SOLAR POWER FOR BUSINESSES
Solar power for businesses is becoming commonplace throughout the world. Have you heard of the Renewable Energy 100? Probably not. Also known as the RE 100, it started as a group of 100 large multinational corporations that have committed to procuring 100% of their energy to power global operations from renewables (either wind or solar). The list is now up to 270 companies and counting!
With giant corporations like Apple and Anheuser Busch investing billions in solar to power their businesses, you must be wondering why. It is quite simple. One kilowatt-hour (kWh) of energy produced by solar is cheaper than one kWh of energy produced by burning fossil fuels.
So, how much does it cost to power your business with solar panels?
Well, that all depends on how much energy the business is consuming and how much available roof space or vacant land the business owns that could provide the installation and housing location for the solar panels. Let us look at an example to dig deeper into the numbers.
A California business that has a 25,000 square foot facility can install roughly a 250 KW solar system. This will cost the business around $500,000 for a turnkey solar installation (with no energy storage) that includes all materials, plans, permits, labor, construction, and interconnection to the local utility grid.
Keep in mind that the numbers above reflect the gross contract price for the company to go solar. They do not reflect the substantial tax incentives offered by the Federal government for businesses to go solar.
For example, the 2021 Federal Investment Tax Credit for businesses to go solar is 22%. So, the business would get a Federal tax credit in the amount of $110,000 (meaning it would reduce the taxes the business owes to the IRS by $110,000 on the business’s 2021 tax return). In addition to this Federal tax credit, the business may depreciate 89% of the cost of the equipment on their Federal taxes in year one, and 89% of the cost of the equipment on their California state taxes over 5 years.
The depreciation calculation is as follows: Gross cost of solar and energy storage system x .89 x Corporate tax rate (21%). So, in this example, we take the gross cost of the equipment ($500,000) x .89 x .21 = $93,450 in Federal tax savings!
These savings and the Federal tax credit are all realized in year one! Now, for the California state depreciation schedule, we take the same calculation and use the businesses state tax rate ($500,000 x .89 x California tax rate (10%) = $44,500 in additional tax savings!
The California state tax savings are realized over 5 years. If we take all three incentives ($110,000 Federal tax credit + $93,450 Federal depreciation + $44,500 CA depreciation) we get $247,950 in tax savings!
That means the actual net cost to the business to install this solar system is $252,050, or 50% of the gross contract price! This solar system will save the business about $40,000 per year on energy costs, meaning if we divide the net investment in the solar system ($252,050) by the savings ($40,000), we get a 6.3-year payback period or return on investment (ROI). Of course, this does not factor in the electric utilities increasing rates, so the payback is even shorter. If your business is an LLC, the tax savings will most likely be even higher if you are a high-income earner paying more than 21% in Federal taxes. Please keep in mind that I am not a CPA and I am not giving tax advice.
I am simply sharing an example of a case study of a corporation that I have consulted within California that is in the process of going solar at their corporate headquarters. Please consult with your tax professional regarding any tax incentives for your business!
A solar installation for the Los Angeles Real Estate Company, Industry Partners, for which I consulted.
In the example I used above, I purposely did not include an energy storage system in the project’s financial calculations. Adding an energy storage system to your business solar system will reduce the payback period of the project because it will increase the electricity bill savings from demand charge reductions.
Without getting into the weeds on this topic, businesses pay both energy charges and demand charges, and the solar panels will help reduce energy charges, while the energy storage system will help reduce demand charges. They are both necessary for larger businesses that incur demand charges on their electric bills. Due to the nature of the decreasing California state energy storage rebate program (SGIP), it would be too difficult to explain here what rebates the business would receive from the state for installing an energy storage system. Of course, the added benefit of installing both a solar and energy storage system is the ability to power your business while the grid is down.
Want to get started on powering your business with solar? Get started by emailing us your company’s last 12 months of electric bills, a picture of the electrical switchgear in your facility, and a picture of your facilities’ roof today: info@beachcitiessolarconsulting.com.
