Finding the right financing strategy is essential for a successful solar project. Commercial solar installations often require a substantial initial investment, but with the right financing options, companies can overcome upfront costs and start saving on energy bills almost immediately.
In this guide, we’ll explore various ways to finance your commercial solar project, covering the pros and cons of each approach, how they impact return on investment (ROI), and the tax incentives available for businesses. From loans and leases to power purchase agreements (PPAs) and tax credits, we’ll walk you through the best financing strategies for your solar investment.
Commercial solar projects can require significant capital, and not every business has the budget to cover the upfront costs out of pocket. Financing options allow companies to access the benefits of solar energy without absorbing the full cost upfront. Moreover, with various incentives and tax credits available, solar financing helps businesses increase ROI and see quicker payback periods.
Financing can also impact ownership structure and energy cost savings, which is why choosing the right option is critical for maximizing your solar investment.
Here’s a breakdown of the most popular financing options available for commercial solar projects, each suited to different financial needs and business goals.
A solar loan is a common financing method that allows businesses to borrow funds specifically for the installation of a solar system. With a solar loan, your business owns the system outright and benefits from energy savings, tax incentives, and depreciation benefits.
For businesses looking to own their solar installation, a solar loan can provide a way to access renewable energy with manageable monthly payments and a clear path to ownership.
In a solar lease arrangement, a third-party solar company installs, owns, and maintains the solar system on your property. Your business simply pays a fixed monthly lease fee for access to the generated power, eliminating the upfront costs and maintenance responsibilities associated with ownership.
Solar leasing is ideal for companies that want the benefits of solar energy without the responsibilities and risks associated with ownership. Although it may have fewer tax incentives, leasing provides immediate energy savings and stable payments over the lease term.
Power Purchase Agreement (PPA) is a popular financing option where a solar provider installs, owns, and maintains the solar system on your property. Rather than a lease payment, your business agrees to purchase the power generated by the system at a fixed rate, often lower than utility prices.
PPAs are an excellent option for businesses looking to save on energy costs without the upfront costs or maintenance of system ownership. However, the absence of ownership limits access to tax credits and depreciation benefits.
C-PACE financing is a unique option that enables businesses to fund solar projects through property tax assessments. With C-PACE, the cost of the solar installation is added as a line item to the property tax bill and repaid over a period of 10-30 years.
C-PACE is ideal for businesses interested in long-term solar investments, particularly in states and localities where C-PACE programs are established. This option allows businesses to finance solar without taking on debt or risking their assets.
Tax-Exempt Lease-Purchase Agreements are specifically designed for non-profit organizations and tax-exempt entities such as schools and government institutions. This financing method functions similarly to a lease, but with the option to purchase the solar system for a nominal fee at the end of the lease term.
Tax-exempt leasing allows non-profit entities to benefit from solar energy without large upfront costs, making it a viable option for schools, universities, and government buildings looking to go green.
One of the most important aspects of financing a commercial solar project is understanding the tax credits, incentives, and rebates available. These programs can help offset initial costs, reduce payback time, and maximize your return on investment. Here are some of the most valuable incentives for commercial solar projects:
The Investment Tax Credit (ITC) is a federal tax credit that allows businesses to deduct 30% of the cost of their solar system from their federal taxes. The ITC applies to solar systems installed between 2022 and 2032, and it’s one of the most impactful incentives available to businesses going solar.
Under the Modified Accelerated Cost Recovery System (MACRS), businesses can depreciate their solar installation over a 5-year period. This accelerated depreciation reduces taxable income and increases the overall return on investment. Bonus depreciation is also available for solar installations, allowing companies to claim additional tax savings in the first year.
In addition to federal programs, many states and local governments offer rebates, grants, and property tax exemptions for solar installations. These incentives vary widely by location, so it’s essential to research local policies or work with a solar financing expert to maximize savings.
Financing a commercial solar project has never been more accessible or beneficial. With options ranging from solar loans to Power Purchase Agreements and C-PACE financing, businesses can adopt solar energy while minimizing upfront costs and maximizing long-term savings.
Our team can help you navigate the complexities of commercial solar financing, apply for incentives, and design a solution tailored to your financial goals. Start your journey toward sustainable energy and financial savings today with Goldson Solar and Energy.
