By ArtIn Energy

May 30 – 2024

Invest Smart: How to Choose the Right Commercial Solar Financing

Solar power offers businesses great opportunities to lower operating costs and promote environmental sustainability. It is well known that transitioning to solar energy represents an important investment, especially on a large scale; fortunately, there are multiple financing options and incentives to make the transition possible, profitable, and smoother. 

However, choosing the correct one can feel overwhelming with many financing options available for commercial solar projects.

The most popular financing methods companies can choose are:

• Power Purchase Agreements (PPAs), where companies can rent their rooftop or any other available space to a solar provider.
  
  
• Solar loans and leases.
  
  
•  Property Assessed Clean Energy (PACE) allows businesses to finance solar projects through special tax assessments added to their property tax bills. 
• Energy Service Agreements (ESAs) combine the installation and maintenance of solar systems in one financing package.

We’ve created this comprehensive guide to help you understand all commercial solar financing options. We’ll thoroughly break down the advantages and disadvantages of the methods mentioned and equip you with the information you need to make an informed decision about transitioning to solar energy and reaping its benefits for your company. 

At ArtIn Energy, we’re your trusted partner in commercial solar solutions. Our goal is to provide the latest technology in solar systems and guide companies like yours through every step of the process, including finding the perfect financing solution for your unique business needs. 

By the end of this guide, you’ll feel well-prepared and confident in your understanding of solar energy’s financial aspects. If you have questions or want to discuss how your company can adopt solar energy, contact us. We’ll be happy to help you. 

How Are Commercial Solar Projects Financed? 

Understanding the multiple financing options for commercial solar panels is critical for making an informed decision about your company’s project. Here’s a breakdown of the most popular financing methods available:

Power Purchase Agreement (PPA) (On-Site & Off-Site)

A Power Purchase Agreement (PPA) offers an opportunity to significantly

reduce the electricity bill without a major investment. With a PPA, companies can essentially rent out a portion of their rooftop or land to a solar developer. 

At ArtIn Energy, we provide PPA services; so we install, own, and maintain the solar system, and your company purchases the electricity it generates at a predetermined rate over a long-term contract, typically around 15-25 years.

PPAs are one of the most popular financing options for commercial solar projects, particularly for businesses that want to prioritize immediate cost savings and minimal upfront investment. This approach allows companies to benefit from solar energy without disrupting their cash flow. 

The predictable electricity rates offered through PPAs also provide budget certainty over the long-term contract period. While PPAs come with trade-offs like limited ownership benefits, their simplicity, and minimal upfront costs make them an attractive option for many businesses considering the transition to solar power.

PPAs offer two deployment options – on-site and off-site: 

On-Site PPA: The solar system is installed directly on the company’s property, potentially on the rooftop, parking lot, or available land. The company buys clean energy produced to the system’s owner, reducing reliance on the grid. 

Off-Site PPA: In this case, the system isn’t located on the company’s property but on a facility owned by the developer. Businesses can purchase the electricity the off-site system generates through a virtual net metering arrangement, which technically works like paying for conventional energy but with the benefits of clean power. This option can be ideal for companies with limited space. 

Pros And Cons Of PPAs To Consider:

Pros:

• No upfront costs: The developer fronts the installation investment.
• Predictable energy costs: Locked-in rates provide budget certainty over the contract term.
• Minimal maintenance responsibility: The developer handles system maintenance and repairs.

Cons:

• Limited ownership benefits: Your company doesn’t own the system, so it doesn’t qualify for commercial solar tax credits. 

We design customized PPAs to meet your business’s specific needs and goals. Our team will clearly explain all contract terms related to ownership, maintenance, and potential tax benefits to ensure you make informed decisions for your company. 

Commercial Solar Loan

A commercial solar loan allows your business to borrow money from a bank or lending institution to cover the total cost of purchasing and installing a solar system on your property. 

This type of loan covers a significant percentage of the total system cost, usually around 80%. A down payment requirement ranging from 10% to 20% of the total system cost might be required. This down payment represents the initial investment in the project, and the specific percentage will depend on your company’s financial strength and the lender’s requirements.

