Blog Published: August 2020
Commercial solar installations offer the opportunity for businesses to reduce utility costs, receive a federal tax credit, and implement more sustainable practices at your property. Many commercial property owners are surprised when they find out how attractive the return on investment (ROI) can be for commercial solar.
When it comes going solar, there’s a steady stream of savings you can achieve. By not investing in solar, you’ll continue to pay a utility company without seeing any payback. With a commercial solar installation, you’ll replace that utility expense with an asset. With rising utility rates, the value of offsetting your energy costs via solar increases over time as well. It’s just smart business.
But how do you determine the commercial solar ROI? These five factors will help you estimate how you will financially benefit.
A local solar company with in-house design and engineering expertise will maximize your solar ROI. They will design a solar solution to match your unique energy consumption needs (including demand modeling), can streamline the turnkey process, and will know all local code and utility requirements for your commercial solar installation.
The Colorado Commercial Property Assessed Clean Energy (C-PACE) Program is one way for commercial customers to purchase solar with no money out of pocket. This financing is a game changer for solar. Not only does this program offer financing for up to 100% of the project, but the benefits of utility savings and incentive income will often exceed annual C-PACE payments, making the project cash flow neutral or positive every year – starting at day one.
For example, Ogilvie Properties used C-PACE Developer and CRE experts, Integro LLC to develop and source C-PACE financing for their commercial solar installation, as well as Group14 Engineering to help identify and quantify the best opportunities for capital energy improvements. This led to an estimated $28,350 in savings and utility incentives in year one of the project. Learn more about how C-PACE can boost your solar ROI by reading our real estate investor case study.
In 2020, Xcel Energy’s Solar Rewards Program is offering 20-year contracts to purchase renewable energy credits (REC) for 3.75 cents per kWh produced, regardless of whether you consume it on site or not. On a 500-kW system, that amounts to REC income payments of over $27,000 per year.
The Public Works
Under current tax laws, the full asset can be depreciated in the first year. Additionally, the federal investment tax credit allows businesses to recoup a significant portion of the project costs. These tax benefits directly reduce the cost of your system within the first year of ownership. As of 2020, the commercial tax credit is at 26% but will drop to 22% at the start of 2023. After 2023, the tax credit is set to drop to 10%.
Safe harbor is also an important component to claiming your federal tax credit for your commercial solar installation. This provision, established by the IRS, allows customers to preserve the tax credit of the current year by beginning construction on a solar project. Safe harbor can help commercial property owners reap $20K on average in safe harbor savings. The Public Works, a multimedia services company in Denver, is one commercial solar installation project we helped achieve safe harbor. Namaste Solar installed an 88.8 kW ballasted rooftop solar panel system on their Denver building.
Learn how to safe harbor your commercial solar projects in 2020 to secure the 26% tax credit - even if the majority of your project is built in 2021.
Price vs. Value
While price is of course an integral part of any solar ROI, internal rate of return (IRR), or net present value (NPV) analysis, the price of solar can only be understood in context. A well-designed system that carries with it a higher price often delivers a better commercial solar ROI than a lower-cost system designed and installed by an inexperienced solar installer. These technologically advanced, complex capital improvements require thoughtful design, detailed engineering, and quality installation. Choose a partner with a proven track record of success who can deliver the best value for your system.
Learn More About Commercial Solar Installations
Namaste Solar’s is dedicated to transforming energy and transforming business across the Colorado Front Range. Our experienced solar advisors will work with you to understand your solar ROI, project goals, timelines, and milestones for your commercial solar installation. Take a look at our project portfolio of completed commercial systems and/or contact one of our non-commissioned solar experts today to start a conversation. You can also learn more by reading our commercial solar guide.