Solar FAQs: The Finance Edition

The commercial and industrial (C&I) solar industry has experienced impressive growth over the past few years. For over a decade, PowerFlex has been devoted to helping companies across the U.S. go solar. Our clients span a wide range of businesses and industries; from family-owned companies to "Fortune 500s," from industrial manufacturing to locally distributed products. PowerFlex delivers customized solar solutions to each client based on their project specifications while helping them reach their financial and operational goals.While no two clients are the same, we have learned that companies share similar concerns throughout the solar development process, especially when considering the financial returns of a solar project. We address some of the most commonly asked questions regarding solar project financials below.

1. If my company doesn’t have any tax liability, is solar still possible?Absolutely. Companies with limited current tax liability can utilize third-party ownership project structure options to go solar. Two of the most popular options for C&I projects are a Power Purchase Agreement (PPA) and an Operating Lease. Under a PPA, businesses can enter a long-term contract where they purchase clean energy — usually at a lower rate than the utility’s price — from a separate solar system owner. The PPA customer has zero operational responsibilities and can claim some of the public relations benefits of hosting a solar array. Operating Leases do not tie your payments to electricity production but instead to the asset itself. A lease can be a short-term arrangement of 6 to 10 years, giving commercial properties a low commitment option for renewable energy. Under a solar lease, there are immediate cash-savings that are typically greater than those of PPA alternatives. If ownership is something a client is interested in, a solar operating lease can serve as a direct path to system ownership with buyout options at the end of the term.

2. If I want to go solar at a specific location, do I need to own the building?No. For a long-term tenant interested in solar, there are a number of ways to structure financial options. Tenants with roof rights can own a system or benefit from a roof lease as long as they have their landlord’s approval and the necessary agreements from the landlord’s lender. As the solar project developer, PowerFlex can also pay a roof lease to the landlord and then agree on a PPA contract with the tenant. This way, all parties can benefit from solar energy in viable solar markets.

3. What happens if I sell my building?PPAs are transferable, so a new building occupant can easily benefit from the energy savings for the rest of the term. There is also the option to reassign the PPA to the landlord at the preferred year, and then the landlord can use the PPA as a draw for the next tenant. Alternatively, the landlord can terminate the system through a clause in the PPA contract. If a solar system is leased, it can be reassigned to ­­­the buyer. Under an ownership scenario, solar only adds value to the building. If there is a concern from a new buyer or tenant about roof space being unavailable, solar arrays can be reconfigured to accommodate new rooftop units. If you move within 10 years of your initial agreement, you would have already achieved payback. This makes it easy for a new tenant or buyer to reap the benefits of free electricity for another two decades.

4. How will solar affect my property value?A solar energy system on a commercial building will most likely increase the building’s property value in every market across the country. The Property Assessed Clean Energy (PACE) program helps building owners finance their energy efficiency and renewable energy improvements. PACE financing is based on the assumption that a solar system, like an energy efficiency upgrade, increases property value. To counteract the negative aspect of an increased property value, many states have property tax exemption laws to prevent a solar installation from increasing your yearly tax bill. Additionally, as an increasing number of organizations emphasize corporate social and environmental responsibility, properties with a solar installation will have an advantage over those without in terms of attracting tenants. Offering onsite solar energy generation will reduce your tenants’ exposure to the volatility of energy prices, and these more satisfied tenants are likely to stay longer.

5. What is the typical payback period?Payback on your solar project can now be achieved in less than 5 years in the core U.S. markets, including the northeast and west coast. The most important thing to consider when discussing payback is the lifespan of the investment. A 1-3-year payback is reasonable for a truck or machine with a 10-year lifespan, but our systems have a 30+ year lifespan, and all the modules PowerFlex installs have a 25-year warranty. Payback periods do not take risk into account. Unlike a riskier investment, solar technology is predictable and low maintenance. PowerFlex’s systems average 99% of weather adjusted expected production across our portfolio. A solar system has no heavy and continuous operating costs like a truck or a motor, and solar equipment needs very little maintenance year to year.

Commercial properties also have several no capital outlay options available. Solar financing is flexible, and there are many ways of going solar besides a direct purchase of a solar system. PowerFlex is a leading national solar solutions provider, and we work one on one with our clients to achieve the perfect solar solution for their financing needs. If you are interested in learning about how your company can go solar, contact us at contact@powerflex.com.