Commercial solar loans can be a powerful tool to achieve excellent commercial solar ROI (returns on investment) and solar IRR (internal rate of return) for your business since they spread the cost of the system over several years, minimizing the upfront investment impact on your cash flow. 

This can be particularly beneficial for businesses seeking to maximize their current working capital.

Pros:

• Ownership and Tax Credits: Your company owns the solar system and can claim valuable federal and state tax credits associated with solar ownership.
• Increased Property Value: A solar system can enhance the value of your commercial property.
• Control Over Energy Production: Your company directly benefits from the clean energy the system generates over its lifetime.

Cons:

• Upfront Investment: There will still be an initial down payment, and your company will be responsible for the loan repayment during the term.
• Operation and Maintenance Costs: You are responsible for the ongoing operation and maintenance of the solar system.

At ArtIn Energy, we have extensive experience working with lenders to secure competitive financing rates for our commercial clients. We’ll guide you through the entire loan process to ensure a smooth transition to solar power.

Commercial Solar Lease

This financing option allows your business to partner with a solar provider who owns, installs, and maintains the solar system on your company’s property. You then pay the provider a fixed monthly lease fee over a predetermined term, usually ranging from 10 to 20 years.

Commercial solar leases can be an attractive option for businesses seeking the benefits of solar power with minimal upfront costs and low maintenance responsibilities. 

Pros:

• Minimal Upfront Investment: There’s little to no down payment required, preserving your working capital.
• Simplified Maintenance: The provider handles all maintenance and repairs during the lease term.
• Predictable Costs: Fixed monthly lease payments provide budget certainty throughout the lease period.

Cons:

• Limited Ownership Benefits: As your company doesn’t own the system, it doesn’t qualify for tax credits associated with ownership.
• Potentially Higher Long-Term Costs: Lease payments may be higher than the cost of purchasing the system with a loan over the long term.
• Limited Flexibility: You’re locked into the lease agreement and may not be able to modify the system during the term.

Differences Between PPAs And Commercial Solar Leases 

The concepts of commercial solar leases and on-site PPAs can seem very similar since, in both cases, the company is using a solar system that belongs to the provider and paying a monthly fee for it. 

The main difference between these two financial methods is that with PPAs, the company pays for the electricity generated by the solar system, which means that the monthly fee can vary depending on how much electricity is generated. Also, depending on the agreement, some PPAs can transfer ownership to you at the end of the contract term.

For commercial solar leases, the payment is not related to energy production, so the monthly fee will always be the same. In this method, the provider owns the solar system, and there are no transfer opportunities. 

Energy Service Agreement (ESA)

An Energy Service Agreement (ESA) is an all-inclusive financing approach for commercial solar projects. It combines several services offered by independent companies into a single contract with an ESA provider. 

All services in an ESA:

• Project Development: The ESA provider handles all aspects of planning and designing the commercial solar system, tailoring it to your company’s specific energy needs.
• Financing: The ESA provider secures financing for the entire project cost. This can include debt financing through loans or equity financing from investors brought in by the ESA provider.
• System Installation: The ESA provider manages the installation process, ensuring the system is installed correctly and following all safety regulations.
• Operation and Maintenance (O&M): The ESA provider handles all ongoing solar system maintenance and repairs throughout the contract term, generally around 10-20 years. This includes routine cleaning, performance monitoring, and rectifying any issues that may arise.

Pros:

• Simplified Process: ESAs offer a hassle-free approach that combines all services into one contract. You don’t need to negotiate with multiple companies for financing, design, installation, and maintenance.
• Reduced Upfront Costs: Like leases and PPAs, ESAs often require minimal upfront investment from your business. The ESA provider fronts the costs associated with design, installation, and financing.
• Guaranteed Performance: Some ESAs come with performance guarantees. This means the ESA provider ensures the system generates a predetermined amount of energy output. If the system underperforms, the ESA provider is responsible for taking corrective measures at their own cost.

