) to deduct the system over 6 years. There is a MACRS depreciation schedule and a different percentage of the system is depreciated each year.
Financing Options For Commercial Solar
Because the upfront cost of a solar energy system is significant, it is critical to ensure that your client can finance the project. There are a few options to cover the cost of commercial solar.
Purchase Power Agreements (PPAs) Or Leases
With PPAs and solar leases, a third party owns the system, and your client merely pays for the energy produced from it or rents the solar equipment. Typically, these systems are installed for no money down by the party using the electricity.
There are a variety of loan programs that can help finance a solar system. In addition, there are certain loans that might be available to commercial solar customers that aren’t available to residential clients.
For example, the Small Business Administration can guarantee loans for small businesses. The benefits of SBA loans are that they can have long repayment terms and low rates, but the application process can be quite rigorous. Another option are equipment loans, but businesses may be required to come up with a cash down payment.
If a commercial client has it, cash can be an excellent way to purchase a solar system. This eliminates interest payments and clients can put that money to work reducing operating costs.
What Are Some Disadvantages To Solar Panels For Commercial Buildings?
There are not a lot of disadvantages to commercial solar energy when quality equipment is properly installed by a reputable solar company. However, there can be challenges in getting the project built.
For example, the upfront cost of the solar system is a common obstacle. Likewise, permitting and interconnection can be difficult processes. Also, if a property has a lot of shade, it might not produce sufficient solar electricity to justify the investment. Typically, nonprofits are unable to take advantage of the tax credits and write-offs, extending the payback period for such projects.
Commercial Solar Panel Installation Can Help Business Owners And Installers Alike
Knowing the answer to common questions and being able to describe the key benefits of solar panels to businesses will help installation companies capture an important – and rapidly growing – market sector.
At GreenLancer, we work with installers on commercial solar projects of various sizes. Click here to sign up and talk to a rep today!