Choose your own adventure: Financing options for solar projects
Choose your own adventure: Financing options for solar projects
Ready to go solar but unsure of how to finance it? Don’t worry - you’ve got plenty of options. Over the past decade, a number of solar financing structures have become available to organizations that want to benefit from clean, renewable energy and reduced electricity costs. These options vary in terms of ownership structure, upfront capital investment requirements, and technology integration, so you can pick the best fit for your organization’s budget, operational needs, and sustainability goals. This article gives a quick overview of each option, as well as the benefits and drawbacks that you should consider.
A financing option for everyone
If you want to own your system, you can always choose a cash purchase. However, if you don’t want to deal with the responsibilities that come with ownership, there are a number of third party financing options that take on the burden of ongoing operations and maintenance - allowing you to simply enjoy the electricity savings, lower carbon footprint, and energy independence.
Plus, as leading organizations continue to look for ways to boost efficiency and upgrade equipment, some providers will even integrate other energy technologies like electric vehicle charging stations, battery energy storage, and more into a single energy services agreement. These kinds of financing agreements typically ensure that you see savings from day one, while also helping your organization address deferred maintenance and capital improvement projects.
Outright ownership options
For those with cash and tax liability: Purchase your system outright.
If you’ve got extra cash to invest, you can maximize the value of your system by purchasing it upfront. With an upfront purchase, you’ll get the quickest payback period and the best long-term economics. As the owner of the system, you can reap the benefits of any solar incentives like the federal Investment Tax Credit (ITC), which provides a 26% tax credit for organizations that go solar in 2022. This essentially translates to a whopping 26% discount on the cost of your system! Other local solar incentives may help you further reduce your system’s price tag - check out DSIREUSA.org to search for available ones in your area.
Should you elect a cash purchase but want to avoid the ongoing maintenance responsibilities, there are service providers that provide long term service contracts. These contracts include everything from solar module cleaning, regular maintenance, and even production guarantees. So, you can have your cake and eat it too!
Need a little help with your purchase? A solar loan has got you covered.
If you don’t want to invest upfront cash but you still want to own your solar system, you can take out a solar loan. A solar loan typically functions like other standard long-term loans, with regular scheduled payments and a predetermined interest rate. As the owner of your system, you can still be eligible to benefit from solar incentives like the ITC.
In some regions, commercial businesses can participate in Property Assessed Clean Energy (PACE) loan programs, where your debt is tied to your property. This means that instead of paying back your loan in cash, you pay it back through property assessments as an add-on to your property tax bills. Eligibility and financing structures of PACE programs vary by location - check out your local government’s website for more details.
For the multitaskers: Integrate other projects with Energy as a Service.
Energy as a Service (EaaS) expands the traditional solar PPA structure to include other energy technologies and services into an integrated ESA. In this case, your organization owns and operates the solar and additional energy upgrades like EV chargers, battery energy storage, and energy efficiency upgrades. Under the ESA, you pay a fixed monthly subscription-based energy service payment, which aggregates the financing of multiple technologies into a single payment. As with a solar PPA, your organization would enjoy zero upfront capital outlay and enjoy the operational savings without taking on the responsibilities of system ownership.
ESAs provide the flexibility needed to address your facilities energy needs holistically. Solar is an amazing technology, but if your facility consumes a lot of energy when the sun isn’t shining, a developer experienced in multiple technologies will likely include battery storage and or a Combined Heat and Power (CHP) System in their proposal. ESA finance companies are better versed and structured to diligence projects with multiple technologies, ensuring your project will not encounter approval roadblocks. A fleet of EV chargers, for example, can sometimes cost more than the vehicles they charge. If your organization does not want to invest the high upfront capital, the cost of the chargers can be rolled into an ESA with your new solar project. ESAs can even go a step further and incorporate deferred maintenance projects alleviating the capital expenditure altogether. .
EaaS is becoming an increasingly popular financing structure, as it encourages a holistic integration of your facility’s energy systems. Through energy management software, your organization can optimize control of and communication between your onsite assets
Third-party ownership options
Want predictable, off-balance sheet electricity savings? Consider a Solar PPA.
A power purchase agreement (PPA) is one of the most common third-party financing structures for solar projects. Under a PPA, you pay a fixed price per kilowatt-hour of energy generated by the system for 10-25 years, usually at a discounted rate from your current utility rate. And while your overall spend may fluctuate with your system’s production, locking in a fixed price means you’ll be able to avoid steeply rising utility rates. For example, average California retail electricity prices increased over 12% over the last year alone! With a typical PPA annual escalation rate of 2%, you can avoid the worst of those price hikes and enjoy long-term electricity savings.
With a solar PPA, your organization can lock in long-term, predictable electricity rates at no upfront cost and completely off balance sheet. Since you don’t own the system, you would not be eligible for the solar incentives like the ITC, but you still enjoy reduced energy costs with no additional responsibilities.
While PPAs have traditionally been used exclusively for solar-only projects, this structure can be expanded to include complementary technologies like battery energy storage and Combined Heat and Power (CHP) in a blended PPA, also known as an Energy Service Agreement (ESA).
Want to keep it simple? Go with on-bill financing.
Through on-bill financing, also called tariffed on-bill financing, utilities fund the upfront cost of energy efficiency and other energy projects. The utility then adds a service line item to your monthly bill to pay back the cost, which will always be lower than the monthly savings you earn through your new energy upgrades. After you pay off the costs, the line item is removed and you enjoy an even lower utility bill moving forward. This structure minimizes complexity for your organization by containing all relevant project payments to your existing utility bill - no need to create a separate bill or customer account.
Some form of on-bill financing is available from more than 100 utilities across the country. Customer eligibility and technology requirements vary by utility program. If your business is in California, check out California utilities PG&E and Southern California Edison’s on-bill financing programs. You can also use this interactive map to determine if there is an active program near you.
Choose your own energy upgrade adventure
Today, organizations can choose from a wide range of financing options for solar and other energy projects. You can directly purchase your own solar and energy upgrades or partner with a best fit third-party finance platform. You can also finance your project with cash upfront or through regular, predictable payments. What’s more, you can invest in solar-only projects or integrate other energy projects into a single agreement.
When selecting your project development partner, consider their experience in these financing options. Choose an experienced professional partner like Promise Energy to ensure that you pick the right financing structure for your organization’s needs, get the best value for your upgrades, and set your facility up for holistic energy management.
Ready to get started? Reach out to Promise Energy at info@promiseenergy.com for a complimentary energy analysis that will help you jumpstart your energy upgrade adventure.
At Promise Energy, we don’t believe that one size fits all. We pride ourselves in designing and installing customized energy solutions that provide the greatest long-term value and energy control for our customers.