After a decade in the business, we have worked with nearly every type of financing available for our clients. There are a variety of different ways that a project can be financed, but some of the most common are:
PPAs and Leases are the two most prevalent options for financing commercial solar projects. These options include a third-party financier. The third-party owner receives any tax incentives from the system, such as the 30 percent Federal Investment Tax Credit (ITC) and depreciations. Those saving can be passed to the customer, making it a preferred option for customers with low or no tax liability such as nonprofits.
PPAs and Leases are the two most prevalent options for financing commercial solar projects. These options include a third-party financier. The third-party owner receives any tax incentives from the system, such as the 30 percent Federal Investment Tax Credit (ITC) and depreciations. Those saving can be passed to the customer, making it a preferred option for customers with low or no tax liability such as nonprofits.
- Solar Power Purchase Agreements (PPAs) is an arrangement in which a third-party developer installs, owns, and operates an energy system on a customer's property. The customer then purchases the system's electric output for a predetermined period.
- Solar Leases are different that PPAs in that you pay a fixed monthly “rent” in return for use of the system where as a PPA you pay a fixed price per kWh for the power generated.
- Energy Services Agreements (ESA) is a pay-for-performance, off-balance sheet financing solution that allows customers to implement energy efficiency projects with zero upfront capital expenditure. Through the ESA, the ESA provider pays for all project development and construction costs. Once a project is operational, the customer makes service charge payments for actual realized savings. The price per unit of savings is a fixed output-based charge that is set at or below a customer’s existing utility price, resulting in immediate reduced operating expenses.
- Tax Equity Financing Structures, such as sale leasebacks and partnership flips. In most solar tax equity structures, the tax equity investor will put in 40 percent of the purchase price of the solar panels in exchange for 100 percent of the tax benefits. Tax benefits vary, usually by state, but almost all of them provide benefits for third-party tax equity financing of solar projects.
- Cash or Loan Purchases of the system.
PPAs and Leases are the two most prevalent options for financing commercial solar projects. These options include a third-party financier. The third-party owner receives any tax incentives from the system, such as the 30 percent Federal Investment Tax Credit (ITC) and depreciations. Those saving can be passed to the customer, making it a preferred option for customers with low or no tax liability such as nonprofits.
PPAs and Leases are the two most prevalent options for financing commercial solar projects. These options include a third-party financier. The third-party owner receives any tax incentives from the system, such as the 30 percent Federal Investment Tax Credit (ITC) and depreciations. Those saving can be passed to the customer, making it a preferred option for customers with low or no tax liability such as nonprofits.
Thoughts to Finance Your Solar System:
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- Cash purchase if you can. It's a great investment with better ROI's than most any investment around.
- Purchase with a solar loan and you get the federal tax incentives and any other rebates that may apply. We can help with zero down loans, up to 25-year terms. PACE loans are available for residential and commercial projects. These loans offer many additional benefits, including tax deductible principal and interest.
- PPA's and Leases are available when a loan is not. For example, for non-profits that don't qualify for the federal tax incentives
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The New Business Model
Energy-as-a-Service (EaaS) is a service-based business model where in the customer is provided energy service, such as lighting, in exchange for a recurring fee. The customer then avoids direct electricity payments and expensive upgrades to the system.
This type of financing is becoming more common as service-based models (think Lyft and Uber) gain popularity. Additionally, the current state of the United States electrical grid, the shove to a lower emissions, and the expense of low-carbon technology needed to switch to solar have made this option grow.
Energy-as-a-Service (EaaS) is a service-based business model where in the customer is provided energy service, such as lighting, in exchange for a recurring fee. The customer then avoids direct electricity payments and expensive upgrades to the system.
This type of financing is becoming more common as service-based models (think Lyft and Uber) gain popularity. Additionally, the current state of the United States electrical grid, the shove to a lower emissions, and the expense of low-carbon technology needed to switch to solar have made this option grow.