Four Key Questions for How to Finance a Solar Project
To be sustainable or not to be, that is the question.
Companies worldwide are asking themselves this question more and more with each passing year. However, as many can attest, the act of simply asking that question and exploring options to become sustainable are very different indeed. In fact, the initial foray into exploring renewable energy can seem difficult or downright daunting, resulting in discouragement or worse: abandonment of the entire concept.
Where is does one begin?
Well, luckily there are a handful of key questions on how to understand the financing of a solar energy project. The answers of which will help provide the financial framework for how to explore renewable energy for you and your company.
Are you a tax paying entity?
Any US taxpayer, business or consumer, who purchases a solar or solar + storage system in 2020 is eligible to receive the full 26% solar Investment Tax Credit. (The ITC, however, is not available for a company that leases, rents, or receives solar energy through a Power Purchase Agreement.)
So, how do businesses calculate the rebate?
For businesses installing commercial solar projects, the rebate is calculated on the gross installed cost of the solar system; i.e., before deducting for any local or utility rebates. So, using the same example:
26% x $1,500,000 = $390,000 solar tax credit that your business can use toward Federal businesses income taxes.
The most important aspect of the ITC moving forward is the decrease in percentage over the next several years. In 2021, the percentage will drop to 22 percent, and then 10 percent in 2022.
Do you have access to financing /cash on hand?
This question is quite simple: Does your company have cash set aside to finance potential sustainability initiatives?
If not, do not worry. There are several options, including perhaps the most popular, a Power Purchase Agreement (PPA). A solar PPA is similar to a solar lease in that the solar system remains owned by the solar company (actually third-party investors) rather than the commercial client during the term.
The only real difference between a lease and a PPA is that with a PPA there is not a fixed monthly fee there is just a charge for the kWh (kilowatt hours) of power produced by the solar system.
Are you located in a state which allows third-party ownership?
Collectively known as “third-party ownership,” solar leases and PPA’s can be a great way to start generating your own clean energy without spending thousands of dollars up front. However, not every state allows third-party ownership.
There are three types of state, solar, third-party ownership designations: approved, possible approval, and not approved. The possible approval designation is for states that potentially can have third-party ownership, however, under very specific guidelines and regulations.
Are local rebates and incentives available where you are located?
While the federal solar incentives remain the same, regardless of location; every state has different rebates and incentives. To understand what rebates and incentives your company is eligible for, contact our Development Manager, Alex Neely at firstname.lastname@example.org; or visit: htttps://www.coredevusa.com.