A Guide to Financing Your Commercial Solar Project
Updated: Jul 31, 2023
The commercial solar market has been booming in recent years as businesses seek to cut energy costs and meet sustainability goals. With federal tax credits, renewable energy incentives, and continually improving solar technology, now is the time to go solar if you haven’t already. However, deciding how to finance a commercial solar project can be daunting given the variety of options. This guide breaks down the pros and cons of the most common financing methods for commercial solar.
Cash Purchase
The most straightforward option is to purchase your commercial solar system outright and own it from day one. Paying cash means you can take full advantage of federal tax credits and accelerated depreciation to recoup 30% or more of your costs. Owning the system also provides the highest return on investment, as you’ll benefit from all the electricity savings. The main drawback is that a cash purchase requires large upfront capital, which can be prohibitive for some businesses.
Solar Loans
Solar-specific loans provide financing for your system and spread out payments over time. Loans reduce or eliminate upfront costs and often have favorable interest rates and terms of 10–20 years. Monthly loan payments are predictable and likely lower than your current utility bills. Drawbacks include loan qualification requirements and interest charges. Solar loans allow you to own the system like a cash purchase but require taking on debt.
Power Purchase Agreements (PPAs)
Under a PPA, a solar developer owns, operates, and maintains the solar system on your property while you purchase the system’s electric output. This allows you to avoid upfront costs and take advantage of solar with little effort. PPAs typically involve signing a long-term contract to buy electricity at a fixed rate that increases annually. While PPAs provide stable pricing, you don’t benefit as much from rising energy prices or own the system after the term.
Commercial PACE Financing
PACE (property assessed clean energy) financing allows commercial property owners to obtain affordable, long-term solar financing repaid through a special assessment on their property taxes. By tying repayment to the property itself, no down payment is required. Interest rates are fixed, and terms can stretch up to 20–30 years. However, PACE is not available in all locations yet. The approval process is also more complex than other options.
Choosing the best solar financing option depends on your tax situation, capital resources, and goals. Those with available capital and a large tax appetite get the most advantages from buying outright. Solar loans provide accessible financing while still allowing ownership. PPAs offer simplicity but less long-term upside. PACE offers affordable long-term fixed rates but has more restrictions. Discussing options with reputable solar providers is the best way to identify the ideal financing structure for your unique commercial solar project.
If you're considering commercial solar financing options, let GAIN Renewables be your guide. With our extensive expertise in commercial solar projects, we are well-versed in all available financing structures and incentives. Start planning your commercial solar project today by reaching out to GAIN Renewables at tad@GAINrenewables.com.
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