If your business is classified as either “commercial” or “industrial”, energy expense is likely among your top three expenses. While most businesses operate under the assumption energy expenses are uncontrollable costs (a necessary evil), often times they can be lowered and/or hedged. Distributed generation solar energy is one option that continues to gain traction as a potential means to reduce your long term energy expense, hedge against price volatility and reduce your carbon foot print.
Solar photovoltaic system
A solar photovoltaic system (or solar PV) provides usable power by means of photovoltaics. It consists of various components, including solar panels to absorb and convert sunlight into electricity, a solar inverter to change the electric current from DC to AC, as well as mounting, cabling and other electrical accessories to set up a working system. There are a number of established providers of these systems and the technology is well proven with minimal operational or maintenance requirements.
Solar PV in commercial and industrial sectors
Businesses face challenges when trying to manage their energy expenses. Most businesses that fall under the broad categories of commercial/industrial sectors typically have high energy consumption. Also prevalent are high energy prices and high uncertainty associated with future prices. In the recent years, an increasing number of businesses in these sectors are exploring solar PV to reduce their overall energy cost and to contribute to a clean environment. Key drivers for the adoption of solar PV by these sectors include:
- Lower capital costs – The price of PV modules and other components necessary for a solar project as well as the installation costs have seen a decline greater than 50 percent since 2014 causing re-evaluation of many projects which were previously deemed infeasible.
- Favorable policies and incentives – Solar generation continues to be eligible for tax credits at the federal level and depending on the project specifics, can be eligible for many other federal, state and local incentives.
- Ease of deployment – Many businesses have unused real estate (roof/parking areas/land) that could be utilized to install solar and increase value. A solar PV project can be deployed at your business with no or minimal disruption. In addition, the maintenance requirements of these systems is relatively low.
- Price stability – Solar PV provides low cost price stability for the project’s 25–30-year lifespan.
- Clean energy – A solar project undeniably reduces a business’ carbon foot print and positively impacts the environment. This is especially beneficial for businesses interested in managing perception within their communities and customers.
The Section 48 Investment Tax Credit (ITC) is available to help offset the capital cost of solar PV. The ITC is a nonrefundable federal tax credit, meaning the credit is available to offset a taxpayer’s federal income tax liability, but if the credit amount is greater than the taxpayer’s federal income tax liability, a cash refund cannot be obtained for the excess. The unused credit may be carried back one year or carried forward 20 years.
Currently, the ITC is equal to 30 percent of the tax basis of the energy property placed in service during a tax year. The table below shows the tax credit percentage eligibility based on when construction begins and when the property is placed in service.
|Begin construction||Placed in service||Tax credit amount|
|December 31, 2019||December 31, 2024||30%|
|December 31, 2020||December 31, 2024||26%|
|December 31, 2021||After December 31, 2023||22%|
|December 31, 2022||After December 31, 2023||10%|
Accelerated depreciation (MACRS) – In addition to the ITC, the owner of solar PV is eligible to claim tax depreciation deductions. Tax depreciation deductions are determined based on how the property is classified for federal income tax purposes. Generally, most of the solar PV will be classified as a five-year MACRS property. If the solar PV is placed in service before calendar year 2020, it may also be eligible for bonus tax depreciation.
State and local incentives
In addition to the federal incentives, many states, counties, municipalities and utilities offer rebates or other incentives for solar PV. The Database of State Incentives for Renewable Energy provides up-to-date information about current state and local incentives.
Solar PV provides a great opportunity for businesses to significantly reduce energy costs and contribute to a clean future. Various funding mechanisms and incentives are available to help businesses realize the benefits of solar PV systems.
For more information on this topic, or to learn how Baker Tilly energy and utility specialists can help, contact our team.