Buying Commercial Solar for my Business?

One of the best ways to benefit from solar for commercial buildings is for property owners to directly reduce their electric bill by buying and installing a solar panel system. Direct purchase is the most traditional method of going solar, but other common methods offered by companies in the solar energy business include site lease and power purchase agreements. Direct purchase requires upfront capital to cover the panel and installation costs but saves money over the lifetime of the system. Commercial solar installations typically have a lifetime of 25-30 years, with panel efficiency declining slightly over time. Each brand of solar panels has a different yearly degradation, and the solar developer installing the system will have that information available.

The direct purchase approach allows property owners to take advantage of a multitude of generous federal, state, and local incentives, depending on where the property is located. The most widely known nationwide incentive is the Federal Income Tax Credit (FITC), also referred to as the Income Tax Credit (ITC), which provides direct tax reduction for owning solar. As it currently stands, in 2021 and 2022 the FITC rate will be 26%, in 2023 the rate will drop to 22%, and in 2024 the rate will drop to 10% for commercial solar, and 0% for residential solar, barring congressional revision. This means if a solar system costs $10,000 in 2021, the property owner will receive $2,600 in tax credits that can be carried forward for up to 20 years ($10,000 * .26 = $2,600). There are many other federal, state, and local incentives that the property owner can qualify for. Commercial solar companies are able to assist clients in understanding which incentives (at the federal, state, and local level) are applicable for a given system before installation. For a complete list of current incentives by state, check out DSIRE.

As of right now, NRG Market does NOT provide assistance finding insurance and financing options for direct purchase installations. Thus, we hand pick all of our commercial solar installers to ensure all listed developers on our site offer their own insurance and financing options to clients. We find and vet local solar panel installers as well as national commercial solar installation companies. This allows us to build a trusted list of solar installers on our marketplace. See below for an explanation and comparison of different financing methods.

What are Your Financing Options for Commercial Solar?

Operating Lease

An Operating Lease is when a property owner finances their system through the solar developer. The solar developer owns the system and realizes the tax incentives and depreciation. With the operating lease method, the solar developer installs the system, and then the property owner pays a monthly rate to the solar developer for a set period of time, typically 6 to 7 years. The monthly lease payments are usually lower than the payments associated with the Capital Lease method (below). At the end of the lease, the property owner has the option to buy the system at the current “fair market value” which may be significantly lower than the original price due to years of depreciation.

This form of lease may be considered an “off-balance sheet” for the property owner because the system is owned by the solar developer. This means the system is not on the property owner’s balance sheet until the property owner has the option to buy the system after the lease payments expire. The monthly payments are considered a tax deductible expense (please consult with a tax specialist, lawyer, or accountant to confirm this based on your company’s specific situation).

Capital Lease

A Capital Lease is the more traditional method of financing solar panel installations. With the Capital Lease method, the property owner finances their system through a bank or other financial institution. The property owner realizes the benefits of owning the system despite financing the system through a third party lender. These benefits include a fully or partially offset electric bill, federal, state, and local incentives, and the ability to report balance sheet depreciation (please consult with a tax specialist, lawyer, or accountant to confirm this based on your company’s specific situation).

This form of lease is considered an “on-balance sheet” for the property owner because the commercial solar panel system is an asset and the lease payments are a liability. As with any other loan, financial institutions set loan payments with either fixed or variable rates. These payments are often higher than operating lease payments and the length of the loan varies. There are also custom financing options, such as $0 down, 20% down, etc.

What Kind of Business is a Direct Commercial Solar Purchase Right for?

Direct purchase is a great option for any business that has the capital to buy the system outright or the ability to safely carry debt in order to finance the system. This can mean solar for small business, or solar for large national chains.