Businesses in 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 industrial customers in 2020. This colossal solar market growth was possible due to federal and state financial incentives, tax credits, and rebates. Therefore, depending on the state where your self storage facility is located, you can reduce the net cost of your new solar power system anywhere between 26% to 50%.
If your self storage business is considering going solar, here are the 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. Under the ITC policy mechanism, residential and commercial customers that commence construction of their solar project prior to the end of 2020 qualify for a federal tax credit equal to 26%, minus any other cash rebates. A tax credit is a dollar-for-dollar reduction from the income tax that an individual or a business would otherwise pay the federal government.
Let’s explore an example of how your self storage business can benefit from the ITC. Say the turnkey cost of installing solar arrays on your rooftop is $110,000, and you receive a $10,000 rebate from your utility or your state government (we will explore those incentives a little bit later). This would result in your business getting $26,000 in credits that you could apply towards your income taxes.
It is important to note that the incentives are scheduled to step down over the next couple of years. For projects that begin construction in 2021, businesses can apply for an ITC of 22%. After 2021, 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 up your solar projects!
Depreciation Tax Benefits
Modified Accelerated Cost Recovery System (MACRS) is a method of depreciation used for tax purposes in the U.S. It allows all businesses to recover the investment on a tangible asset over a specific period (somewhere between 3-50 years) via annual deductions on their taxes. Qualified solar energy 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 acquired or placed in service before January 1, 2023. So, just like the ITC, the earlier you install solar on your facilities, the more financial benefit your business will receive from the investment.
Solar Incentives by State:
Solar Renewable Energy Certificates (SRECs)
In some states, such as Ohio and Maryland, utilities are mandated to generate a certain percentage of their electricity from solar energy. Solar Renewable Energy Certificates (SRECs) are a unique, identifiable certificate for the amount of electricity produced by a residential or commercial solar energy system. Utilities will purchase SRECs from solar panel owners in order to meet their required quota for solar. For example, if your local utility says that they are switching to a certain percentage of carbon-free electricity, included in the mix will be the solar power produced on your self storage property.
Businesses can get additional income per year by selling their SRECs to their utility. Let’s say for every kilowatt-hour (kWh) of energy produced through your solar panels, your utility will issue credits at the rate of $0.20 per kWh. If you have a solar power system that produces 20,000 kWh per year, your earnings will be $4,000 for the year. Over time, these credits can add up to a significant impact on your budget and return on investment.
Certain utilities and local governments provide cash rebates to businesses to incentivize solar adoption. For example, commercial property owners in Asheville, North Carolina, can receive a rebate on their building permit by installing solar. However, as the solar industry has matured across the country, we are seeing that rebate policies are dwindling down. Pivot Energy’s team of policy experts can check with your local utility or government to see what rebate programs align with your solar project timeline.
Property tax exemptions
Some states and municipalities do not tax the value solar energy systems add on properties. For example, in New Jersey, residential and non-residential customers are exempt from paying additional property taxes from the added value of solar panels on their properties. In addition, certain state governments also exempt sales tax on solar panels. Depending on your state’s sales tax rate, this policy can significantly increase your business’ savings on solar installations by reducing the upfront cost.
Ask an expert
Knowing which financial solar incentives your business will qualify for, while also remembering all the different acronyms the solar industry loves using (ITC, SRECs, MACRS, etc.) can be quite complex. The Pivot Energy team has years of experience in commercial solar installation projects around the U.S. We can help you from planning your system to maintenance, and everywhere in between. Reach out to schedule a meeting with our team today.
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