Solar Financing Options and Considerations
Financing tools are extremely useful for contractors. Solar financing options aim to help solar contractors get the money they need to finish more projects. Previously, the sole method to finish a solar project was to purchase the entire system upfront. But now, there are many products available, each useful in different situations.
Important to work with a partner who knows a lot about these options and can give good advice. That’s where Solar Earth Inc can help. This summary discusses solar finance options for businesses. It will cover financing choices for contractors and compare commercial and residential options.
Differences Between Commercial Solar Financing Options and Residential Solar Financing
Understanding the differences between commercial and residential financing is important. These differences involve the amount of money needed and the complexity of the projects.
Commercial solar projects are usually more complicated because they involve more people. In residential solar projects, there are typically only a few people involved: the installer, the owner, and sometimes another user. But commercial projects involve more stakeholders, so they must consider more planning and different opinions.
Most commercial projects are 75 kW or bigger, while residential projects are usually around 5 kW on average. Because commercial projects are bigger, they cost more money compared to residential ones.
A significant aspect of commercial financing is the various options available to contractors.
4 Best Solar Financing Options
1. Solar Loans
A solar loan is similar to other loans. Installers can make monthly payments instead of paying the full cost of the solar project all at once. However, installers will also have to pay interest to the loan provider, and the amount of interest can vary.
Some factors that influence the interest rate include the loan term length, the credit standing of the solar installation company, and how long the business has been installing solar. These are just a few of the factors considered.
Opting for a solar loan offers numerous advantages. Firstly, it requires a small initial expenditure, thereby reducing your initial investment. Contractors can economize on equipment expenses and channel those savings into other sectors of their business for expansion.
Solar loans also grant access to the Investment Tax Credit (ITC) and other fiscal benefits associated with ownership. Solar panels are valuable assets that can generate a lot of money. A smart choice for the person who took out a loan is to own that value.
Solar loans are available from various institutions, including traditional banks, solar panel manufacturers, national lending institutions, public-private partnerships, and municipalities.
2. Solar Lease
A solar lease permits contractors to rent solar machinery at zero initial expense for a particular project. It primarily aims to facilitate power production with minimal to zero initial financial outlay. The lessee gets a monthly lease payment from the lessor for the equipment used. Consequently, the lessee benefits from decreased monthly electricity costs over time.
Following the initial lease period of five to seven years, the landlord has three choices. They can choose to extend the lease, buy the solar system at a discount, or return the equipment.
The benefits of a solar lease are numerous. Similar to solar loans, a solar lease requires minimal capital investment, freeing up funds for other business operations. A significant benefit is protection from fluctuating electric prices and savings on electricity bills.
The main benefit of the lease is the reduction in electricity costs that businesses will experience. These savings can counterbalance the lease payments, offering worth to the leaseholder. Another benefit is that leasing often offers lower-cost financing compared to a loan or Power Purchase Agreement (PPA).
3. Solar PPA (Power Purchase Agreement)
A Solar PPA, or Power Purchase Agreement, allows businesses or governments to purchase solar energy from a “host” organization. The host organization provides unused land, such as rooftops or open fields, to a solar power provider. The solar provider is responsible for installing, maintaining, owning, and operating the solar system.
A PPA contract typically lasts 15 to 20 years. At the end of the contract, the host organization has three options. They can choose to buy the system, renew the agreement, or have the solar system taken away.
One advantage of a PPA is that the host organization doesn’t need to invest a lot of money upfront. Organizations only pay for the energy produced with PPAs, which are based on performance, eliminating the need to manage system maintenance. Experienced solar professionals typically manage PPAs because of these buyer-friendly advantages.
4. C-PACE (Commercial Property Assessed Clean Energy)
Another resource available is C-PACE, or Commercial Property Assessed Clean Energy. Available in 36 states, this program benefits building owners and developers who make energy maintenance upgrades to their buildings. This program enables financing property improvements with little upfront cost and covers the project’s functional lifespan. Projects involving renewable energy, like solar panel installations, qualify for this scheme.
C-PACE provides affordable financing for commercial property owners. This money can be used to make things more energy efficient, use renewable energy, save water, and protect against storms. C-PACE is different because the payment comes from a tax on the property, unlike other financing choices. After finishing the project, the owner pays more in property taxes when the property value goes up.
This setup allows for long-term financing, usually lasting 20-30 years. The C-PACE tax assessment can still apply even if the property ownership changes. The diagram below illustrates the C-PACE process.
Considerations When Choosing a Commercial Solar Energy Financing Provider
Selecting the right commercial solar finance provider is crucial for the success of your solar energy project. Here are some key factors to keep in mind:
1. Interest Rate
The interest rate is one of the most important factors to consider. Compare rates from different providers to ensure you get the best deal available.
2. Term Length
Take into account the duration of the loan terms. Some lenders might offer shorter terms, while others may extend the loan over a longer period. Select the choice that most appropriately aligns with your financial circumstances and requirements.
3. Repayment Schedule
Look at the repayment plans offered by the providers. Some may offer flexible repayment options, while others might have a more rigid schedule. Select the plan that aligns with your financial capabilities and preferences.
4. Costs and Expenses
Make sure to thoroughly review all the small print information. This will help you understand any fees that may be included. These fees could include origination fees, prepayment penalties, or hidden charges.
5. Customer Service
Evaluate the quality of customer service provided. Select a provider who is approachable and attentive to your requirements.
6. Green Capital Financing
Green capital financing aids entities or individuals in funding eco-friendly initiatives. Investors often use loans, grants, or investments to fund renewable energy projects.
7. Federal Investment Tax Credit (ITC)
The Federal Investment Tax Credit (ITC) is a tax credit at the national level. It helps businesses save money. They save money on the cost of installing solar panels. They created this credit to encourage investment in renewable energy.
8. Commercial Solar Loans
Commercial solar loans are becoming more prevalent for funding the acquisition and setup of solar panels. A variety of lenders offer these loans, so it’s essential to assess various alternatives to pinpoint the best deal.
9. Solar Contractors
Solar contractors can be a valuable resource for financing your commercial solar project. They can help you make the most of your investment and may provide financing options to get your project started sooner.
10. Experience
Ensure the provider has experience with solar financing. This ensures they understand the unique needs of your project and can offer the best possible terms.
Taking into account these elements, you can select the most suitable commercial solar financing provider for your requirements.
How to Choose the Right Type of Commercial Solar Financing for Your Business
Commercial solar financing can save your business money on energy costs. Choosing the right financing is important. Here are some key considerations to help you make the best choice:
The Size of Your Business
The size of your business will determine the size of the solar system you need and the amount of financing required. The larger your business, the larger the solar system needed and the more financing required. Conversely, smaller businesses will require smaller solar systems and less financing. Larger businesses may need more extensive systems, which typically require more significant financing.
Your Energy Needs
Assessing your energy needs is essential when choosing commercial solar financing. If your business uses a lot of energy, options like leases or power purchase agreements (PPAs) might be suitable, as they can offer lower energy rates over time.
Your Budget
Your budget plays a crucial role in deciding on the appropriate commercial solar energy system. Various financing options are available, so it’s important to shop around and compare rates. Ensure you select a plan that aligns with your financial capabilities.
To choose the best commercial solar financing for your business, consider factors like size, energy needs, and budget.
Conclusion
Multiple ways exist to finance solar projects. Conducting research is crucial for business owners. They need to find the most suitable solar financing options for their company. Evaluating tax benefits and long-term savings is essential in making an informed decision about commercial solar power.
Reach out to us today to learn more about solar financing in California. We also offer solar energy consulting services for businesses.