Companies, governments, nonprofits, and schools across the U.S are switching to solar energy at an unprecedented rate. Compared to just 370 megawatts (MW) in 2010, more than 15,000 MW of solar capacity has already been installed by commercial and non-residential customers just last year. This massive solar market growth was possible due to federal and state financial incentives, tax credits, and rebates. Therefore, depending on the state where the facility that you manage is located, you can reduce the net cost of your new solar energy system anywhere between 26% to 50%.
If you are considering installing solar technology on your building, here are some financial incentives that may be available for you:
Federal Solar Incentives
Federal Investment Tax Credit (ITC)
The ITC was introduced in 2005 as part of the Energy Policy Act and extended in 2015. Most recently, the Biden administration also made some amendments to the incentive structure.
Under the ITC framework, residential and commercial customers that commence construction of their solar installation prior to the end of 2022 qualify for a federal tax credit equal to 26%, minus any other cash rebates. A tax credit is a one-time dollar-for-dollar reduction that a company business would otherwise pay the federal government in corporate income taxes.
Let’s explore an example of how your company can benefit from the ITC. Let’s say the turnkey cost of installing solar arrays on your facility is $215,000 and you receive a $15,000 rebate from your utility or your state government (we will explore those incentives a little bit later in the article). This would result in your business getting $52,000 in credits that your company could apply towards income taxes.
It is important to note that the incentives are scheduled to step down over the next couple of years. For installations that begin construction in 2023, businesses can apply for an ITC of 22%. For solar construction projects that start on and after 2024, the ITC drops to a permanent 10% for commercial customers. So, if your company is trying to maximize the financial gains from the ITC, it is best to hurry and install solar on your rooftop!
Depreciation Tax Benefits
The Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation used for tax purposes in the U.S. It allows all companies to recover the investment on tangible assets over a specific period (somewhere between 3-50 years) via annual deductions on their taxes. Qualified solar technology equipment is eligible to receive an accelerated cost recovery period of five years. This allows businesses that invest in solar to recover the cost more quickly and reduce the net system cost by an additional 30 percent.
The Tax Cuts and Jobs Act of 2017 increased the bonus depreciation percentage from 50% to 100% for qualified solar installations placed in service before January 1, 2023. So, just like the ITC, the sooner you install solar on your facilities, the more financial benefit your company will receive from the investment.
Solar Incentives by State
Certain utilities and local governments provide cash rebates to businesses to incentivize solar adoption. For example, commercial property owners in Rochester, Minnesota, can receive a rebate for installing a new solar energy system on their facilities. However, as the solar industry has matured across the country and the costs are going down according to market forces, we are seeing that rebate policies are becoming less common. Pivot Energy has a team of policy experts that can do the research and check in with your local utility or government to see what rebate programs would be available for your installation.
Solar Renewable Energy Certificates (SRECs)
In some states, such as Ohio and Maryland, utilities are required by law to generate a certain percentage of their electricity from solar energy. Solar Renewable Energy Certificates (SRECs) are unique, identifiable certificates for the amount of electricity produced by a solar energy system. Utilities will purchase SRECs from individual solar panel owners, such as businesses, in order to meet their required monthly or annual quota for solar.
For example, if your local utility says that they are switching to a certain percentage of carbon-free electricity, their blend of electricity would likely include solar power that is produced elsewhere, such as at your facility or home.
It is through this process that companies can receive additional income by selling their SRECs to the utility. For example, a solar power system that produces 30,000 kWh per year may earn $9,000 from the sale of these SRECs (assuming a $300 per MWh price). Over time, these credits can add up to significant income that supports your operations budget and the company’s return on investment by going solar.
Property and Sales Tax Exemptions
Some states and municipalities do not tax the value solar energy systems add to properties. For example, commercial solar customers in Nevada are exempt from paying additional property taxes from the added value of solar panels on their properties.
Moreover, certain state governments also exempt sales tax on solar panels. Depending on your state’s sales tax structure, this policy can considerably increase your business’ savings on doing solar installations by reducing the upfront investment expense.
Talk to an Expert
Knowing which financial solar incentives your company will qualify for while also trying to keep up with all the different acronyms the solar industry loves using (ITC, SRECs, MACRS, etc.) can be pretty challenging.
The good news is that the Pivot Energy team has years of experience in commercial solar installation projects across the U.S. We can help you plan your system to maintenance and everywhere in between. Reach out to schedule a meeting with our team today.