Solar photovoltaic (PV) systems – also known as solar panel systems, solar energy systems, or solar power systems – convert sunlight into electricity.
How solar panels work in 3 steps
- Solar panels absorb sunlight with photovoltaic cells, creating direct current (DC) energy
- Solar inverters convert the DC electricity to usable alternating current (AC) energy
- AC energy flows through the store's electrical panel and is distributed accordingly
Net Metering for Businesses
Net metering is a billing mechanism that credits solar energy system owners who generate their own electricity from solar system to feed the excess electricity back to the utility grid. Most solar system owners generate more electricity than they consume during daylight hours. The excess electricity generated is sent back to the utility grid making the meter run backwards. The utility customer, in turn, receives credits for this. As for the night or other times when a solar system owner consumes more electricity than the solar system generates, the business uses electricity from the utility grid. Customers then are only billed for their “net” energy consumption, the difference between their overall solar production and consumption
Solar Energy Financing Options
For companies interested in owning a solar system, a cash purchase has a high return on investment and allows the business to take advantage of the federal Investment Tax Credit (ITC). If you are taking out a loan, Sunvalley Solar approved lending partners or can work with your existing lender. You buy and operate the solar installation which allows you to directly benefit from any available federal, state and local solar incentives. If you have available capital and tax appetite to absorb tax credits and accelerated depreciation, you may find cash purchases to be the best option.
Benefits Of Cash Purchases
• Greater potential savings since you avoid third party expenses and interest rates.
• Protection against rising utility rates.
• Access to 100% of available solar incentives.
As the system owner, you qualify for a Federal investment tax credit worth 30% of the system’s value. When you combine this with additional state and local rebates, you can offset the cost of a solar project by 50% or more.
A solar lease is a financing option that allows businesses to generate solar electricity with little to no upfront capital investment. Like traditional equipment leases, solar leases provide use of the solar equipment itself in exchange for a monthly lease payment. You benefit from the clean electricity generated from the rented solar installation. The combination of known lease payments and lower utility bills typically leads to an immediate reduction in electricity costs and provides increased savings over time. At the end of the lease agreement (typically 15 - 20 years), you have the option to purchase the system at a reduced cost, renew the lease, or have the system removed.
Benefits of Solar Leases
• Little to no initial capital investment
• Protection against volatile electricity prices
• Immediate savings on electricity costs since the reduction in grid electricity bills more than offsets your monthly lease payments for the installation.
Property Assessed Clean Energy (“PACE”) PACE Financing allows up to 20% of a property’s value to be financed for energy efficiency, renewable energy, or water conservation upgrades. The financing creates an assessment lien on the property and is repaid as semi-annual installments on the property tax bill.
Benefits of PACE Financing
• Preserve Cash: Upgrade your property while preserving traditional bank credit and cash for other projects.
• Low Annual Payments: Long term PACE financing results in low annual payments allowing energy savings to offset PACE payments.
• Get Tax Incentives and Rebates: With PACE financing the property owner owns the system so they keep all rebates and tax incentives for the improvement.
• Transfer Lien with Property: PACE lien is attached to the property and can transfer to next owner on sale of the property.
• Off Balance Sheet: PACE financing is potentially off balance sheet. Consult your accountant for guidance.
Rebates and Incentives
30% Federal Investment Tax Credit (ITC)
The investment tax credit (ITC), also known as the federal solar tax credit, allows you to deduct 30 percent of the cost of installing a solar energy system from your federal taxes. The ITC applies to both residential and commercial systems, and there is no cap on its value. As long as you own your solar energy system, you are eligible for the solar investment tax credit. Even if you don’t have enough tax liability to claim the entire credit in one year, you can “roll over” the remaining credits into future years for as long as the tax credit is in effect. However, remember that if you sign a lease or PPA with a solar installer, you are not the owner of the system, and thus you cannot receive the tax credit.
• 2016 – 2019: The tax credit remains at 30 percent of the cost of the system.
• 2020: Owners of new residential and commercial solar can deduct 26 percent of the cost of the system from their taxes.
• 2021: Owners of new residential and commercial solar can deduct 22 percent of the cost of the system from their taxes.
• 2022 onwards: Owners of new commercial solar energy systems can deduct 10 percent of the cost of the system from their taxes. There is no federal credit for residential solar energy systems.
Federal Modified Accelerated Cost-Recovery System (MACRS)
Under the federal Modified Cost Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. MACRS establishes a lifespan for various types of property over which the property may be depreciated. For PV systems, the taxable basis of the equipment must be reduced by 50% of any federal tax credits associated with the system. Solar Energy technologies are classified as five-year property under MACRS.
State (CA) Modified Accelerated Cost-Recovery System (MACRS)
Under the Modified Cost Recovery System (MACRS), businesses may recover investments in certain property through depreciation deductions. The MACRS establishes a set of class lives for various types of property over which the property may be depreciated. Solar Energy technologies are classified as five-year property under MACRS.
The Consolidated Appropriations Act, signed in December 2015, extended the "placed in service" deadline for bonus depreciation. Equipment placed in service before January 1, 2018 can qualify for 50% bonus depreciation. Equipment placed in service during 2018 can qualify for 40% bonus depreciation. And equipment placed in service during 2019 can qualify for 30% bonus depreciation.