Cons:

• Limited Ownership: Like leases and PPAs, your company typically doesn’t own the solar system under an ESA. This means it won’t qualify for tax credits and government incentives. 
• Contract Lock-in: ESAs are long-term agreements (10-20 years). It is important to carefully review the contract terms to ensure the agreed-upon rates remain competitive over the extended period.
• Potential for Higher Costs: The combined services offered in an ESA may be slightly more expensive than separately negotiating financing, installation, and maintenance.

Property Assessed Clean Energy (PACE) 

Property Assessed Clean Energy (PACE) is a unique financing method specifically designed to fund energy efficiency upgrades and renewable energy projects on commercial and residential properties. PACE programs are enabled through state legislation and then authorized at the local government level. 

If your property is located in an area with an active PACE program, you can apply for financing to cover the cost of approved clean energy improvements like solar panels, energy-efficient windows, and HVAC upgrades. 

Depending on the program, the cost of the improvements could become a special assessment added to your property tax bill. Your company then repays the loan (including interest) over a term of around 10 to 20 years through property taxes.

Key characteristics of PACE financing:

• Spreading the Cost: Similar to a mortgage, PACE allows you to spread the cost of clean energy improvements over a long period of time, making them more affordable upfront.
• Property Tax Lien: The loan is secured by a lien placed on your property. This means if your companies fail to make payments, the lien could lead to foreclosure. It’s crucial to carefully consider the long-term financial commitment before opting for PACE financing.
• Increased Property Value: Energy-efficient upgrades and solar panels can potentially increase your property value, offering long-term benefits beyond energy cost savings.

Pros:

• 100% Financing: PACE programs can potentially cover the entire cost of your solar energy project.
• No Money Down: PACE financing often requires no down payment.
• Long-Term Repayment: The extended repayment term makes monthly payments more manageable, maximizing solar ROI and IRR. 

Cons:

• Property Tax Lien: The lien on your property can pose a risk if you struggle to make payments in the future. 
• Program Availability: Not all locations have active PACE programs.
• Higher Interest Rates: Interest rates on PACE loans can be higher than those on traditional home improvement loans or commercial solar loans.

How To Identify The Best Financial Option For Your Solar Project

Choosing the ideal financing option for your commercial solar project requires careful consideration of several factors. Here’s a table to help you compare the methods mentioned above: 

Additional Considerations:

• Project Size and Cost: Larger projects might benefit more from loan financing due to economies of scale, while smaller projects could be well-suited for leases or PPAs.
  
  
• Tax Incentives: It’s always important to consider the availability and value of tax credits associated with solar system ownership.

Looking For Finance Options For Your Solar Project? Partner With ArtIn Energy

Transitioning your business to solar energy is a smart decision for the environment and your bottom line. However, navigating the various financing options can seem complex. That’s where ArtIn Energy can help you every step of the way.

Benefits of Partnering with ArtIn Energy:

High-Quality, In-House Manufactured Solar Solutions: We use the latest technology available to ensure you receive the most reliable and efficient solar energy solutions. This guarantees optimal performance and maximizes your long-term energy production.

Extensive Financing Expertise: Our team of solar financing specialists deeply understands all available financing options. 

Custom Solution for Your Business: We don’t offer a one-size-fits-all approach. We carefully analyze your company’s energy needs, budget, and financial goals to recommend the most cost-effective financing solution for your specific project. 

Explore the solar projects we’ve developed all over the world for companies like yours. 

Streamlined Process: We guide you through the complexities of financing your solar project, from identifying the best option to securing approval with favorable terms. Our team streamlines the entire process to save you time and effort.

Proven ROI and IRR: Our custom-designed solar solutions are built to deliver a high ROI and IRR, achieving an impressive 23% IRR on our solar projects. This means your investment in solar energy can pay for itself in a short timeframe while generating significant cost savings for years to come.

Long-Term Partnership: After installing your solar system, we remain your trusted partner throughout the project lifecycle, providing ongoing support and maintenance services.

At ArtIn Energy, we want to be your one-stop shop for all your company’s transition to solar energy. Contact us today to schedule a consultation and let our experts guide you toward a brighter solar future for your business!