One of the first questions any business owner has when contemplating solar is how to pay for it. Although the solar industry is still young, there are a variety of financing options available to business owners wanting to go solar. Here are three tips to help ensure a quick and successful financing of your solar project.
Solar Financing Tips
1) Don’t delay in signing, incentives are expiring.
Net metering is the mechanism that allows a business to receive a reduction in its utility bill by installing solar. There is a net metering cap in Massachusetts which is about to be reached. As of September 15th, 2014 only 29% of the net metering cap was still available to all businesses in Massachusetts wanting to go solar.
The Investment Tax Credit (ITC) is a federal incentive that has fueled the exponential growth in the solar industry. Currently equal to 30% of the total cost of the system, the ITC is reduced to 10% at the end of 2016. This will result in reduced returns and lower project yields for financiers as well as reduced savings for business owners. To lock in the most savings from your solar project you should act now while these important incentives are still in available.
2) Be ready to share your financials.
Solar financing allows your business to spread out the cost of the install over time. For that reason, it is important for financing agencies to underwrite the financials of your business to ensure payments will be made for the term of the financing.
3) Determine early on which solar financing option is the best for your company.
There are several financing solutions for solar. The main difference between the financing options relates to who actually owns the system after it is installed. Solar financing options come in two flavors: direct ownership or third party owned. Direct ownership is where the business pays for the cost of the install using cash on hand, obtaining a loan or Property Assessed Clean Energy (PACE) financing. Under these scenarios, the business owner is typically responsible for monetizing the Solar Renewable Energy Credits (SRECs) produced by the array to compliance buyers like a utility, all operation and maintenance service as well as insurance for the entire useful life of the solar array. These types of solar financing may require a large out-of-pocket expense and encumber future borrowing capabilities. In contrast, third party financing arrangements involve finding a company that will lease the solar array to you or just sell you the electricity the array produces over time. This takes all of risk away from the business owner and provides immediate cost savings with no out of pocket expenses to install.
If your business is considering going solar, make sure to act fast, be prepared to provide your financials and click HERE to download the Solar Financing Cheat Sheet to learn which solar financing option is right for you.
John Kluwin was the founder and operator of JEMM Holdings Group LLC, a third party food and beverage distributor, until he successfully sold the firm in 2011. He held the position of Chief Operations Officer and Chief Financial Officer at the First Movers, a Central Florida moving liaison company, past President of the Central Florida chapter of Net Impact and holds an MBA from the Crummer School at Rollins College. He has a strong finance and accounting background and believes that business can act as an agent of change positively contributing to a more sustainable future.