Going solar is one of the quickest, most efficient ways to reduce your business’s carbon footprint and start saving money on energy bills.
Fortunately for businesses eyeing going green, combining commercial solar financing with tax incentives can help make the move even more affordable. But how do you get all the details figured out?
At Wolf River Electric, we shed light on just what goes into commercial solar financing so you can confidently take advantage of all that renewable energy offers. Our experts are experienced and certified in solar finance, making them the ideal partners to help you confidently decide which option is right for you.
Commercial Solar Financing Options
1. Solar Loans
Banks and solar installers offer solar loans that allow individuals to purchase their solar panel system upfront. In essence, a commercial solar loan requires the borrower to make regular payments, usually monthly, over a fixed period of time.
The loan is secured against the property’s value, and if the loan is not paid off within the agreed terms, the lender can take possession of the property.
Solar loans make solar energy more accessible for individuals who cannot finance a system outright.
Loan repayments are typically lower than traditional energy bills, making it an effective way to save money over time.
Solar loans are tax deductible in many states, giving borrowers a rebate or tax credit.
Payments may be higher than the amount saved by switching to solar energy.
Loans require regular payments over a fixed period of time; therefore, borrowers need to make sure they can make these payments before signing up for a loan.
Solar loans require the borrower to secure the loan against property or collateral that the lender can recover if the loan defaults.
2. Solar Lease
A solar lease is an excellent financing option for using solar power without investing in costly equipment. It allows you to use solar energy systems without having to own them.
Leasing solar companies install and maintain the system while the customer pays a fixed monthly rate for the electricity generated by their system.
Commercial solar leases provide lower upfront costs than buying the solar energy system outright.
You can lock in a fixed monthly electricity rate to better budget.
Leasing companies typically offer long-term contracts with warranties and maintenance included in the plan.
You miss potential financial rewards from earning credits through net metering or other incentives.
You’re locked into a contract and may be responsible for maintenance costs if problems arise with the system during the lease period.
You may not have the same freedom to choose a system that meets your individual needs as you would if you purchased it outright.
You don’t own the system, so you can’t sell it when you move or choose to switch energy providers.
3. Power Purchase Agreement (PPA)
A Power Purchase Agreement (PPA) is an agreement between a solar energy system owner and the electricity consumer. Under this type of financing, the consumer pays for the energy produced by the solar system annually or monthly.
This type of financing does not require any upfront costs from the consumer and can result in lower electricity bills for them. It is typically structured as a long-term contract between the owner and consumer, lasting 15 to 25 years.
During this period, the consumer will pay for the energy produced by the system at a reduced rate, often lower than what they would be paying from their local utility provider. The system owner is responsible for covering all costs associated with the system’s installation, operation, and maintenance.
At the end of the contract period, the consumer can purchase ownership of the system at a discounted rate or renew their agreement for another term.
No upfront costs for the consumer;
Lower electricity bills, often lower than standard utility rates;
The contract period is long-term.
A consumer can purchase ownership of the system at a discounted rate or renew their agreement.
The consumer is tied to a long-term contract;
The system owner is responsible for all costs associated with the system’s installation, operation, and maintenance, and if energy prices drop during the life of the agreement, consumer may be paying more than current utility rates.
4. Property Assessed Clean Energy Program (PACE)
This financing program allows homeowners to borrow money for energy efficiency or renewable energy upgrades, such as solar installations. The loans are attached to the property and can be paid back over time by assessing their annual property tax bills.
PACE loans are ideal for those who want to borrow money without any upfront costs or credit checks and those who have a steady income and can comfortably repay the loan over time.
PACE loans are attached to the property and don’t require any upfront costs or a credit check.
Energy savings from the solar installation will likely cover the payments on the loan. Homeowners can borrow money for renewable energy upgrades, such as solar installations, without hassle.
The loan payments can be spread out over a longer period of time than other financing options.
The interest rates for PACE loans are higher than other financing options.
The loan must be paid in full or transferred to the new owner if the property is sold.
Not all lenders offer PACE loans and they may be unavailable in all areas.
5. Energy Service Agreement (ESA)
Energy Service Agreements are agreements that involve a third-party financier providing capital to fund the installation of solar panels and associated equipment. The energy generated by the solar system is then purchased back from the financier at an agreed-upon rate over a set period of time, typically between five and 25 years.
These agreements can benefit customers as they are often structured to enable the customer to save money in net annual energy costs compared to traditional electricity rates. Besides, Energy Service Agreements can also eliminate high up-front capital costs and provide access to immediate tax credits.
Eliminates high up-front capital costs
Provides access to immediate tax credits
Structured to enable customers to save money in net annual energy costs compared to traditional electricity rates
Financier assumes all risks associated with the system and provides ongoing maintenance.
