Solar Energy Solutions

2. Capital Lease

A Capital Lease can spread the costs over a 7 to 10-year term, just like a loan or mortgage, but unlike a loan, there is no down payment required. Also like a loan, the tax benefits of ownership; including the 30% Investment Tax Credit, depreciation, and the interest component of the lease payments, stay with the Lessee.

From a tax perspective, the combination of energy savings and tax benefits can pay most, or even all, of the cost to install the solar PV system and once the lease is paid off, our client can enjoy an additional 20 plus years of “free” energy.

This solar financing option has several appealing advantages for both profit and non-profit organizations.

Features:

• Interest rates are determined by customer credit and project size but usually range from about 5% to 7%
• For a Lessee paying taxes, often the best after-tax return on investment

3. Operating Lease

With an operating lease, the tax benefits are taken by the Lessor and much of their value passed back in the form of lower lease payments. All things being equal, expect an Operating Lease quote to be at least 30% less than a Capital Lease. For clients without much need for tax credits or deductions, an Operating Lease may be the best alternative.

Unlike a Capital Lease with a fixed purchase price at the end of the lease term, an Operating Lease requires a certain element of “fair market value” as to the end of lease purchase.

Features:

• Operating leases require no initial investment, and have lease terms from 6 to 10 years
• Lease payments are lower because the Lessor takes the tax benefits into account. For most customers, the effective interest rate is actually negative
• Operating Leases are “off balance sheet” for the Lessee

4. Power Purchase Agreements (PPAs)

A Power Purchase Agreement is a long-term agreement where the client agrees to purchase all of the electricity generated by a solar system at a contracted rate. The PPA provider installs, maintains, and operates the solar system – the client only pays for the power that is generated and usually at a small discount from what is charged by the current utility company.

A PPA can be a low-risk option to finance a system and due to some vagaries in the Tax Code, the ONLY way for a non-profit or governmental entity to receive an indirect advantage from the tax benefits for solar PV.  For commercial businesses looking for the highest possible return on investment, one of the other previously mentioned options is often a better choice as the system is paid off sooner. 

Features:

• Power Purchase Agreements require no upfront investment or maintenance costs
• Proposals vary based on the underlying economics, but typically the contract lasts for 15 to 20 years and may have up to a 3% annual rate increase escalator
• At the end of the contract, a new PPA can be negotiated or the system purchased.

5. Community Solar

The primary purpose of community solar is to allow members of a community the opportunity to share the benefits of solar power even if they cannot or prefer not to install solar panels on their property. Project participants benefit from the electricity generated by the community solar farm. Community solar also allows people to go solar even if they do not own property/roof, making it an attractive option for renters or those who live in shared buildings.

Thousands of community solar projects are operational or in-development, supported by major utilities, and regulated by states or Public Utilities Commissions (PUCs) to consistently deliver the benefits of solar to individuals and communities that on-site solar and other renewable energy projects were not able to serve.

Benefits:

• Supporting renewable energy, reducing emissions, and accelerating the transition away from fossil fuels
• Creating local power projects that increase regional grid resiliency
• Saving money on energy bills each month, with no up-front investment