Figuring out financials is probably the most complex part of any commercial solar project — Do you choose to go with a 20-year lease? How about a 25-year PPA?
When deciding what finance plan to go with, it is important to remember the best option is the one that makes the most sense for your business. Here are the pros and cons of four of the most popular solar financing solutions.
Simply put: a solar lease is no different than any other lease. Here an installer leases the solar panels, inverters, and other components to the customer in return for fixed monthly payments. The duration of the lease term can vary from 20-25 years.
Pros: Fixed monthly payments are easier to manage and are cheaper than utility rates.
Cons: The customer may need to prepare solar interconnection agreements on their own.
Power purchase agreement
A power purchase agreement, or PPA, is a type of lease in which an installer takes on all the financial risks of design, permitting requirements, installation, and maintenance of the solar system. The customer agrees to purchase power from the installer at a fixed rate. PPA terms are generally 20-25 years.
Pros: Electricity rates are significantly lower than utility rates.
Cons: Customers are required to pay for excess power generated and any rebates or tax credits will go to the installer.
Much like any other business loan, a solar loan is borrowed money acquired specifically for the purchase of a solar system. There are numerous financial institutions that can help you acquire such a loan, and some installers may offer them as well. The loan contract duration is generally less than the terms for a PPA or lease and can range from 10-20 years.
Pros: Solar assets are owned by the customer, adding value to the property. Additionally, any rebates or tax credits will go to the customer.
Cons: Customer is responsible for all maintenance throughout the life of the solar system
An outright purchase of a solar system is considered the smartest long-term financing option when a company can afford it. This is because the arrays are usually sold at a discount, the customer can take advantage of rebates, plus the arrays can be eligible for depreciation tax credits. Payback periods are 5-10 years.
Pros: Provides the most financial benefits due to an immediate ownership
Cons: Requires cash upfront plus long-term investment planning
A new alternative financing solar
Whether it be a loan, a PPA, or a lease, the truth of the matter is many businesses are unable to move forward with financing their solar project. This is because of one simple fact: most businesses do not own the property they occupy. For those in this situation, there is the Tenant Power Program — a new way for business tenants to acquire solar without the hassles of traditional financing plans.
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