If you are considering investing in a solar panel installation for your firm, there are four key items to consider that can inform your decision-making. By answering these questions, you can focus your efforts as you consider going solar.
- Why solar?
- Where will your panels be installed?
- How will you fund solar?
- What is your timeline?
- Why Solar?
There are a variety of reasons why a business might consider installing solar panels, including the desire to save money and increase profits. While these are probably among the primary reasons to consider adopting solar, it’s worth noting that there may be other reasons and/or benefits to include in your decision.
First, with respect to the economic benefits of solar to your business, it’s been BAI’s experience that most companies can realize significant savings from adopting solar power.
Beyond simple economics, there are other factors to consider. For example, does your company, or parent company, have publicly stated greenhouse gas (GHG) reduction or sustainability goals that a solar project can satisfy? Alternatively, do you have clients who publish similar goals? It is also important to consider whether a solar project can lead to new or increased client engagement.
For readers new to the green energy and sustainability movements, there is an increasing number of companies dedicated to these concepts. Not only are they personally invested and setting goals, they are looking for vendors up and down their supply chains that share these ideals. This dedication is in response to a growing group of educated consumers who care about how their goods and services are produced.
Not only are businesses increasing their sustainability efforts, the younger workforce is also looking to join green-focused employers. These prospective employees tend to be bright and well-educated. It’s important to consider whether a solar project will increase your status with new talent.
If saving money is the only reason you are considering solar, you may be leaving a lot of opportunity on the table. Consider other benefits to your business of going solar beyond simple economics.
- Where Will Your Panels Be Installed?
In decentralized electric markets like Pennsylvania, you can locate your solar panels either onsite or offsite.
An onsite solar installation, as the name suggests, physically locates panels on or near a business’ campus or building. Onsite solar is the most common type of installation. Consider onsite solar if you:
- Own your property or have a long-term lease.
- Have a large south-facing or flat roof for panel installation.
- Have a ground-mount location within 1,000 feet of your building where you can locate your solar panels; or
- Have a large parking area.
A growing number of businesses in Pennsylvania are opting for offsite solar installations. Although offsite solar is a more complicated process, it has advantages for certain businesses. Consider an offsite solar installation if you:
- Pay more than $500,000 a year in electricity.
- Don’t have a suitable onsite location for solar.
- Have multiple offices or locations spread across the state or country.
Some solar developers specialize only in onsite solar. Other vendors, like BAI, have the expertise to develop both. Identifying early on which location approach fits you best will save you a lot of time when you start engaging solar developers.
- How Will You Fund Solar?
Businesses fund their solar panel installations using one of two main approaches: direct purchase or third-party funding.
With a direct purchase, a business can fund a solar project with either cash reserves or debt. The direct purchase approach makes sense for businesses with large tax burdens and relatively easy access to capital. When you pay directly for your solar panels, you maximize your electric bill savings. You also retain ownership of the solar renewable energy credits (SREC) that are created as your solar panels produce electricity.
Through direct purchase, a business can take advantage of considerable tax credits; however, you will be responsible for operating and maintaining (O&M) the solar panels. Although O&M requirements for a solar array are not as significant an undertaking as some other projects, it is worth thinking about how you will perform or pay for needed maintenance activities.
The most common third-party funding approach is a power purchase agreement (PPA). With a PPA, a developer builds, owns, and operates the solar panels for your benefit. You enter into an agreement to buy the electricity generated by the panels. The electricity rate is typically arranged at a discount to what you currently pay. PPAs are long term agreements of 20 to 30 years (although earlier buyouts are possible).
For businesses without large tax burdens or that are tax exempt, PPAs make sense. It is important to note that not all businesses can qualify for a PPA. Typically, to qualify for a PPA, a business needs to have been operating for at least three years and have a strong credit rating. There are other third-party options available for businesses that don’t qualify for a PPA.
A variation of the PPA model is a short-term PPA. These structures are typically reserved for entities that may have the economic resources to own a solar array but are not able to take advantage of the tax credits. A short-term PPA is utilized to couple the installation with a third-party entity that can capitalize on the tax incentives. In this arrangement, a business desiring to own solar can typically own an array at a price below market value while spreading costs over several years, typically 5 to 10.
Before you begin the process of evaluating solar developers and installers, you should decide on what funding approach works best for you.
- What is Your Timeline?
You should expect the solar purchasing process to take approximately three to six months and perhaps longer from initially contacting a solar developer to signing a construction contract or agreement. With solar investment tax credits (SITC) scheduled to decline over the next few years (26 percent in 2020, 22 percent in 2021, 10 percent in 2022 and beyond), timing can make a major difference in the economics of a solar project.
If your company has a specific purchasing window, or a long approval process, you should factor that into your timeline assumptions as well. Ultimately, your timeline can be a difference maker. Plan to start the process six months ahead of when you intend to begin installation.
By answering these four questions, you can save time and resources as you begin navigating the solar purchasing process. Uniquely situated in the industry, BAI has experience with a broad range of projects. Put our expertise to work for you.
Would you like to get a deeper understanding of how solar can benefit your business? Click here to request a free feasibility report.
For businesses of all sizes, solar energy can be a great way to reduce operating costs and increase the bottom line. At BAI, we work with businesses to develop solar projects that have an attractive ROI while delivering long-term cost savings. Learn more here.
Disclaimer: Please note that your potential savings and payback period depend on several factors specific to your organization, which are outside the scope of this article. Contact us to see how we can help or refer to BAI’s other articles which address this topic.