There are many ways to invest in, and profit from, solar energy. As the prices of solar panels continue to fall, here are five strategies that you can pursue either separately, or together, for even greater profit.
Pennies per Watt
The U.S. solar industry recorded its biggest year ever in 2016 with record breaking growth across dozens of states. The cost of solar panels is now a matter of pennies per watt, not dollars per watt…
Despite a few clouds on the political horizon, the future of solar energy is bright… Indeed, the Solar Energy Industries Association (SEIA) predicts that the U.S. solar industry will triple in size over the next five years.
This results in many ways for you to profit from solar energy.
5 Ways to Profit From Solar Energy
The following are five ways for you to profit from solar energy… You can use these strategies separately or combine tax incentives and renewable energy financing options together for even greater incremental profit.
First of all, if you own a solar system, you profit from solar energy by taking advantage of Renewable Energy Certificates (RECs).
RECs are tradable commodities that represent 1 megawatt-hour of green energy.
Certain states require a portion of their electricity to come from renewable “green” energy sources. In these states, as a solar system owner, you can enter into an agreement to sell your solar energy RECs directly to your utility, for a profit.
REC pricing and laws vary from state to state. For example, if you own a commercial building with solar energy in Connecticut you can sign an agreement with Eversource, and Eversource agrees to pay you a fixed price for each megawatt of green energy produced for 15 years.
Furthermore, one of the best things about RECs is that you get a double benefit… You get paid for your RECs and you also get to use the electricity produced by your solar system. As a result, having solar on your building gets you free electricity from the sun, and a check from your utility every quarter!
You profit from solar energy by using CPACE as a tool for adding value to commercial real estate.
Short for “Commercial Property Assessed Clean Energy”, CPACE is a commercial financing program for solar energy and energy efficiency projects.
CPACE allows you to invest in solar energy and get 100% up front financing to pay for it. You also profit from CPACE by using it to upgrade your buildings and make them more efficient and comfortable for tenants.
When executed correctly, CPACE generates incremental operating profit (NOI).
CPACE loans have amortization payments that are spread over a long period of time, much longer than a conventional business loan (up to 25 years)… This results in a reduction in each of your principal and interest (P&I) payments. Your P&I is paid along with your local property tax payments.
You deduct the CPACE loan payments as you would with your property tax payments.
CPACE programs vary from state to state… However, the most reputable CPACE programs use a Savings to Investment Ratio (SIR) in their loan underwriting process. An SIR reduces risk and stipulates that your CPACE loan will save more in energy costs, than it costs you in principal and interest payments.
Therefore, CPACE is a beautiful thing because it combines energy savings with competitive interest rates and affordable, long term amortization… Consequently, building improvement projects generate positive cash flow immediately!
You can use CPACE to invest in solar energy systems and other energy efficiency related capital expenditures. CPACE investments include solar energy, oil to natural gas conversions, HVAC upgrades, LED lighting retrofits, insulation, boilers, chillers, controls, building envelope improvements and more.
Find out if CPACE is available in your state here.
3) Solar Investment Tax Credit (SITC):
You profit from solar energy by taking advantage of the Solar Investment Tax Credit (SITC). The SITC provides a 30% federal tax credit on the total cost of a solar system.
The SITC is a dollar for dollar reduction in the income taxes that you or your company would otherwise pay the federal government.
You receive the 30% SITC as long as construction on your solar system starts by 12/31/2019. Thereafter, the solar investment tax credit drops to 26% in 2020 and 22% in 2021, respectively.
Your solar project must be completed by 12/31/2024 to receive the benefit of the solar investment tax credit.
In addition, you profit from solar energy by using a special depreciation rule to save more money on your taxes.
When you make a significant building improvement, the IRS normally requires depreciation over an asset’s normal useful life, which is 20-25 years for a solar system.
But you can use the Modified Accelerated Cost Recovery System (MACRS) rule to deduct the cost of your solar system over only five (5) years.
Therefore, MACRS reduces your taxable income sooner rather than later.
Your taxable income is reduced by the amount of the deduction multiplied by your tax rate. For example, if your solar system cost $50,000 and you depreciate $10,000 worth of your solar system in year one, and your tax rate was 35%, you would deduct $3,500 from your taxable income in that year.
The MACRS IRS rule is here. Your accountant will advise you on the details.
5) Become a Micro-Utility
Finally, you profit from solar energy by becoming a “micro-utility”.
A micro-utility is also known as a Power Purchase Agreement (PPA). A PPA provides you with several economic benefits and offers multiple streams of passive income over time.
In a PPA, you put up the money for a solar photovoltaic system and install it on someone else’s property. The solar system is installed on someone else’s property or building, but you own it… The building or land owner agrees to buy the electricity your solar system produces for a long period of time, usually 20 years.
The land or building owner benefits from the PPA because of the predictable and reduced cost of electricity over 20 years. This reduces volatility with energy prices, and the rate should be lower than what they would receive from their local utility. They also get the intangible marketing benefits of using green energy.
Again, as a micro-utility, you own the solar system. You receive electricity payments every month based on how much electricity your system produces for your customer.
Acting as the system owner, you benefit from the 30% tax credit from the federal government, described above and the MACRS depreciation. If there are RECs available in your state, you get those payments too.
In conclusion, solar energy saves you money and reduces economic risk.
You can profit from solar energy by pursuing any of these above strategies separately, or combine them together for even greater benefit.
And depending on where you live, state level incentives may also apply. Check the Database of State Incentives for Renewables and Efficiency (DSIREUSA) for other potential incentives here.