Potentially costly in the long-term
Financiers can lock customers into contracts for the length of the agreement.
It may come with additional fees or charges.
6. Tax Equity Financing
Developers use tax equity financing to leverage the tax benefits of a solar project. Investors in solar projects can often take advantage of various state and federal tax credits, accelerated depreciation deductions, or other financial incentives.
The tax equity investor receives these benefits in exchange for providing capital to fund the project. Tax-equity investors may include private equity firms, corporations, banks, or other financial institutions. This type of financing can benefit both the investor and developer in terms of realizing returns on their investments.
For example, an investor will receive a return on their investment through the tax benefits tied to the project, while the project developer receives access to capital without giving up equity in their company.
Provide access to capital without having to give up equity in their company.
Investors take advantage of various Federal Solar Investment Tax Credit (ITC) and state tax credits, accelerated depreciation deductions, or other financial incentives.
It is beneficial for both the investor and developer to realize investment returns.
Complicated to set up and manage.
Tax credits, such as changing regulations or market conditions, are associated with potential risks.
Require outside counsel to ensure the investor complies with applicable laws and regulations.
Investment decisions may depend on external factors such as the availability of investment tax credits.
Getting necessary permits, approvals, and financing may require additional time.
It may be difficult to obtain if the project is not considered a good financial investment.
How To Choose Between Commercial Solar Financing Options
Installing a solar system for a business is a positive step towards sustainability, but it can come with high upfront costs. As a result, it’s important for companies to carefully evaluate their commercial solar financing options to determine which solution best fits their specific situation.
One element to consider when choosing between financing solutions for solar is the company’s available capital. A cash purchase may be the most logical solution if a business has the financial resources to pay for the installation upfront. However, other financing options are available if the company doesn’t have the cash on hand.
Do not forget the expected energy efficiency of the solar energy system. If the system is expected to pay for itself within a few years, it may make sense to pursue a loan with a lower interest rate or to lease the system with a buyout option. But, if the system may take longer to pay off, a power purchase agreement (PPA) may be a better option.
The perception of risk is also an essential consideration when evaluating financing solutions for solar. If your company is risk-averse, a PPA may be the best choice since it provides the most certainty over the long term. However, companies more comfortable with risk may prefer a solar lease or loan arrangement, offering more flexibility and control over the system.
Frequently Asked Questions
The most popular financing options for photovoltaic (PV) systems are cash purchase, leasing, power purchase agreements, and loans. All in all, the best option to finance solar depends on your financial needs and goals. Most important is to understand the terms associated with each option to determine which is the best for you.
Investing in commercial solar energy systems can provide businesses with significant savings on energy bills, increased property value, access to tax credits and incentives, and improved environmental sustainability. It also helps to boost brand reputation by showing customers that your business is looking for ways to reduce its carbon footprint.
The qualifications for commercial solar financing will vary per the lender and specific loan program. Applicants must have excellent credit, sufficient collateral, a good history of paying bills on time, and verifiable income. What’s more, businesses must show they are financially stable and capable of making regular payments on the loan.
The cost of commercial solar projects in the US varies significantly depending on system size, installation costs, and available incentives. Generally speaking, commercial solar systems are more expensive than residential systems due to their larger scale and greater complexity. This means the total cost of a commercial system can range from $20,000 to several hundred thousand dollars.
The best solar for commercial use is typically an array of high-efficiency photovoltaic (PV) panels with a robust inverter, tracking systems, and other components specifically designed for the commercial environment. The size and type of system is determined by the business’s energy needs.
Buying the panels outright can save money in the long run if you have the finances available. However, financing or commercial solar leasing options may be more attractive for businesses looking to save on upfront costs and conserve cash flow. Whether financing or buying solar panels is better depends on your financial situation and goals.
The main difference between residential and commercial solar finance is that commercial finance offers larger loan amounts with longer repayment terms. Commercial loans often also offer access to additional incentives and tax credits that may not be available for residential solar financing. Additionally, commercial loans typically require more paperwork and documentation than residential loans.
Solar energy is an amazing and viable solution to the costly utilities offered by traditional power companies, and it’s absolutely critical that you pick the right solar financing option.
When shopping around for the ideal solar panel system, ask yourself what financing option is best for your business needs. If you find that a commercial solar financing option is best for your situation, don’t hesitate to explore more about the details and costs with a reputable lender.
Going solar now could save you money in the long term and also mean avoiding hefty utility bills forever.
So don’t wait – find out all you need to know about Commercial Solar Financing today with us at Wolf River Electric. With our help, you can confidently take control of your energy bills and future by understanding which commercial solar financing option is right for you.